Presidential Prediction

While watching an interview with Edward Thorp (mathematician, first to prove the edge of card counting in blackjack and successful fund manager) he mentioned a book called the "The Keys to the White House”. The book’s author (Allan Lichtman) created a prediction tool to for the outcome of the US presidential election, which was back tested to all American presidential elections from 1860. Interestingly, the tool doesn’t rely on any polling data.

It reminded me of the strength that simple algorithms can have in outperforming expert predictions, for example the Bordeaux equation by Orley Ashenfelter, a formula which outperformed expert predictions on the quality and therefore price appreciation of particular vintages of wine ("Grape Expectations" at the bottom of the article)

The tool requires answering of 13 questions either as “true” or “false”, which cover things like the performance of the economy and if there has been a major scandal. Some of the questions do require judgement, and I have grouped the questions below to reflect this. If 8 or more are True then the incumbent is expected to win.

By my estimation 8 were True, 3 False and the 2 questions on the economy are hanging in the balance, with the impact of the coronavirus yet to be fully experienced. If for example we did see a deep recession, causing both social unrest and a significant reduction in per capita incomes then the tool would suggest Biden as the eventual winner. As it stands Trump is the favourite and this is mirrored in the betting market, where he is an implied 53% favourite.

  

Indisputable questions:

Party Mandate: After the midterm elections, the incumbent party holds more seats in the U.S. House of Representatives than after the previous midterm elections. False

Contest: There is no serious contest for the incumbent party nomination. True

Incumbency: The incumbent party candidate is the sitting president. True

Third party: There is no significant third party or independent campaign. True

Short-term economy: The economy is not in recession during the election campaign. False / True

Long-term economy: Real per capita economic growth during the term equals or exceeds mean growth during the previous two terms.  False / True

Policy change: The incumbent administration effects major changes in national policy. True

Social unrest: There is no sustained social unrest during the term. True

Incumbent charisma: The incumbent party candidate is charismatic or a national hero. (Note to achieve this the benchmark is Ronald Reagan, JFK and Theodore Roosevelt) False

Challenger charisma: The challenging party candidate is not charismatic or a national hero. True

Debatable:

Scandal: The incumbent administration is untainted by major scandal. False

Foreign/military success: The incumbent administration achieves a major success in foreign or military affairs. True

Foreign/military failure: The incumbent administration suffers no major failure in foreign or military affairs. True