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The silent dog of the prediction markets, and what Donald Trump needs to do

By Daniel M. Ryan
web posted March 7, 2016

Disclosures: Back in the fall, I made an even-odds gentleman's bet with my dad about Donald Trump: I bet that Mr. Trump will win the Republican nomination. Also, for my Open-Auditing Prediction Market Shadowing project which uses the Horizon cryptocurrency, the only transactions above test level oblige me to pay out 10,000 Horizon if Donald Trump does not win the Republican nomination. So if you're focusing on my "concern," the above disclosures can suffice to explain why I'm "concerned."

As part of the rediscovery of the power of markets, prediction markets have become the go-to source for new research for scrying out the odds of future events. PredictWise, an independent research project headed up by Dr. David Rothschild, uses prediction-market data as well as bookie odds plus polling data to generate implied odds for predictions. For this chaotic election season, PredictWise offers three relevant categories: 2016 President - Republican Nomination, 2016 President - Democratic Nomination and 2016 President - Winner.

This article points out a disconnect between two categories, which Trump supporters should be aware of. Although he is the favourite to win the Republican nomination, he and the Republican party are far from the favourite to win the Presidency.

Now, it is true that prediction markets are markets. They have the same foibles of asset markets period. They do not have any oracular magic. Their virtue is that they adjust better to changing circumstances than do individual forecasters or pundits. The wisdom of crowds is real but not infallible.

In fact, Donald Trump's implied odds for the Pubbie nomination show those market foibles most strikingly:

PredictWise chart

As recently as the New Year, the prediction-market punters were oblivious to the bullet nature of the Trump Train. Their skepticism wore off as Mr. Trump's implied odds rose to slightly above even by the end of January. But, their newfound belief was strikingly thin. On Feb, 1st, when Ted Cruz won Iowa, there was an all-out crash in Trump's implied odds - back to levels not seen since late 2015! Clearly, the punters hadn't shaken off their skittishness. The earlier rise had been driven by a combination of adulation and FOMO.When Sen Cruz came first in Iowa, there was a scramble into the Rubio contract - which proved later to be a bubble. Shortly before Mr. Trump won New Hampshire, the Trump bull recovered. The bubble buyers who plunged into the Rubio contract found themselves holding a shrinking bag.

Even now, with the post-Super-Tuesday angst and widespread talk about a brokered convention, Donald Trump is still comfortably the favourite. Even after the post-Super-Tuesday letdown, his implied odds fell to about 70%. Clearly, the punters have shaken off most of their skepticism about the Trump Train. As adverted, the market has adjusted to an increasingly evident reality.

Except for one glaringly static board. Namely, which party will win the Presidency in November:

PredictWise chart 2

The red line you see is not for the Republican party. It's for the Democrat party. The exact same party that's all-but certain to nominate "Benghazi Hillary" for the election. Incredibly, the 2016 Presidential Election - Winner (Individual) table on that same page gives a higher derived market price for Hillary Clinton to win the Presidency than the derived price for the Democrat party! Her implied odds, as of the time of this writing, are 66%. Donald Trump's are only 20%.

Now, this lopsidedness could be explained as the same old stubbornness - the same slowness to adapt - that kept the Donald Trump Republican  nomination contract in the 20s until last New Year's. It could be that Mr. Trump is being underestimated yet again. The punters could be focusing too much on the "revolt of the élites" disarray in the Republican party while paying too little attention to the disarray of the Democrats. Fact is, more than a few BernieBros have vowed to sit out the election instead of voting for Hillary!. Over in Democratic Underground's General Discussion board, there's real, palpable fear that Donald Trump will win the Republican nomination and square off against Clinton. Yes: there's fear that a Trump/Clinton election will result in a Republican wipeout like 1980 or even 1972. But for whatever reason, the punters have taken little to no notice of these fissures in the Democrat ranks.

If this disconnect is due to the same old slow-to-grasp inflexibility that the punters showed a few months ago, then the "Donald Trump will win the 2016 Presidency" contract is a screaming buy.

There is reason to think so. Sure, The Donald's unfavourables are well above 50% - but so are Hillary's. Mr. Trump has the Trump University scandal currently hanging over his head, but former Secretary of State Clinton is at real risk of being indicted for mishandling classified documents - for irresponsibility far more damaging that the convicted Gen. Petraeus'.

