Markets still lukewarm on Santorum after candidate’s three-state sweep

David Rothschild, Yahoo! News
Economist
The Signal

Rick Santorum pulled off a huge upset yesterday in Colorado. Just before the returns were announced, our model had Mitt Romney as high as 96 percent likely to win the contest, giving Santorum just 4 percent for his upset. As there was just a 1 in 25 chance and Santorum pulled off our first Election Day surprise, expect something like that to happen about in about 1 in 25 races. These numbers are derived with prediction market data.

Santorum also converted his expected victory in Minnesota and the "beauty contest" primary in Missouri, with no delegates. Romney slipped all the way to third in Minnesota, where he won in 2008.

But the markets are far from convinced that Santorum can sustain his good fortunes. His odds of winning the nomination rose slightly, to a non-negligible 11.3 percent likelihood to Romney's 79.5, followed by Newt Gingrich at 3.1 percent likelihood, and Ron Paul at 2.8 percent likelihood.

The real damage to Romney is not that he is at serious risk of losing the primary. It's that his rockier-than-expected path to the nomination is corroding his odds of defeating Obama, assuming he get a chance to try. Likewise, Obama's odds of reelection have improved as the nomination race gets interesting again.

Sources: Betfair and Intrade

Despite being in the lead, Romney looks weak against the Republican field, pulling fewer votes than he did in 2008. This is causing concern about how he would fare against Obama; his conditional likelihood of beating Obama, should he be the nominee, hit a new low for the campaign this morning at 39.1 percent likelihood. With 95 percent reporting, Santorum won Minnesota with 21,436 votes to Paul's 13,030, Romney's 8,096, and Gingrich's 5,134. Romney received 25,990 votes in 2008. With 100 percent reporting, Santorum won Colorado with 26,372 votes to Romney's 22,875 votes. Romney received 33,288 votes in 2008.

Gingrich and Santorum are even weaker against Obama with current numbers at 35.8 percent likelihood and 29.5 percent likelihood respectively.

Obama's likelihood of reelection reached 61.5 percent this morning, his highest percentage since mid-June.

Follow along on PredictWise for the real-time likelihood of the upcoming republican primaries, the Republican nomination, and the presidential election.

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.

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