Prior to this weekend's rumours of an alliance with the Mana Party, the so-simple contract paying out $0.10 for every 1% earned by the Internet Party was really this mess:
Here's what you're trading on, if you're buying this contract.Denote as Pm the likelihood of a merger with Mana. Denote as Ph the likelihood that Hone Harawira wins his seat in a world in which he's merged with DotCom. If there's a merger AND if Hone's seen as very likely to win his seat, I expect DotCom would void his promise to kill the party were it short of 5% - every vote would count for the Internet Party if it had a seat under MMP.
- The probability that DotCom actually forms a party (which I'd reckoned at 80% prior to this);
- The probability that DotCom is serious about the tweet (75%?);
- The probability that the Internet Party could poll above 5% prior to the deadline (which I put at even odds IF we get substantial GCSB Snowden revelations during the campaign);
- The expected vote share on election day. This expected vote share is:
- Zero if either of {No party, serious * less than 5%} obtain
- The vote share conditional on polling above 5% and conditional on DotCom being serious.
So, what the hell should you pay for a contract that pays $0.10 for every 1% of the vote earned by the yet-to-be-formed Kim DotCom Internet Party?Let's label a few terms and make a few guesses.
- Pp is the probability that there is a Party, say 0.8.
- Ps is the probability that DotCom really would kill the party if it doesn't poll 5% prior to the election, say 0.75
- Vh is the expected vote share conditional on a poll result of 5% prior to the deadline
- This one's hard to ballpark. You could make an argument for pegging it lower than 5% because a single outlier poll could be sufficient for his going ahead. But I expect that the state of the world in which he can get a single >5% figure is the state of the world in which we've had substantial GCSB revelations affecting NZ; in that state of the world, I'd put even odds on 5%. And so I'll stick it at 5, or $0.50 in iPredict prices.
- Vl is the expected vote share conditional on no polling result of 5% prior to the deadline.
- I'll peg this at 0.5%. If he goes ahead despite no polling result above 5%, credibility's shot. And it's also the state of the world in which there's no substantial GCSB revelations. So $0.05 in iPredict prices.
- Pt is the probability that the Internet Party polls at least 5% prior to the deadline.
- I'll peg this at at even odds IF we get substantial GCSB revelations during the election campaign, and nil otherwise. Supposing even odds on substantial revelations, that gives us 25%.
The expected value of the contract is then:Pp*[[Ps*[(Pt*Vh)+((1-Pt)*0)]+[(1-Ps)*[(Pt*Vh)+((1-Pt)*Vl)]]]Using my rough ballpark estimates, that's then:0.8*[[0.75*((0.25*$0.5)+0)]+[0.25*[0.25*$0.5+0.75*$0.05]]]= 0.8*($0.09375+.25*$0.04375)= 0.8*$0.1375= $0.11
I'm not going to put up the equation this time. It's going to be just too messy. But the following will matter:
- Pp, the probability that there will be a party, is now 0.98 (I expect)
- The party's expected vote share varies substantially based on whether they're allied with Mana.
- With Mana:
- On the upside, people may have fewer worries about throwing away their vote, but they shouldn't have had that worry anyway given the promise to kill the party were it not polling less than 5%. So maybe they get a bit of an up-tick from the expectation that there won't be a wasted vote.
- On the downside, you get an internet freedom, anti-surveillance party that's merged with some fairly non-standard economic ideas, conspiracy theories, and assorted random-draw oddities. The Green Party already combines internet freedom, anti-surveillance, non-standard economic ideas, and a slightly different set of random-draw oddities. I'm not sure what niche the DotMana Party then seeks to fill. Maybe it has a bit more "stick it to the Man" appeal than do the establishment Greens, but are there really many voters in that space?
- So, the whole Ps argument is going to change then: the Party goes ahead conditional on polling above 5% or on Hone's being likely to win Te Tai Tokerau. Note that his odds there dropped from 90% to 83% over the past week. So we then have a 17% chance that Hone loses his seat.
- In this world, the contract is really trading on the vote share for the combined party, and not simply on the likelihood of the party's reaching 5%.
- Without Mana:
- On the upside, we're mostly back to status-quo ex ante;
- On the downside, there's the substantial WTF?! effect on those who would have been supporters of the Internet Party. I'd expected that an Internet Party could do well by staying well out of stuff other than internet issues: they'd then provide a landing spot for anti-surveillance or pro-internet voters who weren't comfortable with the Greens and who didn't trust ACT's commitment to freedom on this issue.* An alliance with Hone Harawira doesn't particularly make him more appealing to folks in that group, or at least I'd bet against it.
- In this state of the world, and absent his buying some other MP, we're back to the calculation I'd run before, albeit around a lower mean due to the WTF effect.
- I have no idea how to start assessing the likelihood of a merger with Mana. My priors on what Hone Harawira might do on any margin are pretty flat. And Pm will matter.
* Jaime Whyte is very much against the expansion in surveillance that came with the GCSB and TICS legislation. His predecessor, John Banks, or at least Banks's office, very much favoured it. Some in the ACT Party come from the Sensible Sentencing Trust wing; I'm not sure they've ever seen an expansion in the police or security apparatus that they didn't heartily endorse. They trust that the GCSB will Do The Right Thing; they view the current surveillance arrangements as fully consistent with liberalism. Whyte doesn't. But that all does make it harder for ACT to commit to what I'd view as a liberal policy on these issues.
