Ranking Assumption for 2018 Senate elections
November 7, 2018: Post-Mortem---Perfect

From the ranking below the Democrats won NV and all the states above it, and they lost all the states below NV. So the ranking assumption was perfect! PredictIt predicted Democratic wins in FL and IN, which did not happen, but this does not affect the ranking results.

Background

The paper, Interpreting the Predictive Uncertainty of Elections, Journal of Politics, April 2009, provides an interpretation of the uncertainty that exists on election morning as to who will win. The interpretation is based on the theory that there are a number of possible conditions of nature than can exist on election day, of which one is drawn. Political betting markets provide a way of trying to estimate this uncertainty. (Polling standard errors do not provide estimates of this type of uncertainty. They estimate sample-size uncertainty, which can be driven close to zero with a large enough sample.)

This paper also introduces a "ranking assumption," which puts restrictions on the possible conditions of nature that can exist on election day. Take as an example the vote in each state for the Democratic candidate for the Senate. Rank the states by the probability on the day of the election that the Democratic candidate wins the state. The ranking assumption says that if the Democratic candidate wins state i, the Democratic candidates will win every state ranked above state i.

The ranking assumption can thus be tested by simply looking to see after the fact if the Democrats won a state ranked lower than one they lost (contrary to the ranking assumption). The market probabilities below are from PredictIt and were collected at 9:00pm EST on November 5, 2018. These data will be used to test the ranking assumption. This test is a test of the joint hypothesis that the PredictIt market probabilities are right regarding the ranking and that the ranking assumption is right.

Data collected from PredictIt on November 5, 2018, 9:00pm EST

According to Real Clear Politics there are 40 Democratic seats that are safe or not in play and 47 Republican seats that are safe or not in play. This leaves 13 states in play. The following are the 13 states ranked by the PredictIt probability that the Democrats win the state.

# D seats state prob
41WI 93
42MN2 87
43NJ 84
44WV 79
45MT 66
46NV 65
47FL 64
48IN 53
49AZ 48
50MO 40
51TX 23pivot for 51 Democratic seats
52TN 20
53ND 14
17 = PredictIt market-based probability of the Democrats controlling the Senate.

If the Democrats win Texas and all the states above it, they will have 51 seats, counting the 2 independents as Democrats, and thus control the Senate. According to the ranking assumption, the PredictIt market probablility that they control the Senate is thus 23 percent (the probablity they win Texas). This is close to the PredictIt market-based probability of the Democrats controlling the Senate of 17 percent. The market price is thus rougly consistent with the ranking assumption, although a little lower.

Previous data collected