Wednesday, February 17, 2016

Trump denialism and investment strategies

As I continue thinking through the phenomenon of Trump denialism, something jumps out about the current betting odds. If you look at PredictWise right now, Trump's chances seem to be asymptotically approaching 50%, but the probability doesn't seem to want to creep back up over that line.  His chances, according to the betting sites, only briefly crossed the 50% threshold, before his Iowa loss.  This is starting to look a little like the regular stock market, when investors freak out about either the Dow or the S&P crossing thresholds evenly divisible by 10.

This is not a long-term pattern.  Maybe it is a fluke.  Maybe Trump will finally see his polling lead collapse completely, and his betting odds will tank.  Maybe his lead won't, and his numbers will slowly drift north of 50%, with this being only a brief and statistically insignificant pause.  This is a minor and possibly illusory observation, but if the psychology of 50% prevents investors from accurately gauging Trump's chances, that's Trump denialism at work.

Then again, 50-50 is a coin toss.  If the prediction markets are right, Trump isn't favored to win.  He just has a higher chance than any other one candidate.

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