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Election Projection 2006: What the Markets Tell Us

14th Nov 2006, 01:52 GMT

With the U.S. mid-term elections coming into the final stretch, crowd intelligence tells us that the Republicans will lose control of the House, but retain control of the Senate. As of Saturday night, the betting markets on overseas-based Tradesports.com were predicting that a GOP-controlled Senate has a 69 percent chance of occurring (down from 79 percent odds earlier in October), but a GOP-controlled House only a 21 percent chance. For some of the tightest Senatorial races, Tradesports.com is predicting Democratic wins in Ohio (93% chance), Montana (64%), Missouri (53%), Pennsylvania (91%), and Virginia (55%), while the Republicans will most likely keep Arizona (87% chance) and Tennessee (84%). The Iowa Electronic Markets is also predicting that the most likely outcome is a Republican-controlled Senate and Democrat-controlled House. In the chart below, the black line represents a Dem House and GOP Senate (the red line is the odds of a GOP sweep of both houses, the green line is a GOP House and a Dem Senate, and the blue line is a Dem sweep). Interestingly, the chances of a Dem sweep, while only about 30 percent, are still now higher than that of a Republican sweep. BizPredict also shows the Dems winning the House. But then again, that's what all the polls say too. So is this the wisdom of crowds at work, or are all the traders in these markets simply reading the newspapers? Update: So the markets called the House but were not smart enough to call the Senate, which also went to the Dems. Now, purists will say the markets did not get it wrong, they just predicted the Dems winning both houses had a low probability of occurring. But something with a 30 percent chance of happening is still possible, even it is not the most likely outcome. Anyway, the close races are always the hardest to predict. And on an individual race by race basis, the markets seemed to hold up pretty well.

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