Voting has opened across the US in what will likely be remembered as the most contentious off-year election in recent history. Already, early voting has seen a massive increase compared with 2014, with the number of early voters climbing more than 50% to a staggering 36 million this cycle. As donors have poured a record $5 billion into the race, the market's "base case" is that Democrats will wrest back control of the House, while the GOP will pick up a handful of Senate seats and expand its slim 51-49 majority by as many as four votes.
Despite the best efforts of grassroots progressives (who have been aided by a heavy turnout among 'Democratic socialist' organizers), the polls narrowed significantly in October as Republican candidates eroded the Democrats' lead. In the latest round of polls, one mainstream pollster (Rasmussen, the same firm that predicted Trump's victory), notably projected a win for the Republicans.
However, while pundits like 538's Nate Silver have continued to place Democrats' odds of winning the House at north of 85%, online betting markets are seeing the odds more heavily skewed in the GOP's favor.
Thread. Note that prediction markets have Democrats' chances of taking the House *much lower* - about 68% per @DavMicRot @PredictWise: https://t.co/pG1n7XshZk. People with $ on the line don't think it's at all a sure thing or anywhere close. https://t.co/Ne47BqhovB— Brendan Nyhan (@BrendanNyhan) November 5, 2018
And while the professional pundits might be eager to dismiss these numbers as the work of amateur cranks, as currency traders who were on the losing side of the short-cable trade ahead of the 2016 Brexit referendum probably remember all too well, the wisdom of crowds can sometimes trump the wisdom of professional statisticians.
Unsurprisingly, some professional pundits, with their egos still bruised from their string of embarrassing failures in 2016, took umbrage at the suggestion that Predictit's odds might be a better indicator of voters' sentiment than their sophisticated polling methodology.
In response to the tweet above from @BrendanNyhan, Nate Silver unleashed a tired about why Predictit's numbers are ill-informed and based on the "dumb" impulses of Republican-loving day traders. People with "real money" - ie hedge funds - would never rely on Predictit's data (because, as even the casual consumer of financial media is no doubt aware, hedge funds have historically been great at generating alpha for their clients).
The overall price on D House chances at PredictIt dropped by 4 percentage points this morning after the Rasmussen generic ballot poll came out. That's... not something that would happen in a market where skilled traders prevailed.— Nate Silver (@NateSilver538) November 6, 2018
I'm not sure why we're supposed to default toward caring about these markets? A lot of them are poorly structured. They don't have a great track record, especially when they deviate from models. People with real money to bet (e.g. hedge funds) would not use PredictIt for it.— Nate Silver (@NateSilver538) November 6, 2018
Put another way, I feel good about the 6-in-7 (~85%) chance our model gives Dems. We deliberately use models to NOT go by gut-feel, but it aligns with my intuition. I can't control whether the 6-in-7 or the 1-in-7 comes up—that's up to voters—but I think those are the right odds.— Nate Silver (@NateSilver538) November 6, 2018
Not allowed to and not sure it would be ethically OK but I think the PredictIt prices are dumb as hell.— Nate Silver (@NateSilver538) November 5, 2018
The amounts being bet are too small to make the bettors not dumb. Also, people are sometimes dumb even when they bet lots of money.— Nate Silver (@NateSilver538) November 5, 2018
While Silver said he once put more stock in the leanings of online betting markets, he said they have become very "MAGA-ey" lately, and
Like, some tech-savvy reporter should do a story on what the fuck has happened to these markets. They're very #MAGA-y now and full of traders who think polls are fake news and Rasmussen Reports is the only reliable pollster.— Nate Silver (@NateSilver538) November 5, 2018
Given the flaws in polling models that appeared oh-so-obvious in hindsight, one would think that Silver and his peers would approach the subject of projecting election results with a little more humility.
Refusing to let a golden opportunity to poke fun at one of their biggest critics, the people at Predictit on Tuesday sent out an email to customers with the subject line "Nate Silver just called you dumb".
You all know Nate Silver, the famous prognosticator and founder of fivethirtyeight.com. Great guy. Except that he just called you "dumb."
Okay, not exactly, he said prices on PredictIt are dumb. And it’s true there are some markets where your expectations and his are a bit out of whack.
For example, you’ve got the GOP at 58% to win Arizona's Senate race. Nate is at only 38%. You’re pricing Claire McCaskill at only 39% to keep her Missouri Senate seat. Nate is much more confident at 57%. And, the Democrats to win the House? He thinks it’s nearly a foregone conclusion at 88%. You’re hedging your bets at 72%.
So who’s right? We’ll know that later today. In the meantime, are you comfortable being called "dumb"? If not, get back on the site and vote with your money. Or maybe you want to take the advice of an expert and hedge your bets.
Either way, please spread the word about @PredictIt on Twitter and Facebook and let’s have some fun today. And may the best side win… for now. Remember, 2020 is just around the corner!
To be fair, Silver did distinguish himself in 2016 by being one of the only mainstream pollsters to recognize just how poor Hillary Clinton's odds really were. In a now infamous appearance on ABC on the Sunday before the 2016 vote, Silver declared that Clinton "was just one state away from losing the electoral college." But the notion that the odds that Democrats will retake the House are a virtual certainty deserves to be viewed with a healthy dose of skepticism. And it says something about Silver's own biases that he has apparently failed to understand this.