Wednesday, September 08, 2004

Forecasting the Election with Macro Data

This interview with Ray Fair, one of the author's of the intro book we use is hysterical. Well, funny in a nerdy sort of statistical way...

Bush Landslide (in Theory)!Interview by DEBORAH SOLOMON
As a professor of economics at Yale, you are known for creating an econometric equation that has predicted presidential elections with relative accuracy.

My latest prediction shows that Bush will receive 57.5 percent of the two-party votes.

The polls are suggesting a much closer race.

Polls are notoriously flaky this far ahead of the election, and there is a limit to how much you want to trust polls.

Why should we trust your equation, which seems unusually

It has done well historically. The average mistake of the equation is about 2.5 percentage points.

In your book ''Predicting Presidential Elections and Other Things,'' you claim that economic growth and inflation are the only variables that matter in a presidential race. Are you saying that the war in Iraq will have no influence on the election?

Historically, issues like war haven't swamped the economics. If the equation
is correctly specified, then the chances that Bush loses are very small.

But the country hasn't been this polarized since the 60's, and voters seem genuinely engaged by social issues like gay marriage and the overall question of a more just society.

We throw all those into what we call the error term. In the past, all that stuff that you think should count averages about 2.5 percent, and that is pretty small.

It saddens me that you teach this to students at Yale, who could be thinking about society in complex and meaningful ways.

I will be teaching econometrics next year to undergraduates. Econometrics is a huge
deal, because it is applied to all kinds of things.

Yes, I know one of your studies used the econometric method to predict who is most likely to have an extramarital affair.

In that case, the key economic question was whether high-wage people are more or less likely to engage in an affair. They are slightly more likely to have an affair. But the economic theory is ambiguous because if your wage is really high, that tends to make you work more, and that would cut down on how much time you want to spend in an affair.

Are you a Republican?

I can't credibly answer that question. Using game theory in economics, you are not going to believe me when I tell you my political affiliation because I know that you know that I could be behaving strategically. If I tell you I am a Kerry supporter, how do you know that I am not lying or behaving strategically to try to put more weight on the predictions and help the Republicans?

I don't want to do game theory. I just want to know if you are
a Kerry supporter.

Backing away from game theory, which is kind of cute, I am a Kerry supporter.

I believe you entirely, although I'm a little surprised, because your predictions implicitly lend support to Bush.

I am not attempting to be an advocate for one party or another. I am attempting to be a social scientist trying to explain voting behavior.

But in the process you are shaping opinion. Predictions can be self-confirming, because wishy-washy voters might go with the candidate who is perceived to be more successful.

It could work the other way. If Kerry supporters see that I have made this
big prediction for Bush, more of them could turn out just to prove an economist

Perhaps you could create an equation that would calculate how
important the forecasts of economists are.

There are so many polls and predictions, and I am not sure the net effect of any one of them is much.

Yes, everyone in America is a forecaster. We all think we know how things
will turn out.

So in that case, no one has much influence, including me.

Keywords: ECO120, ECO301, ECO305, ECO307, BUS230

I'm Back

School is back in session, and I'm back to blogging. This tidbit from Jacqueline is priceless:

Department chair Don Boudreaux (Cafe Hayek) took current grad student Kevin Brancato (Truck and Barter) and me out to lunch. We had a great chat. Don really sold me on the department, and Kevin was also enthusiastic. Don told a hillarious story about meeting President Bush (W) at a Nobel party he attended with Vernon Smith. Vernon introduced Don to W as the economics department chair at GMU, and W complimented him on building a "good conservative department". Don corrected him that no, he was building a good LIBERTARIAN department. :)