Political Prediction Markets

I’m just wasting time until results come out, so I thought I’d post something of a different nature. Have you seen the “prediction markets” run by Intrade? They’re real-money markets allow you to trade in contracts that pay $1 if a given event occurs. So, if you use expected value, the fair price of the contract is essentially the probability of the event occurring. Since I’m a bit of a politics junkie, I check the political markets regularly. The most actively traded are not surprisingly the Presidential Election ones. At present, Obama’s at about $0.59, which is down from a high of about 0.68 in Mid July. The main site is www.intrade.com, and the political contracts are at http://www.intrade.com/jsp/intrade/contractSearch/#

You might consider this excellent podcast from the CFA institute…discusses at length the relationship between prediction markets (political, sports, etc.) and market efficiency. http://www.cfawebcasts.org/cpe/what.cfm?test_id=795

Great podcast. Wolfers (along with his regular coauthor Eric Zitzewicz) are two of the big dogs when it comes to research on prediction markets.

Awesome podcast. I was at the Vancouver conference and didn’t see this talk. Thanks for posting!

I was poking around on that intrade site during the primaries. Talk about volatility. It was really cool to track Romney, Mccain, Obama, Clinton, Huckabee (who’s the man), and a few other candidates. It was cool to see what a surprise victory or loss would do to the candidates’ stock. I wonder how much money flows through that site in terms of trades.

You can look at each trade and it shows daily volume. Multiply that by the going price and you’ve got it.

Once the conventions are over, I like to track what’s happening in the contracts for the various “battleground” states. These markets (originally it was just the Iowa Electronic Market at U of Iowa) have been pretty accurate at predicting election outcomes going back quite a ways (better than polls, since there’s money involved).

Cool stuff. Thanks busprof.

Just for laughs, here are some implications of the “omnipotent” form of EMH: http://www.streetsnarks.com/blog/2008/08/omnipotent-form-of-emh.html

Pawlenty spiked as the Rep. VP today. Romney tanked. I will be interested to see if this holds up. I haven’t heard any official reports anywhere else. http://www.intrade.com/jsp/intrade/contractSearch/# Edit: posted the link

mwvt9 Wrote: ------------------------------------------------------- > Pawlenty spiked as the Rep. VP today. Romney > tanked. > > I will be interested to see if this holds up. I > haven’t heard any official reports anywhere else. > > http://www.intrade.com/jsp/intrade/contractSearch/ > # > > Edit: posted the link Prediction markets are pretty good for aggregating diffuse information (like elections). But they’re not that good for predicting information/outcomes that are closely held. For example, they didn’t come anywhere close to catching the recent papal change a few years back. But I wouldn’t mind Pawlenty. He seems like a pretty good choice.

Looks like it is going to be wrong. Pawlenty said this morning that it isn’t him.