Ranking Assumption for 2020 Presidential election
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 president. Rank the states by the probability on the day of the election that the candidate wins the state. The ranking assumption says that if the candidate wins state i, he or she wins every state ranked above state i.

Given some ranking, the ranking assumption can be tested by simply looking to see after the fact if the candidate won a state ranked lower than one he or she lost. In the paper the assumption was tested for the 2004 and 2008 presidential elections using Intrade probabilities at 6am Eastern standard time on the day of the election. The test is thus a test of the joint hypothesis that the Intrade probabilities on November 7, 2016, are right and the ranking assumption is right. Using the Intrade probabilities, the ranking assumption was perfect in 2004 and off by one in 2008. In 2008 Missouri was ranked above Indiana, and Obama won Indiana and lost Missouri. Both of these elections were very close. Obama won Indiana with 50.477 percent of the two-party vote and lost Missouri with 49.937 percent of the two-party vote. Otherwise, 2008 was perfect.

Evidence is also presented in the paper, although this is not a test of the ranking assumption, that Intrade traders used the ranking assumption to price various contracts.

2020 Presidential Election

I plan to collect market probabilities by state from Predictit on various days, the last day being the day before the election, November 2, 2020. The November 2 data will be used to test the ranking assumption. The test is a test of the joint hypothesis that the Predictit market probabilities are right and the ranking assumption is right. The data as they are collected are presented in Table 1.

Data collected from Predictit at 7pm EST on November 2, 2020

On this date, 18 states had market probabilities on the Predictit website less than 90 percent and greater than 10 percent for the Democrats winning the state. The 18 states, ranked by market probabilities for the Democratic candidate, are:

state prob votes sumvotes
New Mexico 88 5209
Maine not 02 88 3212
New Hampshire74 4216
Minnesota 73 10226
Nevada71 6232
Wisconsin69 10242
Michigan69 16258
Nebraska 0268 1259
Pennsylvania60 20279pivot
Arizona 52 11
North Carolina47 15
Florida43 29
Maine 0241 1
Georgia 41 16
Ohio30 18
Texas29 38
Iowa25 6
Alaska 11 3
64 = Predictit market-based probability that the Democrats win the presidential election.

"sumvotes" is the sum of the electoral votes of all the states ranked above the state plus the state's vote. 270 votes are needed to win. You can see that Pennsylvania is the pivot state. If Biden takes Pennsylvania and all the states ranked above it, he gets 279 votes. Of the states ranked below Pennsylvania, he could also win by not taking Pennsylvania, but taking Arizona, North Carolina, or Florida. This would, of course, violate the ranking assumption.

According to the ranking assumption, the probability that the Democrats get a majority in the electoral college is the probability that they win the pivot state, Pennsylvania, which is 60. On the Predictit website, the market-based probability that the Democrats win the presidential election (in the electoral college) is 64, close to 60. So the market participants are roughly using the ranking assumption.

Table 1 gives more details.

Ranking Assumption for 2020 Senate elections
Background

The ranking assumption can also be tested using data from the Senate elections. Consier the vote in each state for the Democratic candidate for Senate. Rank the states by the probability that the Democratic candidate wins the state. The ranking assumption says that if the Democrats win state i, they 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). I plan to collect market probabilities from Predictit on various days, the last day being the day before the election, November 2, 2020. The November 2 data will be used to test the ranking assumption. Again, the test is a test of the joint hypothesis that the Predictit market probabilities are right and the ranking assumption is right.

Data collected from Predictit at 7pm on November 2, 2020

The current make up of the Senate is 53 Republicans and 47 Democrats, counting the 2 independents as Democrats. Only 15 states are in play in having market probabilities on the Predictit website less than 90 percent and greater than 10 percent. The 15 states plus Colorado, Mississippi, and Alabama ranked by the market probabilities from Predictit for the Democratic candidate are:

state prob now
Colorado91R
Minnesota80D
Arizona79R
Michigan70D
Maine69R
North Carolina60Rpivot for 50 Democratic seats
Georgia, spec.52Rpivot for 51 Democratic seats
Georgia, reg.42R
Montana34R
Iowa32R
South Carolina25R
Alaska20R
Kansas18R
Texas15R
Mississippi10R
Alabama9 D
64 = Predictit market-based probability of the Democrats controlling the Senate.

If the Democrats win Georgia, spec. and all the states above it, they will have 51 seats, counting the 2 independents as Democrats, and assuming that they lose Alabama. If they win North Carolina and all the states above it but lose Georgia, spec., they will have 50 seats. They will still control the Senate if they win the White House. According to the ranking assumption, the Predictit market probablility that they control the Senate is thus 60 percent (the probablity they win North Carolina) if they win the White House and 52 percent (the probablility they win Georgia, spec.) if they don't. If we use the Predictit market-based probabilty of 64 percent that the Democrats win the presidential electon, then the ranking assumption probability that the Democrats control the Senate is 0.64x60 + 0.36x52, which is 57 percent. This is smaller than the Predictit market-based probability of the Democrats controlling the Senate of 64 percent. So the market is not using the ranking asssumption.

Earlier calculations for the 2020 election

Tests using the 2012 Presidential Election and the 2014 Senate Elections
2012 and 2014 Elections
Tests using the 2016 Presidential Election, the 2016 Senate Elections, and the 2018 Senate Elections
2016 and 2018 Elections