Was Intrade being manipulated over the last month?

Intrade’s betting odds on the 2012 presidential election have differed significantly from those available elsewhere. For the 48 hours preceding the election, the difference in the implied probability of Obama winning on Intrade relative to other betting agencies like Betfair, was 8 to 15 percentage points. This persisted until a large share of Ohio votes had been counted and Colorado and New Mexico were starting to count, at which point the difference quickly evaporated. Over the previous 3 weeks or so, the difference had moved in the range of 5 to 10 percentage points.  The same distortion was observed in favour of McCain during the election in 2008, though to a lesser extent.

This provided an opportunity to make substantial money by betting on Obama on Intrade and Romney elsewhere – a so called dutch book, or ‘arbitrage‘. I joined some colleagues at 80,000 Hours doing this yesterday to earn money for our favourite cost effective charities. We each walked away with about $500 after all of the associated fees. Eyeballing it, a dutch book is profitable, ignoring the cost to your time, if the probability gap is larger than 3 percentage points; below that, the fees involved will eat up your winnings.

Why was this possible? I don’t have a good answer, but I can suggest one possibility. Some noteworthy aspects of the situation are:

  • Americans can’t deposit money into Intrade using credit and debit cards – they have to use bank transfers.
  • Bank transfers take at least two days to arrive and cost over $20.
  • Everyone else can choose between cards and bank transfers.
  • Cards are instantaneous and free (if denominated in US dollars anyway) but have a $2,000 deposit limit in the first month, and $5,000 thereafter.
  • It takes at least a day, probably two, to open a new Intrade account and have it approved.
  • There are other significant barriers to entry – knowing about the issue, learning about the fees, opening an account with another betting agency and finally having the time and confidence to correctly place the hedge.
  • Intrade seems very widely covered by the US media.

A single person with a huge amount in their account from a wire transfer could manipulate the market by selling Obama’s shares down, or buying Romney’s up. This appeared to be happening in the 67-72% likelihood range in which Obama was stuck for a long period of time, while other larger agencies were placing him around 82%. Several people on Intrade’s forum spotted what they thought were abnormally large bids for Romney’s stock.

Once someone started doing this, it would take at least two days, probably three, for a wealthy or ambitious person to respond by wiring in enough money to bet against them. They would have to hope that the manipulation persisted long enough for them to profit from it. Until then, people outside the USA would be limited to putting at most $2000 or $5000 into their accounts, which is barely worth the effort for someone with the required skill. Someone could plan to do this over the last few days of the election without generating much resistance.

The volume yesterday on Obama’s Intrade shares was about 600,000. If all of those trades involved one person, who was losing 10 percentage points on each share, they would have blown $600,000 to keep Obama’s odds down. The volume over the previous three weeks is hard to read from Intrade’s graphs, but looks to be about the same again. So a single cunning person willing to lose $1 million could have singlehandedly driven the price difference, if they wanted to influence perceptions of the race and encourage voter turnout. Out of the $6 billion spent on the election so far, that’s not a big investment. Intrade will face the risk of this until they make it easier for wolves to fund their accounts and go out hunting sheep.

Weaknesses of this theory are:

  • Why didn’t manipulation over the previous three weeks prompt someone to move a large sum onto Intrade in anticipation?
  • Why haven’t wealthy Obama supporters attempted the same trick?

Nonetheless, I think this is more likely than a broad pool of Intrade participants being enthusiastic about Romney against all the evidence, and unaware that they could get better odds elsewhere.

If I were a Democrat supporter with a lot of money, I would plan to profit from similar situations in the future while simultaneously improving Intrade’s performance.

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  • http://overcomingbias.com RobinHanson

    The more people try to manipulate these markets, or suspect such manipulation, the more they’ll attract people like you trying to profit, the more trading activity in total there will be, and the more accurate prices will be overall.

    • http://jessriedel.myopenid.com/ Jess Riedel

      Sure, this is the outcome when you take the infinite-liquidity-and-infinite-market-cap limit.  But the interesting question is when this limit becomes accurate.  I was surprised in the past few days to see that trading volumes in the 100′s of thousands of dollars and bid-ask spread of 0.2% was not enough to prevent a 15% slant in the Intrade odds.  If it really takes millions of dollars in the market to get reliable numbers, this substantially limits the applicability of prediction markets, no?

      Maybe things will get better when prediction markets get more popular and well known, so there will be a bigger pool of arbitragers.

      • http://overcomingbias.com RobinHanson

        Infinite liquidity literally means that no one can move the price. Which implies no one could manipulate the price, so they wouldn’t try. That is the opposite of my claim, that if it becomes known that some are moving the price one way, others will come in to move it back the other way. I do NOT claim that it takes millions of dollars to get informative prices.

      • http://jessriedel.myopenid.com/ Jess Riedel

        Thanks very much for the reply.  I think you could have been a little more charitable when correcting my misunderstanding about the definition of liquidity.  “Efficiency” definitely would have been a better word choice, but my point still stands: The idealized limit is compelling, but the more interesting question is how large the market cap has to get, and how low the barriers to entry have to be, before it’s a good approximation.  The point of Robert’s post is that the frictions have a larger impact than you might expect (or at least, than *I* might expect).  I would be very interested to read more blogging about this in the future.

