Worrisome Trend or Meaningless Blip?

The real-money odds of Saddam Hussein’s defeat, as determined in an online market established by an Irish betting shop, have drifted lower recently. The odds of his defeat by March 31 were last priced at only 27 percent, down 6 percent today; odds he will be out by June 30 were last at 73 percent, down about five points in the past few days.

Look at this as an options market. If the market’s expectations for the date of a U.S. attack on Iraq were converging on April or May, one would expect March odds of overthrowing Hussein to decrease but June odds to increase. By the same reasoning, market expectations of an attack in March or earlier would raise the odds for all expiration dates. And if there were increased uncertainty about the timing of our attack but no change in the expectation that we would overthrow Hussein (i.e., a situation analogous to higher implied volatility), one would expect the March odds to increase, and the June odds to increase or remain unchanged. Yet in the actual market both March and June odds are lower in the short term, which suggests either that there is less likelihood that we will attack than is popularly believed or that there is less likelihood that we will depose Hussein if we do attack. Neither possibility is attractive to those of us who want to purge Hussein ASAP.

The odds outlook can always change, however. In particular, a resumption of the long-term upward trend (click on “IRAQ.SADDAM.JUNE03” in this window to see a chart) in the June odds would suggest that the odds were converging on a post-March attack date, which would be encouraging. It would probably not be as good as attacking earlier, but it’s not so bad given diplomatic delays (Turkey) and what we can speculate about the pace of U.S. preparations.

Still, the real concern is whether U.S. involvement with the UN will substantially delay or ultimately prevent our attack. I doubt it, but it’s possible, and that’s why these short-term retracements in the odds make me nervous. I think the case for invasion is crystal clear, but it’s easy to forget that lots of people see things differently. I hope that the people who don’t want us to attack Iraq will change their minds, and that my blog-centric view hasn’t distorted my judgment about what’s likely to happen.

UPDATE: On the other hand, this article suggests that Iraqis are optimistic, which is a very good sign indeed. (Via Iain Murray)