Political markets betting on Thune
By: Kasie Hunt
November 30, 2010 04:38 AM EST
He barely registers in polls, but there’s a lot of smart money betting on Sen. John Thune for Republican presidential nominee in 2012.
In a Quinnipiac University poll out Monday, just 2 percent of likely Republican voters said they support the South Dakota senator. That places him at the bottom of the field, tied for seventh place with Mississippi Gov. Haley Barbour. A Gallup Poll earlier in November had Thune in eighth place, also with 2 percent.
But on two of the three major political exchanges — markets in which users bet on or buy stocklike futures contracts for candidates they think will win the GOP nomination — Thune ranks third, behind only Mitt Romney and Sarah Palin. Investors think he’s almost twice as likely to win it as the fourth-place contender, former Arkansas Gov. Mike Huckabee.
Not bad for a largely unknown small-state legislator just finishing his first term.
“Polls reflect the current state of knowledge of the electorate, where things like name recognition are a huge issue. But there are people you feel will run a strong campaign, and name recognition won’t be a problem come 2012, so it’s not uncommon to see a very large divergence a long way out between polls and markets,” said Justin Wolfers, an economist at the University of Pennsylvania’s Wharton School of Business who has extensively studied political markets.
While his nationwide name recognition is low and he lacks the executive experience of many of his prospective presidential competitors, Thune benefits from a reservoir of goodwill among Republicans who fondly remember his victory over Senate Minority Leader Tom Daschle in 2004, the first time in more than a half-century that a Senate leader lost reelection.
“Thune is young, good-looking, politically successful, managed to defeat an incumbent Democratic minority leader, looks like a giant killer,” said Dennis Goldford, a political scientist at Drake University in Des Moines, Iowa.
Thune has another advantage that some think may appeal to speculators who aren’t as plugged in to Washington: He looks like a president.
“There is a whole body of literature that says snap judgments matter,” Wolfers said. “If you show people 30-second clips of candidates with the volume off on TV, you can do a better job forecasting the outcome than you can if you know the state of the economy. Looking presidential is important.”
But there could be another reason to explain Thune’s third-place spot: The other candidates at the top of the very crowded field have been on the scene longer, and their flaws are better known.
“I suspect that Thune ranks as highly as he does because many knowledgeable observers are not convinced that the more established candidates can sustain a winning message and take the nomination,” said the University of Missouri’s Peverill Squire, a former University of Iowa political scientist who closely followed the school’s electronic market. “Thune is untested on the national stage, but he is an attractive candidate with no known warts. I think he represents a ‘rest-of-the-field’ wager, a bet many observers are willing to make at the moment.”
There are two major exchanges where informed users can buy presidential candidate futures: Intrade, based in Dublin, and the Iowa Electronic Markets, an online market operated by the University of Iowa in which contract payoffs are based on real-world events such as political outcomes. On Betfair, a London-based company that primarily deals with sports betting and casino games, users can bet on who will win.
While there are other betting sites, including Sportsbook and Paddy Power, Wolfers cited Betfair and Intrade as those with the highest volume and most attention, respectively. The Iowa market is also important because it’s been tracking predictions since the 1988 presidential contest — and has an impressive record of accuracy.
On Intrade, Romney, the former Massachusetts governor, is currently the runaway favorite: On Wednesday, his contract cost approximately 22 cents. The contract’s payout is $1 per share, so anyone who buys it at this price would win about 78 cents.
A very close second is Palin, at about 19 cents. Thune is third at about 13 cents, and Huckabee shares fourth place, at about 7 cents, with Minnesota Gov. Tim Pawlenty.
On Betfair, Romney has the best odds — 29-5, or about a 19.5 percent chance of winning — followed by Palin, with a 17 percent chance, and Thune, with a 12.5 percent chance.
The exchange based in Iowa — where actual voters will determine the nation’s first caucus winner — hasn’t yet opened its markets for 2012.
The markets typically reflect conventional wisdom: In February 2007, for example, then-Sen. Hillary Clinton was Intrade investors’ runaway favorite to win the 2008 Democratic nomination for president. She had an estimated 50 percent chance of winning the nod, according to a New York Times story that month, more than twice as high as any other candidate.
Sen. John McCain was the favorite to win the Republican nod, and he ultimately did. But second in February 2007 was former New York City Mayor Rudy Giuliani, whose campaign quickly flamed out.
The explanation: Political markets collect all available information and convert it into a numerical judgment. If the information is bad, the prediction will be bad, too.
“A market is aggregating information. The aggregation of a whole bunch of nonsense is still nonsense,” Wolfers said.
The current 2012 wild card is, of course, Palin. While the markets currently have her in second place, there is great uncertainty as to her plans — and her decision making and possible campaign structure are so opaque that the markets don’t necessarily have enough information to make an informed decision.
But on the whole, studies have shown that the political markets are more accurate than aggregate polling. Thomas Rietz, a University of Iowa professor who follows the school’s Iowa Electronic Markets closely, worked on a study that showed they outperformed aggregate polling about 75 percent of the time — and outperformed very early polls by an even better margin. In August 2004, for example, polls showed Massachusetts Sen. John Kerry winning the presidential election. The markets were betting on President George W. Bush.
“Earlier in the election process, both the polls and the markets have inaccuracies. But the polls deteriorate faster, so in relative terms, the markets are better,” said Rietz.
Economists like Wolfers offer several explanations for why markets might be more accurate than polls, particularly in primaries. Polls, for example, have to decide how to word questions that can affect answers. In primaries, polls don’t always account for caucus systems or the role of party leaders in determining the outcome. Polls ask respondents whom they want to win, not who they think will win.
And poll respondents don’t have the same incentive as market participants to answer honestly; there’s no money on the line.
The takeaway: Thune’s third-place standing might be more accurate than the polls that show him at the bottom of the field.
© 2010 Capitol News Company, LLC
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I'm not patting myself on the back or anything, but I have called Thune well before even the news has been propping his name into these stories.
He is the perfect GOP candidate for 2012.
