A useful prediction often has the following qualities:
(1) It is precise, allowing us to pinpoint a narrow range of outcomes.
(2) It changes relatively little in the long term, giving us time to plan in advance.
(3) It gives us a true sense of the uncertainty – a sense of knowing what we don’t know. For example, it should capture the true event probability: a 90% prediction should be correct 90% of the time, and a 60% prediction should be right 60% of the time. This distinguishes foregone conclusions from situations that may require action.
When listing these criteria, I am of course thinking of political predictions. But they are to an extent applicable to other types of predictions as well.
At this data-driven site I have given the Obama re-elect probability as close to 90% since the end of July. Here was the prediction then:
and here it is now, after several turns in the race.
What would you do if you had known two months ago that President Obama’s win probability was 90%? One answer would have been to withhold support from your favored candidate, whether it was Obama or Romney. To quote commenter OwlofMinerva:
…with SuperPACs, money can be flexibly allocated. Thus, if it becomes increasingly certain that Obama will be re-elected, we would expect an increasing amount of money redirected into down-ballot races.
In other words, if a win probability is overwhelming, campaign effort is better spent elsewhere. This logic applies whether one is on the losing or winning side.
July readers of the Princeton Election Consortium have had nearly two months to act. Predictions given at this site are based on polls alone. Once an election season starts, two powerful predictors of a final outcome are (a) current polls and (b) knowledge from past campaigns of how much polls are likely to change. The predictions here do not contain any of the econometric assumptions used in political science models or at the website FiveThirtyEight, assumptions that add noise and uncertainty.
Here are two consequences of the knowledge above.
(1) If you want your personal campaign resources – your time, your donations – to affect policy outcomes in 2013, spend them on candidates whose election outcomes are in an intermediate range. For these knife’s-edge candidates, an extra push is most likely to make a difference. A donation to Obama or Romney in July would not have been an effective use of resources.
The ActBlue link shown goes to knife’s edge candidates in the Senate, and to the DCCC. You can see what PEC readers have done. The same logic applies equally to PEC readers who support the Republican side. They have access to strategic thinking in the form of Karl Rove’s Crossroads GPS.
(2) At InTrade, an electronic betting market, in early August a bet on President Obama was trading at $0.58 per $1.00 payoff. This implicitly means a 58% win probability – yet the true win probability, based on polls alone, was 89%. Buying then would have led to a very likely profit now.
As a general rule, InTrade prices express underconfidence relative to true probabilities as dictated by polling medians. This is true even on Election Eve. As I have previously written, they get the direction of the probable outcome correct, but the exact price is not a quantitative measure of probability.
And now I give some current probabilities. Do whatever you see fit, whether it be to go to Crossroads GPS for Republicans or ActBlue for Democrats. As for other possibilities…we all know that gambling is wrong.
President Obama re-elect probability: 89%. InTrade probability: 70%.
Senate to remain Democratic-controlled: 88%. InTrade:
58% 82% (100% minus Republican-controlled share price)*.
House to remain Republican-controlled: 26%. InTrade: 80%.
If you have other qualities that are useful to have in a prediction, give them in comments.
Update, 5:00PM: In comments, Terry makes a valid point that the House prediction feels “softer” than the other ones. Indeed this is true – the probability itself has a larger uncertainty. The generic Congressional ballot is crazy-making from a predictive standpoint because unlike the Presidential and Senate races, it is an indirect measurement. I have examined its track record and uncertainties, most recently here.
The situation recalls to me a remark of Amitabh Lath weeks ago, in which he made a comparison to high-energy physics. Evidence leading to a particle’s discovery such as the top quark or the Higgs particle often come in multiple channels of data, some of high sensitivity and others of low sensitivity. The House prediction is lower-sensitivity than the other two predictions (though not nearly low as “fundamentals”-based predictive models).
*Update, September 24: In comments, Roestigraben points out that the InTrade “Democratic” contract does not count Independents expected to caucus with Democrats (i.e. Sanders, King). I have replaced the probability with a correct figure calculated as 100% minus the Republican-control contract probability.