raw data show the Palin Effect in the dramatic turn around in the
futures prices with McCain trailing for many months and Obama leading.
In early September there is a sudden reversal. Politics, like life, is
dominated by extreme events which only a heavy tailed distribution can
capture. None of the other election models are capable of capturing
these extreme events. They are far too static and tame. The polls only
partly capture the Palin Effect. It is real and dramatic.
calculates the probabilities of winning for both candidates using the
stable model of the trading returns. This projects the returns forward
based on the number of days remaining and the dynamics of the movements.
His calculations give these probabilities:
Data scaled by 53 days. Last data point on Fri 12 Sep 2008.
Probability of McCain win in November 0.760798
Probability of Obama win in November 0.370827
Using only the last 90 days, the probabilities are:
Probability of McCain win in November 0.930025
Probability of Obama win in November 0.263054
Palin is a Black Swan (to use a phrase made popular by Nassim Taleb’s
best-selling book The Black Swan). The Palin Effect is a rare event of
low probability but consequential magnitude that falsifies a theory.
More than all the commentary in the media, this graph dramatically
shows the Palin Effect. She has completely reversed the fortunes of the
candidates. (More Arthur De Vany)