Prediction Markets Say Republicans Will Keep The Senate, But Can They Save The House?

Posted: Nov 05, 2018 12:44 PM
Prediction Markets Say Republicans Will Keep The Senate, But Can They Save The House?

Throughout this election cycle, and 2016, I’ve emphasized the utility of prediction markets like PredictIt over polls. I have never said prediction markets are flawless or should be trusted blindly. There are all sorts of biases – foreign markets tend to underestimate populists, for instance – but the general principle is that people who have money on the line are more trustworthy than biased political operatives. As for polls, you can’t derive a probability directly from a poll: a poll that shows 60% support for the Democrat does not imply a 60% chance of victory for the Democrat. Furthermore, the bettors are looking at polls as well; that information, as well as other predictive metrics, are baked into the betting markets’ bread.

All this is to say that while we don’t trust these predictions blindly, the theory – that people with money on the line are more trustworthy than pundits – is compelling. Hopefully these numbers from PredictIt should give you a good general view of how things will go on Tuesday night.

First, the Senate

Republicans are at 85% to keep the Senate, Democrats at *18%. Since the Kavanaugh confirmation, Republicans have been steadily climbing up from the high 60s/low 70s to the high 80s. If Dems lose the Senate, as they probably will, we might look back on the Kavanaugh debacle as the beginning of the end for the hope of a Democratic Senate.

And the House:

Democrats are at 68% to take the House. Unlike Republicans, who have ramped up in the Senate, this is roughly what the Democratic probability for the House has been for the last 3 months. Because the Kavanaugh confirmation was fought in the Senate with Senators, Democrats have not suffered in the House from that blunder. Frankly, I’m surprised this number is so low: Dems have a huge advantage on the generic ballot and FiveThirtyEight is giving them an 87% chance of taking the House.

Individual Senate races:

Indiana Democrat Joe Donnelly at 52% to be re-elected.

Florida Democrat Bill Nelson at 61% to be re-elected.

North Dakota Democrat Heidi Heitkamp at 15% to be re-elected

Missouri Democrat Claire McCaskill at 42% to be re-elected

Montana Democrat Jon Tester at 64% to be re-elected

Nevada Republican Dean Heller at 39% to be re-elected

And, finally, Texas Republican Ted Cruz at 78% to be re-elected. Beto has done surprisingly well, but the dream of a purple Texas probably won’t be realized anytime soon.

To sum up: 

There is a 61% probability that Republicans will keep the Senate and Democrats will take the House. This is the most likely -- and, frankly, most boring -- outcome.

Surprisingly, there is a 36% probability of Republicans keeping both the House and the Senate. A higher than 1 in 3 chance that the Blue Wave becomes a national joke, on-par with the New York Times saying there was an over 90% chance Clinton would win in 2016.

The lowest of the three plausible outcomes is that there is a Blue Wave that takes both the House and Senate. PredictIt puts that at 12% as of Monday morning.

What we’re looking at tomorrow night in all probability is a pretty good, but not great, outcome for Republicans. They’ll likely be closer in the House but still lose control and pick up a couple seats in the Senate. That puts them above historical trends. There’s a 1 in 3 chance they have a great night and increase their majorities in both houses. If that happens, pollsters and pundits will have to undergo a major recalibration of how they think about elections.

Of course, there is a non-zero chance that the hopes of a massive Democratic win will be fulfilled. 12% is not that low, and historical trends are in favor of the Democrats. If that happens, Dems take both the House and Senate, Republicans will have to decide if they should get closer to Trump or abandon him. That will depend on voter turnout on the Republican side. If the GOP lost because conservatives didn’t turn out, the party will re-orient around Trump. If the GOP lost because independents and moderate Republicans found Trump too repelling, the party will start to look for a less divisive national representative.

Nobody knows what the Dems will do if they lose both Houses; not me, not you, not the prediction markets, and certainly not the Democrats. Perception is reality, so the media narrative that dominates Wednesday morning will likely determine the future for the losing party.

*These numbers don’t add up to exactly 100% because of the bookies’ overhead.