If you’re an investor, the #1 thing you should read today is notionally a post about politics from Nate Silver, the political forecasting guru.
It’s about the surprising staying power of Herman Cain at the top of the GOP polls despite A) all kinds of knocks on his campaign and B) everyone declaring him dead.
To give you a sense of how improbably Cain’s rise is, Silver put together this chart, which compares Cain’s poll numbers against Silver’s own proprietary “Non-Polling GPA,” which blends stuff like organisation, debating skill, and other intangibles.
Whereas with most candidates in history, Non-Polling GPA lines up nicely with their polls numbers, Cain is a true outlier at this point.
Photo: Nate Silver
But the real lesson isn’t really about Cain, but about the way he’s perceived by the professional political pundit class, which continues to say his rise impossible.
There is simply no precedent for a candidate like Mr. Cain, one with such strong polling but such weak fundamentals. We do have some basic sense that both categories are important. This evidence is probably persuasive enough to say that Mr. Cain’s chances are much less than implied by his polling alone. They may, in fact, be fairly slim.
But slim (say, positing Mr. Cain’s odds at 50-to-1 against) is much different than none (infinity-to-1 against). We don’t know enough about the way these factors interact, and we can’t be sure enough that the way they’ve interacted in the past will continue on into the future, to say that Mr. Cain has no chance or effectively no chance.
Frankly, I think it is quite arrogant to say that the man leading in the polls two months before Iowa has no chance, especially given that there is a long history in politics and other fields of experts being overconfident when they make predictions.
Essentially, he’s saying: There’s a serious mismatch between what real, actual data is saying, and the stories that everyone insists on telling over and over again: That Cain is a flash in the pan, and should just be ignored.
You see this in markets all the time. People lock onto some “story” about what’s driving the market, and then no amount of counter-data will shake them off their belief. For example, a lot of people will say Europe is driving the market these days, despite strong evidence that domestic econ is the real driver. That’s just one tiny example, but you see it over and over again. Think of all the people that refused to believe the economy was recovering after 2009, calling for crashes, double-dip recessions, and a return to crises at every step.
People constantly tell stories that are undermined by facts. So go read Nate, and don’t ignore real data.