

XKCD's Randall Munroe runs Monte Carlo on Intrade's per-state markets  - swombat
http://xkcd.com/intrade/

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robg
See fivethirtyeight.com for much better simulations - 10,000 run each day
based on weighted national and state polls. Plus their graphic design is
excellent in being both very clean and informative.

Munroe links to them at the bottom.

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davidmathers
I just downloaded Randall's code and modified it to match my analysis, which
is: there are only 3 states that matter (FL, OH, CO) and if McCain wins all 3
then McCain wins but if Obama wins any one of them then Obama wins.

Here's what I got: Obama 94.6%, McCain 5.4%

Assuming my analysis is right, am I doing anything wrong mathematically?

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chairface
Am I correct that CO is one of those states that can divide their electoral
votes between candidates, and if so, did you take this into account?

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evgen
Nope. Maine and Nebraska are the two that do this.

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Eliezer
Conditional independence FAIL.

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randomwalker
Thank you, that's what I came here to say. All it takes is one gaffe from
Obama to flip all the swing states in one shot.

I'm not sure the 90% number means anything at all. Perhaps it is an estimate
of Obama's chances if the election were to be held NOW?

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mattmaroon
No. It means he's ahead in so many states, that he'd pretty much have to do
something big (and it's going to take more than a little faux pas) to fuck it
up, and there's about a 10% chance of that.

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neilc
_"This snapshot approach doesn't really predict upcoming regional or national
shifts"_

So I don't think your interpretation is correct.

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mattmaroon
Well, I'm certainly not arguing that these odds are correct overall. I figure
there's a 10% chance we'll find out that either candidate once murdered a
hooker at a party of Ted Kennedy's.

I see now what is meant though by Eliezer's comment, I think I missed it at
first. I'll have to think about the effect on the outcome though. Luckily I
have lots of friends with math PhDs.

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clay
So here's the question: why does this give odds of 91% to Obama while Intrade
has him forecast at 68%?

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cperciva
Because the xkcd odds are computed based on the completely bogus assumption
that Obama and McCain win or lose states independently.

When we get to election day, the states become pretty independent; but until
that day, there are very strong correlations between the results in different
states.

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andreyf
Huh, what?

First: early voting has already started in some states, second: there is
always a correlation between how states vote, because they're based on how the
candidates have performed.

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lliiffee
Suppose there are only three states.

Suppose that all states have an 80% probability of voting for Obama.

If they are independent, the odds of an Obama win are .8 * 8 * .8 + 3 * .8 *
.8 * .2=.896

However, suppose the states are maximally DEPENDENT-- they always vote the
same way. Then, the odds of an Obama win are exactly .8

The effect will be much stronger with more states, hence the gigantic
difference between XKCD's result, and intrade's odds on an obama vs mccain
win. In the limit of an infinite number of states, 51% odds in each +
independence would give Obama a 100% chance of winning!

Things are much more complex, but this is basically the point cperciva was
making. It is almost certainly true that the states are not independent. For
example, the odds in Ohio are factoring in the chance of some gigantic gaffe
or a terrorist strike or whatever, that would change the vote everywhere.

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mdxch
Betting sites like Intrade are lagging indicators with respect to the polls.
Bettors adjust their bets whenever new polls are released, but it doesn't
generally work the other way around (people responding to pollsters don't do
so on the basis of what they saw on Intrade).

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tptacek
That sounds like a valid point, but bear in mind that a lot of research has
been done on the IEM's (more credible than Intrade), and they are more
predictive than polls.

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jfarmer
As other have pointed out, this is silly because the states aren't
independent. There's no way Obama is going to lose OH but win IN, for example,
although probabilistically speaking there's _some_ chance.

538 models the dependence along demographic lines, so that demographically
similar states, districts, and counties are assumed to vote similarly.

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mattmaroon
This is interesting because it points out yet another opportunity. If you
believe 538, you should pretty much be buying Obama to win on Intrade and
shorting him on the swing states.

It would hurt my brain too much to do so, but you could probably figure out a
betting strategy with a small or moderate assured return.

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kul
Monte Carlo simulations is what they used to work out the odds of sub-prime
defaults in their CDOs.

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byrneseyeview
I can assure you that they use addition and subtraction far more often than
they use the Monte Carlo method. Adjust your behavior accordingly.

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steveplace
The "stock" for Obama is at 67.9% on inTrade. Could make 42% on money risked
if you're right.

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sharksandwich
If you buy at 68 and the prop is true, you get ~47%

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steveplace
I've never played intrade's markets, so I don't know how liquid the contracts
are... but there is an arb play here if you can time it properly.