True, The Donald's controversial statements make him quite vulnerable to Dem attack ads in the general. But as the above-mentioned DUers' fear indicates, Hillary is very vulnerable herself.

As of now, all that can be said is that a Trump/Clinton square-off in the general election is going to be the most brutal campaign in decades. The attack-ad mavens of both parties could spend a billion each and not run out of material.

So it could well be that the handicappers are slow to realize just how vulnerable Hillary is. But what if they're not? What if the wisdom-of-crowds is correct this time? What if the punters have sized up the revolt-of-the-Republican-élites as a reprise of 1964, with Donald Trump as a stand-in for Barry Goldwater? Are they really anticipating the DNC airing a killer ad like the notorious Johnson-campaign "bomb" ad?

If so, then there's still enough time for the Trump campaign to build up a sturdy defense. Mr. Trump has already pivoted, with his supporters' near-unanimous approval. He can pivot again

Based upon this New York Times article, "Inside the Clinton Team's Plan to Defeat Donald Trump," the DNC's attack-ad blitz is going to center on Mr. Trump's purported misogyny. Portraying him as anti-Hispanic won't work all that well; nor will depicting him as racist. The bulk of Hispanics and blacks are going to stay on the Dem plantation anyway; those that don't are provably immune to this angle. More than one African-American supporter of Trump has said on camera that the KKK flap is a non-issue. To the Hispanic and black supporters of Mr. Trump, he's very much the "Teflon Don." Attacking Mr. Trump in these ways simply won't net enough gains, particularly in an election season where lots of folks are openly fed up with SJW-type shaming.

But the misogyny angle does have the potential to reap real gains for the Dems. Over and above the fact that women are about 50% of the electorate, not 12% or 16%, the Dems have noticed that Trump's attacks on Carly Fiorina and even Megyn Kelly have boomeranged on him somewhat. His similar attacks on males have not boomeranged.

Since women are his most vulnerable demographic, the Trump campaign would be wise to take pre-emptive action. Not just by highlighting Mr. Trump's proven record of promoting women to high positions of responsibility long before his competitors did so. If the Trump team is nimble enough, they could pre-emptively spin his apparent misogyny as proof positive that he respects women far more than so-called white knights do. He's hard on them because he does not see them as fragile snowflakes.

He can also reach into the treasury of Ronald Reagan's speeches. Look at the first three paragraphs of President Reagan's 1980 acceptance speech:

With a deep awareness of the responsibility conferred by your trust, I accept your nomination for the presidency of the United States. I do so with deep gratitude, and I think also I might interject on behalf of all of us, our thanks to Detroit and the people of Michigan and to this city for the warm hospitality they have shown. And I thank you for your wholehearted response to my recommendation in regard to George Bush as a candidate for vice president.

I am very proud of our party tonight. This convention has shown to all America a party united, with positive programs for solving the nation's problems; a party ready to build a new consensus with all those across the land who share a community of values embodied in these words: family, work, neighborhood, peace and freedom.

I know we have had a quarrel or two, but only as to the method of attaining a goal. There was no argument about the goal. As president, I will establish a liaison with the 50 governors to encourage them to eliminate, where it exists, discrimination against women. I will monitor federal laws to insure their implementation and to add statutes if they are needed.

Did you see what he did there? His first political promise in his speech was: "As president, I will establish a liaison with the 50 governors to encourage them to eliminate, where it exists, discrimination against women. I will monitor federal laws to insure their implementation and to add statutes if they are needed." Imagine these exact words broadcast in a series of "defense ads." After that blitz, no open-minded woman would believe that Roanldus Magnus was a sexist.

If Donald Trump can give a similar speech centered around his proven track record, and show the eloquence deployed by Ronald Reagan, clips from that speech would prove to be a moat of pre-emptive defence ads  that would make a Democrat "misogyny bomb" a dud. ESR

Daniel M. Ryan, as Nxtblg, is shepherding the independently-run Open Audi Initiative Prediction Market Shadowing Project. He has stubbornly assumed all the responsibility and blame for the workings and outcome of the project.





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