Betting markets were right, and I was wrong, about Biden dropping out

2024: Betting Markets 1, Maxim Lott 0

While I almost always defer to the betting markets, and have made money on them, two weeks ago I thought I saw a rare market mistake, and wrote about it here, arguing that Biden would not drop out because it was not in his interest to do so. I was wrong.

While I think my reasoning was valid about Biden’s mindset and incentives at the time my post was written, I missed a few things:

• All of the very top Democrats (Obama, Pelosi, Schumer, Jeffries) turned out to be far more coordinated and decisive behind the scenes than I expected them to be.

• Biden got Covid, giving top Democrats an opportunity to push while Biden was weakest.

All the post-dropout media reports I’ve seen say that Biden was privately furious at the pressure being put on him, but ultimately gave in anyway, probably due to a combination of worsening polling, plummeting fundraising, the unanimity of top Democrats, and maybe being sick with Covid.

It still seems to me that Biden could have pushed through and won, and forced top democrats to rally around him. But it seems that at his age, and in his condition, he didn’t have the energy to do that.

It also has come out that Biden campaign internal polling showed Harris with higher favorable numbers than Biden; that make have made a difference in Biden’s thinking. In Biden’s formal drop-out speech (which naturally was more about image than reality) he didn’t directly mention either his declining abilities or his age, but rather the need to “unite my party” to “save democracy” and said that the best way to do that was to “pass the torch to a new generation.”

In the end, the betting market consensus had a better understanding of the abilities and determination of top Democrats than I did, so let this be a lesson to listen to the markets.

Reminder that markets in general have a good track record

On ElectionBettingOdds.com, I’ve been tracking elections for nearly 10 years. Across hundreds of different races (for President, Senate, House, primaries, state-by-state, international, etc) we can get a picture of bettors’ accuracy.

In the graph below, the white line shows what predictions would look like if they were perfect. The blue line shows how often bettors' predictions within different ranges (e.g., between 60-80%) actually came to pass. Where the blue line differs from the white line, the predictions were off a bit:

At the time of my post, markets gave Biden a ~52% chance of dropping out.

As you can see, historically, when markets said something would happen within the 50-60% range, it actually came to pass about 57% of the time.

So I should have had more humility when predicting that the real chance was 15%. While all of my reasoning may have been valid enough, as mentioned above, it missed some possibilities on the other side, such as just how determined actors like Obama, Pelosi, and behind-the-scenes congressional Democrats were to push Biden out.

By the time the news had broken that all of those Democrats were pushing so hard against Biden, the betting moved to give Biden a ~74% chance of dropping out, and I adjusted my view:

I now see little reason to disagree with the bettors, whereas last weekend, I thought Biden would stay, with high confidence. My change in thought is because it has been revealed that just about every top-level Democrat is pushing hard. I mistakenly underestimated how coordinated the Democratic Party was. Biden getting Covid also didn’t help things. I still have outstanding bets on Biden staying, and I haven’t decided if I’ll wrap them up, because the odds seem pretty plausible right now.

I did not end up closing out my bets on Biden, since the odds still seemed not too low. I’m still “in the black” in my long-term betting record, but this was the biggest miss.

What are the markets saying now?

Now that we’ve reminded ourselves to listen to betting markets rather any single person (even with money on the line) let’s check in on what the markets are saying right now:

1- Harris’s electability is on the higher end of what bettors previously expected

ElectionBettingOdds.com has a page showing the chance of winning the Presidency IF a candidate is nominated. Below is the graph for that, zoomed in on Harris’s blue line:

Harris’s odds of winning if nominated are in blue, Newsom’s in orange, and Biden’s in red (ignore the Biden spike after his dropout; that is nonsense data due to his nomination chances being ~0%.)

In general, the betting markets thought she’d have a 38% - 48% chance of winning, if nominated. Currently, bettors think she has a 48% chance of winning if nominated.

I think the biggest reason for that shift is that Democrats coalesced very quickly. Harris didn’t have to re-litigate her often-extreme positions that led her to being labelled the most left-wing senator in 2019. She didn’t have to field attacks from other Democrats or the media. Instead, it was a perfectly smooth path, with virtually no criticism from either within the party, or from legacy media outlets.

Which, again, is a testament to the coordination abilities of top democrats. They may not be known for picking candidates in the most democratic way, as candidates for both 2016 and 2024 were essentially picked by party power-brokers, but they do seem coordinated and effective.

2- Betting markets say Harris’s VP will probably be Pennsylvania governor Josh Shapiro

I don’t know much about Shapiro, but he does have a high approval rating in Pennsylvania (somewhere between 54% and 61%) and is considered competent and not radical, which could help offset Harris’s negatives.

There are some concerns that he’ll offend some Democrats due to his strident support of Israel.

I think he’d be Harris’s best pick from an electoral standpoint, because of the state map:

3- The “blue wall” is up for grabs

The three southern/western “swing states” (NV/AZ/GA) definitely have a lean, per the bettors, with Trump favored with a 60%+ chance in each.

However, the old “blue wall” states of WI/MI/PA are all up for grabs, and are coin-tosses. Trump needs to win all of the southern/western swing states plus ONE of those to win, which is currently the modal (single most likely) outcome:

However, because Pennsylvania has the most votes of those three, if Trump wins just Pennsylvania, he can then win with JUST Georgia, or JUST Nevada and Arizona. I listed the various combinations in more detail here.

That’s why Nate Silver estimates (link; paywalled) that Pennsylvania has a 34% chance of tipping the election. The next most likely state to tip things is Wisconsin at 14%.

4- Limited impact on Congressional outcomes

I find it surprising that Congressional control odds have moved little, despite the big shift in Presidential odds. The House:

The Senate:

5- Who can put their foot in their mouth less?

Trump and Harris are known for being gaffe-prone, and alienating to many.

I think the debates will be fascinating, and that the winner will be whomever can look like a calm semi-Presidential adult, and avoid musing about whether Harris is “really black” or whether she “slept her way to the top.” And to avoid making shrill allegations about how Trump will “end democracy” and how Trump called Nazis “very fine people” (he didn’t.)

Trump can win if focuses on Harris’s track record overseeing unprecedented chaos at the border, high inflation, and her views like wanting to ban fracking in 2020, among many others. And Harris has plenty of real Trump flaws to hit him on.

It’s going to be close!