What do Iowa results mean? In the end, not much.
It's easy to obsess over the Iowa caucuses results, given how long we've all be waiting for actual voting to take place, but if there's any lesson from the markets it is that tonight will not have a huge impact on the final outcome of the primary. Iowans may fancy themselves kingmakers, but right now it appears the best they can hope for is to be King of South Carolina makers.
Mitt Romney went into the evening with a very high likelihood of victory in Iowa, and it doesn't appear that he will drastically underperform tonight. (With about 90 percent of votes recorded at press time, he's neck-and-neck with Rick Santorum and just a few percentage points ahead of Ron Paul.) Still, a stronger-than-expected showing in Iowa, does keep both Paul and Santorum viable in South Carolina. A strong victory by Romney in Iowa, which is unlikely at this point, might have knocked these Anti-Romney candidates out early.
Sources: Betfair and Intrade
Surprisingly, the tight race has only barely dinged the market's expectation that Romney will be the eventual winner--over 70 percent still have him on the stage at the convention. If the Iowa results end up swaying the South Carolina results--something that's difficult to prove--than they might indirectly effect the race as a whole. Otherwise, it appears the Iowa caucuses are simply not that influential this year.
Sources: Betfair and Intrade
David Rothschild is an economist at Yahoo! Research. He has a Ph.D. in applied economics from the Wharton School of Business at the University of Pennsylvania. His dissertation is in creating aggregated forecasts from individual-level information. Follow him on Twitter @DavMicRot and email him at thesignal@yahoo-inc.com.
