When Iowa Republicans gather on caucus night, one issue some of them will be weighing is the “electability” of the candidates. In other words, how likely is it that each of the contenders could really beat Barack Obama in the general election?
Measuring something as intangible as electability is tough. Pollsters try to get at the issue is by running hypothetical general election matchups by panels of likely voters. While helpful, this type of polling does have its disadvantages. Another route to measuring electability is to rely on the opinions of pundits. But often these boil down to a single individual’s gut feel. A third, less utilized method to get at electability is by relying on prediction markets.
If you’re a political junkie like me, then you’re likely familiar with Intrade. Based in Ireland, the online prediction market allows participants to buy and sell “shares” of different political candidates. As good news filters in for a candidate, participants quickly bid up the price of that candidates’ shares to reflect a higher likelihood of success.
On the other hand, when disaster strikes—as it did during Rick Perry’s infamous “oops” moment in the November 9th debate—judgment is rendered swiftly. Perry’s stock price collapsed almost instantly, his chance of capturing the nomination cut from 9% to 4% within seconds. Intrade’s success has been remarkable, often outperforming well-established polling operations in predicting the outcome of elections.
When using Intrade to measure electability, two numbers are key. The first is the likelihood of Candidate X winning his party’s nomination. The second is the probability Candidate X will win the general election. By comparing these two numbers, we can figure the likelihood Candidate X would win the general election were he or she 100% likely to obtain the party nomination. We’ll call this number the “electability index.”
Here’s an example: Intrade shows Candidate X as 20% likely to capture the party nomination and 10% likely to win the presidency. Looking at these figures, we can see that the market views Candidate X as having a 50% chance of winning the presidency were he to be nominated. Formally, we would divide 10% by 20% to get an electability index of .50.
Using Intrade pricing data, I’ve calculated just such an electability index for each of the major GOP candidates plus President Obama. To smooth out the volatility of share price movements, I’ve based this on a 14-day moving average of daily open and close prices of each candidate. We’ll just review at the last six weeks of data since some candidates were thinly traded on Intrade prior to this. Here’s a look at how each candidates’ electability index has fluctuated over this period. We’ve left Huntsman and Paul off the chart for reasons that we explain below.
What do the numbers reveal? Here are a few of my takeaways:
- Despite weakish poll numbers, Obama remains a formidable opponent. While generic polls showing a close race between Obama and Romney or Obama and a generic republican, our index suggests Obama maintains a sizable electability advantage over any of the Republican field. One potential explanation of this anomaly stems from the possibility the economy will improve somewhat by November 2012, aiding the president’s reelection chances. While this possibility isn’t captured in today’s polling of hypothetical presidential matchups (since respondents tend to focus on the state of the nation today rather than what it is likely to be on election day ten and a half months from now), it’s a real risk to the eventual GOP nominee.
- Paul and Huntsman are both legitimate third party challengers. There’s been continuing speculation that Ron Paul and Jon Huntsman might be tempted to mount a third party candidacy were either to fail to capture the nomination. While both Paul and Huntsman have denied such aspirations, the market doesn’t buy it. We can see this from implausibly high electability numbers (e.g., at some points in the past, the market saw it more likely that Ron Paul win the presidency than that he capture the GOP nomination). The only way this works out is if a third party run were viewed as a real possibility.
- The identity of the “most electable” Republican is still up for grabs. Over the last few weeks, Romney, Gingrich, and Perry have all taken a turn at the top of the heap. Most recently, Santorum, who has captured a string of high profile endorsements, has seen his electability numbers increase substantially, almost to the point of catching Gingrich and Perry.
- Bachmann’s electability numbers are not pretty. With an electability index hovering at 30% over most of the period, the market doesn’t have much faith that Bachmann as GOP nominee could prevail in the general election. If voters take this impression to caucus night here in Iowa, it could mark the end of the Congresswoman’s campaign.