Turn on your television to any news channel and the Presidential election contest inevitably will be heatedly discussed. Frequently mentioned are election polls and results. Michael Rechenthin, Ph.D, aka Dr. Data, the head of the tastylive research team joins the guys to provide an overview of political polling and related subjects. What can we learn from political polling that applies to the Financial Markets?
Mike began by discussing the election markets. The Iowa Electronic Market and Predictit.org are both run by non-profit universities and the data gathered is used for reasearch purposes. Because of this they are exempt from internet gambling rules and are the only legal way for an American to bet on an election. While the amount of money wagered is not large, Dr. Data explained how they work and that these markets are very good at predicting results and in providing probabilities while traditional polls are more limited.
Mike then went on to identify some of the traditional polling outfits including Gallup and the various news services. He then discussed Nate Silver’s FiveThirtyEight.com and explained how that site uses Probabilistic Statistical Models. The site gathers information from multiple polls and weighs them according to various factors. One of the factors is how accurate the poll has been. Although Gallup has been around for a while a Presidential election only occurs every four years and some polling outfits have been around a much shorter time. The results is a low number of occurrences and a probable overestimation of the value of some polls. Because the model has the weighting factor it is subject to curve fitting, something we need to avoid in the financial markets. While examining a series of polls and explaining their importance Mike gave a warning about the overfitting that can accompany a large number of inputs (from multiple polls).
Watch this segment of The Skinny On Options Data Science with Tom Sosnoff, Tony Battista and Dr. Data (Michael Rechenthin, Ph.D) for the valuable takeaways and a fascinating look into the world of political polling including how to bet on the upcoming Presidential Elections.
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