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Why did Obama win?

This is an old article, which first appeared on dbskeptic.com. It was written on the 24th of Jan, 2009.

The 'science' of Economics comes from the idea that you can actually quantify and measure the mysterious, hard-to-predict creature called man. Finding creative ways to measure and analyze social phenomena is one of economics' most crucial (and fun) tasks. So here's an attempt to find a cause to explain one of the big events of this year: Barack Obama's victory.

Finding the cause of something is an unusually difficult task: people are emotionally invested in Obama and really, really want to believe that he won because of his message of hope and change. But as economists and social scientists, it's our job to separate the wheat from the chaff. But how? Surveys are useless: if you simply ask someone why they voted for Obama, they may choose the most comforting answer ("I want to heal America's racial divide") instead of the most honest one ("I think Palin's a bimbo").

So you need a source that's objective and non-partisan. Fortunately there is one: money. Even if you want Obama to win, if you were asked to put your money on him in a bet, you'd start asking yourself: do I think he's actually going to win?

That's where intrade.com comes in. Intrade is an online "futures market" which is a really fancy name for what is essentially a gambling parlor. How it works is this: an event (e.g Obama.President.2008) is selling for – say – 48. This means the market believes that there is a 48% chance of the event happening. If you think the likelihood is higher: buy the contract. If you think the likelihood are lower: sell the contract. Thus the prices move up and down – just like a stock exchange.

Since these are serious men playing with real money, they don't care whether Obama is better then McCain or not: they only care which one going to win. So looking at these numbers – and seeing what happens to them when certain events happen – tells us loads about why the public went for Obama in a big way (55% of the vote is practically a landslide in the US).

So what do they have to say? As it turns out, Obama wasn't always poised to win: at the beginning of the 2008, he was running under 15%, one third of Hillary Clinton's 45%, even though the total odds of the Democratic Party were over 60%. This basically means that it was far more likely that a democrat – and not exactly Obama – was likely to be the next POTUS. This fact might be a bit of a damper for those who believe that Obama was essential to the revival of the Democratic Party: the Democrats were actually quite well without him. In fact, sine 2004, the odds of the Republicans winning in 2008 never crossed 50%.

By the time the he won the nomination of the democrats, his Intrade price was, well, 60%, exactly the same as the DP was at the beginning of the year. Hmmm. (Actually, he almost hit 70% before the prices "corrected")

There was a very brief period where his 'price' fell below 50: after McCain selected Sarah Palin to be his running mate. Called the "Palin Bounce", the choice briefly pulled Obama below 50%. But by the time the elections came around, his price was at 85. What caused that?

In a word: the financial crisis. People quickly blamed the crisis on Bush and the Republicans and gyrate towards Obama.

Moral of the story: Obama might be a great guy, as charismatic as Jesus and Snoop Dogg combined and he might actually bring about the change he's promised to – but he didn't win because of his "message" or because he has a "fresh" view of the world: Hillary was soaring without any of that. He won because everyone hated Bush. He didn't beat McCain - he beat Clinton.

Of course, Intrade isn't always right: Slumdog Millionaire was selling for 72, while Benjamin Button was at 12. Benjamin - to, admittedly, everyone's surprise - won. But the movements in prices as a response to stimuli still tells a very illuminating story.

This is not the first post you are looking for

1. Economics is the study of what rational agents would do. It is also a study of how people in the real world behave. These two fields have been merged to save money on letterheads.

2. All blogs in the English language must contain a Star Wars reference. I'm getting mine out of the way early.