The Betfair Prof / Leighton Vaughan Williams / 06 June 2008 /

The Betfair Prof takes a look back at how the campaign was lost and how accurate the Betfair prediction market has been over the course of the campaign...

(Click on the picture above to see a full sized and annotated graph showing how the campaign was lost)

I guess when the dust has settled, and the story told of how the Democratic nomination was won and lost, the consensus will be that the Clinton campaign fought the battle by the wrong rules. To put this into perspective, Hillary Clinton would have easily won the delegate count according to the rules by which the Presidential general election is staged, i.e. the allocation of all the electoral votes of a state to the candidate who wins that state, on a winner-take-all basis. On this basis, the former First Lady's victories in the populous states (with the most electoral votes) of, for example, California, New York, Ohio and Texas, would have swept away the deluge of smaller-state wins notched up by Senator Obama across the country.

In part, this big-state strategy was forced upon the Clinton campaign by her superior strength in the voting blocs making up these states. In part, it was because the campaign team were convinced that Obama could not survive the big 'Super Tuesday' showdown of more than 20 states voting simultaneously. Most critically, however, it was the consequence of a campaign which seemed blinkered to the fact that the delegate count was actually allocated on close to a proportional basis of the votes cast in each individual state, whether small medium or large.

It's not that they didn't know the rules. That much is obvious. The problem, however, was almost as bad. It was that they acted as if they didn't know the rules. The outcome, of course, is just the same. Eventually they did get wise to what was happening and started targeting resources into the smaller states, with no little success. By then, however, it was too late.

That's the story of success and failure, in a nutshell. So how well did the Betfair prediction markets do in spotting the way the wind was blowing? The answer, at least in the early stages, is that they were much better at reacting to and assimilating the emerging information than they were in predicting the eventual outcome.

To see this we should perhaps go back to New Year's Day, when Barack Obama was trading at [3.94] and Hillary Clinton at [1.47]. It was the extent of Mr. Obama's win in the Iowa caucuses that caused a re-evaluation by the markets of the prevailing orthodoxy, closely followed by a further re-evaluation following Mrs. Clinton's shock comeback a handful of days later in New Hampshire.

It was Super Tuesday that was to prove the key test for the ability of the markets to assimilate a torrent of new information, however. History has since been re-written, but initial reaction by independent political pundits to the results coming out on Tuesday 5th February was quite favourable to Senator Clinton. It was not that she didn't do well; the problem was that she didn't do well enough to offset the upcoming votes in the smaller states. It took a little time for all the emerging information to settle into the markets, including some breaking news just after the election on the respective campaign finances of the opposing camps, but within 48 hours the Illinois Senator was solid favourite.

He was never to lose that edge, and nor were the markets.

Professor Leighton Vaughan Williams is the Director of the Political Forecasting Unit and Betting Research Unit of Nottingham Business School, Nottingham Trent University, and Editor of the Journal of Prediction Markets

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