Comments on: InTrade Nominee Advice

By: Patri Friedman

Patri Friedman — Mon, 12 Nov 2007 22:06:09 +0000

I was tipped off to this play, and arbitraged this (with a small amount of money) many months ago.

Note that the margin requirements are sort of crappy, you have to put up your full potential loss a few months before the event. So the shorting half of the play has a pretty significant opportunity cost.

By: Konrad

Konrad — Thu, 25 Oct 2007 02:56:05 +0000

Don’t read too much into what amounts to random statistical noise. Markets tend to towards accuracy, but at any given moment, they’re wildly inaccurate. As Benjamin Graham noted a long time ago: In the short-term, a market is a voting machine. In the long run, it’s a weighing machine.

By: Dave Orr

Dave Orr — Thu, 25 Oct 2007 00:54:52 +0000

I’ve looked at these lines before, in particular the Gore one since it seems so out of whack. One problem is that when the numbers get towards one end or the other, you have to invest a lot of money for a fairly long period of time for a low predicted return.

For instance, suppose you knew that Gore was guaranteed to lose. You can sell contracts, but intrade requires that you keep enough money on hand to cover those if you lose. So you have to keep that much cash on the site in order to get a 5.3% return over a year.

Not terrible, but as the rate drops it gets less and less appetizing. So people stop selling below a certain amount unless the event is really close, and stop buying if it’s over a certain amount for the same reason.

So I think you can think of intrade predictions as being bounded from 5%-95% or something as long as the event is far away.

By: Barkley Rosser

Barkley Rosser — Wed, 24 Oct 2007 22:43:33 +0000

Hey, Intrade was way off on the economics Nobel. They did not even have any of the winners up on the board.

By: Eric Crampton

Eric Crampton — Wed, 24 Oct 2007 22:05:59 +0000

Sorry — InTrade charges a 10 cent expiry fee on a $10 contract, so there’s still a bit of money to be made in shorting. The fees are a high percentage of your expected earnings in shorting low probability events, but don’t eat up all of it.

By: Nick Bostrom

Nick Bostrom — Wed, 24 Oct 2007 21:59:13 +0000

With the trade fee, the foregone interest, and the point spread, it is difficult to arbitrage these imperfections out of the Intrade market.

By: Gray Area

Gray Area — Wed, 24 Oct 2007 21:45:55 +0000

A more interesting measure would be the probability a given candidate would win _if his/her nomination was forced_.

By: Eric Crampton

Eric Crampton — Wed, 24 Oct 2007 21:33:08 +0000

InTrade charges a 5 cent in-the-running expiration fee, right? That makes me worry a bit about the low-odds candidates: there’s no money in shorting them at current odds given the expiration fee. Correct me if I’m wrong…

By: douglas

douglas — Wed, 24 Oct 2007 19:57:02 +0000

I don’t think using a gambling site as a predictor of anything is a good idea. If gamblers are so good at predicting the future, then why are the casinos repeatedly taking in so much more money than they give out?
By the way, owners of casinos are not gamblers– ask one.

By: George Weinberg

George Weinberg — Wed, 24 Oct 2007 19:18:15 +0000

The argument that the same sort of good news that would allow a dark horse to win the nomination would also help in the general election makes a certain amount of sense, but that doesn’t seem to be what’s happening here. Gore’s chance of winning the primary is so low largely because he isn’t running.