Thursday, September 18, 2014

The National Pulse Index

Every two years, we here at the Naked Dollar trot out our proprietary political model called the National Pulse Index.The purpose of this index isn't so much to predict elections as it is to see which party, nationally, has the political momentum. who has been winning the news cycles. The model does this by aggregating polling changes in every available race, at every level. (For a complete explanation, see below.)

This is a daily graph going back to early May. (Sorry, I can't seem to make it show dates - curse you, Excel!) Lines going up mean the Republicans have momentum, down the Democrats. You can see that there's been a whisper of Dem momentum of late,and a couple of really big Republican moves earlier. Overall, Republicans are net +58 polling points since the start (although the graph looks like an oscillator, it is not.)

I will update this a few more times before election day so we can see which way the wind blows.


I used to run a quant hedge fund. What a quant does is take lots of data and make sense out of it. So, how to use this approach to capture the ebb and flow of an election cycle at the national level? Is the national mood swinging Democrat or Republican?

The approach I came up with four years ago is a simple metric, and the purpose is to use data - not the media or the water cooler - to track short term swings in political momentum. As it happens, it's a quick way to determine if the media narrative has any merit.

Essentially, the Index aggregates polls from everywhere, from presidential down to the House level. The idea is to pull in a huge and continuous sample, exploiting the wisdom of crowds. Specifically, the Index compares each new poll with the previous poll from the same race. The other day, for instance, Fox News reported that Terry Branstad, who's running for re-election as Governor of Iowa as a Republican, was up by 13 points. While this may seem like good news for Republicans, the previous Quinnipiac poll actually had him up by 23. I assign this a "minus 10" for the Republicans.

Each day, as new polls come out, they are compared to the previous polls from the same races. The numbers are added up to get a net score for the day. Then, I use a moving average of the last five days to smooth out the data. This gives us a very good picture as to which side has the momentum.

Allow me to make my case for why this works.

1. On any given day, this will capture the aggregate opinions of up to 20,000 people, whereas an individual poll (that might get one side or the other excited) can have as few as 300 people.

2. There really is a national "mood," and it really does matter which way it's moving. Opinions are infectious. It matters in Ohio what people are thinking in Alabama. They may not be perfectly in sync, but they do tend to move in the same direction at the same time. Thus, if Governor Jerry Brown just went from 20 points up to 30 points up, it doesn't mean anything for Brown - he's still going to win easily - but it does mean the mood in California is moving in a certain direction. This makes it likely the mood is moving in the same direction elsewhere.

3. Aren't some of these polls partisan and/or sloppy? Absolutely, but the Index takes them all, because the very next poll will likely net it out. Bad polls tend to get balanced out, in other words. To the extent that they don't, they probably have useful information, which is why one doesn't want to make judgments about which polls to use, and which not to.

4. What about the Generic Ballot polls, the ones where people are asked whether they intend to vote for a Republican or a Democrat? Don't those show the national pulse? Yes they do, but they don't come out every day, and they survey far fewer people (as few as 700).

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