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Reading the tea leaves

January 6th, 2008

Obama’s win in Iowa was quite impressive for two reasons: it is important and it was indeed unexpected. On Intrade.com’s prediction market, Obama implicit probability of capturing the nomination jumped from below 20 percent on January 1 to 64 percent after the Iowa caucus. See the huge spike in this graph of Obama’s prospects over the last month:
In comparison, Huckabee’s prospects went down on Intrade with his victory. Apparently, he did not do as well as expected. See the chart here:
According to Intrade, Obama has about a 90 percent chance of winning New Hampshire and South Carolina (separately) and about an 80 percent chance of winning them both. So, the market shouldn’t move much if Obama actually wins those states, because his chance of capturing the nomination already includes a high expectation that he’ll win in those states.

It is also interesting how little “bandwagon effects” that are baked into these probabilities. The market is giving Clinton and Edwards a pretty good shot at dethroning Obama on Super Tuesday even in the high likelihood of Obama running the board on the early primaries.

I guess it really has been one of those elections that is too close for anyone to call, and several more opportunities for candidates to shake things up again.

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