In Method 1, I assign all of a State's electoral votes to the expected winner in that State, according to TradeSports.com. A price of greater than 50 indicates a Bush win; a price of less than 50 indicates a Kerry win. (A winning bet of $50 on Bush at a price of 50 returns $100, for a $50 profit; a winning bet of $60 on Bush at a price of 60 also returns $100, for a $40 profit; a losing bet on Bush at a price of 60 pays off those who bet on Kerry; and so on.) If the price is exactly $50, I record the electoral votes as a tossup and don't allocate them to either candidate.
In Method 2, I allocate all of a State's electoral votes to Bush if the TradeSports.com price is 55 or greater, and all of a State's electoral votes to Kerry if the Tradesports.com price is 45 or less. For prices between 45 and 55, I allocate a State's electoral votes according to Method 2.
Method 3 translates the expected share of two-party popular vote into electoral votes, based on a statistical relationship for presidential elections from 1956 through 2000. I use the current results of the popular vote-share market at Iowa Electronic Markets to estimate the leader's share of the two-party vote. I use that share in the following regression equation:
Fraction of electoral vote going to the leader in popular votes =In summary, Method 1 follows the winner-take-all rules of electoral voting where, with the unimportant exceptions of Maine and Nebraska, each State casts its votes en bloc. Method 2 gives a "safe" or "fairly safe" State to the likely winner in that State, but for "tight" races (i.e., races where the price is less than 55 but greater than 45) it allocates votes by the expected-value method. Method 3 translates the leader's expected popular-vote share into expected electoral votes, based on a statistical analysis of the last 12 presidential elections.- 9.166 (a constant term)The r-squared of the equation is 0.948; the standard error of the estimate is 0.047 (that's 4.7 percent); and the t-stats on the coefficient and three variables are -3.175, 3.083, -2.738, and 2.379, respectively.
+ 32.201 x the leader's fraction of the 2-party popular vote
- 25.742 x the square of the leader's fraction of the 2-party popular vote
+ 0.067 (if the leader is Republican, otherwise 0).