Tuesday, October 28, 2008

Intrade Election Market: No Bradley Effect

Analysts of the 2008 election have repeatedly cited the Bradley effect as a reason to discount polling data in elections pitting white candidates against black candidates, arguing that some voters tell pollsters they would vote for a black candidate when they intend to vote for the white candidate. Yet analyzing the data, it appears that Obama shares are performing as well as (or perhaps outperforming) his RealClearPolitics (RCP) polling data, indicating that Intrade investors believe that the RCP polls understate Sen. Obama's margin of victory.

The Bradley effect refers to the California gubernatorial election of 1982, in which the black mayor of Los Angeles, Tom Bradley, lost an election he had been expected to win. In a number of other elections featuring black candidates versus white candidates, the black candidate appeared to fare worse on Election Day than expected (see here for anecdotes from elections from the 1980s through 2006). While there is still active debate about whether the Bradley effect may have disappeared as American social attitudes changed in recent years, the evidence from Intrade markets is clear: Intrade market participants completely discount the Bradley effect.

If Intrade investors believed in the Bradley effect we would expect to see the price of Obama shares below 50 when the polls were even, only rising above 50 when Sen. Obama had a lead in the polls greater than the expected Bradley effect. For example, if 2% of the voters told pollsters they would vote for Sen. Obama when in fact they were supporters of Sen. McCain, then Obama shares would trade at 50 only when he had a lead greater than 2% in the polls.

Since Sen. Obama has had a large lead in the RCP polls in recent weeks, it is difficult to know whether the price of Obama shares accurately reflects the polling data. But for a brief period in early September the polls were very close. On September 2, after Sen. McCain cancelled the first day of the Republican Convention, Sen. Obama led in the RCP polls by 6.4% and his Intrade shares were trading around 60 cents. Then, after the surprise announcement of Gov. Sarah Palin as VP and a reasonably successful convention, Sen. McCain started to rise in the polls.

Sen. McCain actually led in the RCP polls for a short period; he had a small lead from September 7 until Sen. Obama came back to even in the polls on September 17 (and Obama has maintained a lead ever since).

Sen. Obama's closing Intrade price was 57 on September 7 and his shares remained above 50 through September 10, despite Sen. McCain's small and growing lead in the RCP poll. Only when Sen. McCain's lead reached 2.5 points on September 11 did Obama prices drop below 50. When the RCP polls were tied on September 17, Obama shares closed at 48.9, but they rallied to 51.8 on September 19 as Obama gained a 1.9 point in the RCP poll.

In other words, Intrade traders clearly believe that the Bradley effect will not be a factor in the 2008 Presidential election. Prices of Obama contracts remained above 50 at a time when he was behind in the polls, indicating that Intrade traders believed that the polls actually underestimated Obama's likely election performance. When Sen. McCain's lead in the polls grew, the price of Obama shares briefly dropped below 50 but they quickly recovered with the evidence of improvement in the polling data.

Political scientists will spend the next decade analyzing the 2008 polling data and election returns for evidence of a Bradley effect but Intrade investors have already cast their vote.