David M Rothschild on Posted on

There are robust markets on both PredictIt and Betfair on whether President Trump will be President of the United States at the end of 2017, 2018, 2019, and when his term expires on January 20, 2021 at 11:59 AM ET. I am tracking them on this page. These market as agnostic to the reasons Trump may leave office: resignation, removal, or health/death.

We will never determine the ground truth to these questions (i.e., the true probability), until which point the markets reach 0 or 100, but this is the exact type of question that markets do well. There are too few presidents (i.e., outcomes) and too many idiosyncratic (e.g., Russian collusion does not happen repeatedly) and dispersed variables (e.g., just a handful of people have insight into the President’s health) to create a model. We need a market, or other crowd-sourced system, to provide a baseline prediction. By definition, this type of prediction will be less precise than a prediction for a sporting event or even an election, because those types of events have many outcomes to train on and have public and clear variables to model. But, the big marginal value of this prediction is that there are no other objective predictions. Markets do not provide that much insight over the statistical model for sports or elections, but here there is no other model. Also, right or wrong, this is what the market thinks, and we care about what the market thinks for many reasons.

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The probability of finishing the first term has hovered between 40 and 60 percent since Trump’s inauguration. It was steadily increasing, as things settled in, until Sally Yates’ testimony on May 7, 2017. The testimony opened up on the issue of Micheal Flynn’s firing from the White House and how they handled (or did not handle) his Russian ties. The probability bottomed out with the appointment of Special Counsel Mueller to investigate. Since then, it has hovered around 50 percent, settling in around 48 percent today.

Does this seem high to you? Does this seem low to you?

1) Removal: Trump is mired in scandal at just over six months, and has a Special Counsel investigating his ties campaign/administration’s ties to Russia. But, the Republican controlled House and Senate are unlikely to impeach and convict Trump of anything and they will control the senate the through the first term (it is about 50 percent the Republicans hold the House in 2018).

2) Health: Trump is relatively old, does not excise or eat well, and never had a full physical revealed to the public. People have publicly mused about removing Trump for fitness as described in the 25th amendment. But, there is a high bar to remove Trump for health reasons, unless he agrees to it, and it involves his cabinet, most of whom will be less important with him gone.

3) Resignation: Special Counsel is not just investigating impeachable offenses, but possible criminal offenses around the Trump business and money laundering. Trump may want to take the political pressure off of the investigation? But, at this point, even if he leaves office, the investigations may continue and he would lose the protection of the office.

The best measure that these markets are reasonable is that if I were forced to place $100 on whether or not Trump would finish his first term, I would be indifferent if I were buying or selling at $0.48 per $1.00 contract. At $0.38 I would buy and at $0.58 I would sell, but at $0.48? What do you think?