Prediction Market: Obama Still Favorite to Win in 2012

Binyamin Appelbaum's recent warning in the New York Times that "No American president since FDR has won a second term in office when the unemployment rate on Election Day topped 7.2," has received significant attention across the media landscape.  While some academics and blogsphere writers have correctly noted that the statistical relationship is much more complex than Appelbaum's conclusion, it is still difficult to escape his implied assertion that, unless something dramatic happens in the U.S. employment picture, President Obama will lose in 2012.

Before the Democrats get too discouraged, I suggest they visit the website - Intrade.com - and check its prediction for the 2012 Presidential Election.  Intrade.com is a futures market that allows investors to make predictions on the outcome of real-world events.  The prices for the securities traded on Intrade.com represent the probability of something happening.  More importantly, prediction markets such as Intrade.com have proven to be very accurate in predicting real-world events, particularly elections.  So, Democrats, here is the good news.  As of today, July 7, 2011, the Intrade futures market is predicting that Obama has a 58.5% chance of re-election.  This is despite the gloomy economic news that continues to haunt the American economy.

The bad news for Democrats, however, is that there is a lot of time between now and the election for that prediction to change.  Moreover, there are signs since March 2011 of a small but steadily declining trend in President Obama chances for re-election.  Suffice it to say, macro-level changes in the U.S. economy between now and next July will probably go along way in determining the 2012 election outcome.

Another interesting finding from Intrade.com is that Mitt Romney continues to hold steady at about a 34 percent chance of being the Republican nominee, followed by Michele Bachmann (17.4%), Rich Perry (12.6%), Tim Pawlenty (9.0%), and Jon Huntsman (7.5%), with Sarah Palin behind at a distant 5.4 percent.  In fact, the trends as of today suggest the Republican nomination will be at least a two-faction race with Romney competing against either an ascendant Bachmann or Perry, and perhaps both.