Why the President Is Still a Heavy Favorite on the Prediction Markets |PBS Newshour

On the NewsHour tonight we explore three ways to predict the presidential election: polling, economic modeling, and betting in the prediction markets. Economist David Rothschild tracks all three. His was a fascinating interview, filled with nuances about presidential prediction and the betting markets in particular. The most surprising fact of all: they used to be much bigger than they are today. But you'll have to read the entire exchange below to find out how much and when. (Unless you skip ahead, that is.)

David Rothschild: The uncertainty in election forecasts is not about what would happen if the election were held today. It is about what could happen between now and Election Day that could shake things up. And so when a state is 55 percent, or 60 percent, or 75 percent for a given candidate, what we're saying is that there is a 45 percent, or 40 percent, or 25 percent chance the other candidate could win if something happens that shifts that balance, not what would happen if the election were held that day.

If you want a quick and meaningful rubric for understanding the likelihood of an election, one way to think about it is take every state and the District of Columbia -- the 51 Electoral College districts -- and rank them from the most likely for Romney to the most likely for Obama. Rank them all, number them 1 to 51. You have a bunch of states that are bunched up near 100 [percent likelihood] for Obama and a bunch of states bunched up near 100 [percent likelihood] for Romney. Then you have this whole middle ground from leaners [to the Democrat ticket], to tossups, to leaners [toward the Republican ticket]. And what happens is that, barring a major event, any given state is just going to start drifting, over time, towards the candidate they're most likely [to vote] for. So every day that goes by on which that state does not flip [to the other party], it's going to slowly drift in the direction of the candidate that it favors in terms of probabilities. And that's what we're seeing happen.

Paul Solman: So a state like Ohio has simply become more and more Obama friendly?

cont'd http://www.pbs.org/newshour/businessdesk/2012/10/why-the-president-is-still-a-h.html