      • Robert Wiblin

        The main flaw is probably the barriers to entry in Intrade. We should be suspicious of results where such barriers exist.

      • http://juridicalcoherence.blogspot.com/ srdiamond

        my point still stands: The idealized limit is compelling, but the more
        interesting question is how large the market cap has to get, and how low
        the barriers to entry have to be, before it’s a good approximation.

        Why so interesting? It seems BetFair demonstrates that it is easy to move very close to the limit. It would be, seems to me, exceedingly tedious to ferret out exactly how much interference produces how much distortion under what might be very specific conditions.

    • http://juridicalcoherence.blogspot.com/ srdiamond

      Can you demonstrate the proportionalities, or are you relying on qualitative trends and rhetoric?

      • Pablo

        See here for a more detailed analysis.

      • http://juridicalcoherence.blogspot.com/ srdiamond

        Thanks, Pablo. The authors rely on empirical studies as evidence manipulation is improbable. Robin’s comment above served in the published analysis as an explanation for the empirical improbability. It isn’t, as do I think Robin implies in this thread, a demonstration  that manipulation is unlikely, even under the usual idealizations. 

    • http://twitter.com/jruspini Jason Ruspini

      Unless public revulsion sinks the entire possibility of legal liquid prediction markets.

      • http://juridicalcoherence.blogspot.com/ srdiamond

        Seems like the sort of question Robin would have addressed, but I don’t recall it: why is the public revolted by prediction markets?

        Is it a general revulsion against legal gambling? I don’t see that revulsion is terribly strong; nobody demands Vegas illegalize it. And then there are the state-run lotteries, which revolt me.

      • http://twitter.com/jruspini Jason Ruspini

        The public generally doesn’t mind gambling but when you combine it with an important real-world outcome, and it looks like someone is trying to influence the outcome, that’s a problem.

      • Phil

        I suspect people like to show revulsion against gambling on “important” things (as opposed to, say, sports or dice), in order to signal their intellectual or moral seriousness.

      • http://twitter.com/jruspini Jason Ruspini

        If by “important” you mean important, and by “signal their intellectual or moral seriousness” you mean “not have their interests screwed over by markets gone haywire, again” then I agree.

    • http://offsettingbehaviour.blogspot.com/ Eric Crampton

      That’s true, Robin, but there are real-world constraints on getting in. Stupid regs prevent people getting money quickly into InTrade. That’s an argument against stupid regs rather than against prediction markets. 

      I like to think I’m not an idiot on these things. But when I first heard chatter about the price differences, I figured they’d be gone by the time I did anything. A lot of people must have figured similarly. They persisted. By the time I decided to go in, I was restricted to credit card deposits on InTrade – other methods would have taken too long to clear. So I was subject to the $5k deposit limit. And I had to scan and email in a pile of paperwork to comply with anti-money-laundering regs. 

      I blew my $5k buying Obama the day before the election, figuring that whatever price difference was there would be gone by election day. I made about a 10% return across markets. On election day, the gap opened up to twenty percentage points briefly and tended to sit around fourteen points. 

      We’ve gotta make it easier for folks to get money into these markets. Because it’s just not feasible to keep $50k sitting in InTrade waiting in hope that something like this comes up again. 

      • http://juridicalcoherence.blogspot.com/ srdiamond

         

        We’ve gotta make it easier for folks to get money into these markets.

        Perhaps the barriers to entry is exactly what allows the prediction markets to escape strictures against what could be an addictive form of impulsive gambling.

    • http://juridicalcoherence.blogspot.com/ srdiamond

       

      The more people try to manipulate these markets, or that others just suspect such manipulation, the more they’ll attract people like you trying to profit, the more trading activity in total there will be, and the more accurate prices will be overall.

      Isn’t this the same argument that concludes that because of its self-defeating nature, predatory pricing shouldn’t be a concern as restraint of trade. (Your competitors should buy up your product, for one thing.)

      As Keynes said, in the long run, we’re all dead. (Not you, of course, with cryonics and all.)

      • http://overcomingbias.com RobinHanson

        It depends on the ease of entry; the easier is entry, the less you should be concerned about predatory pricing. Entry is pretty easy in these betting markets.

  • Peter McCluskey

      In 2008, Intrade attributed a similar phenomenon to one large institution that might have been hedging.

    I made some money off of this, but was too lazy to transfer more money to my Intrade account recently.

  • Owen CB

    Two comments:

    Betfair, which I believe is the largest other market, doesn’t accept customers from the US, which could provide additional friction.

    As the global market in these things is, as you point out, not huge (I think the Betfair markets are the same order of magnitude size as Intrade), this manipulation could be effective even if the liquidity was there. People playing the arbitrage (as I did) will have reduced Romney’s odds on Intrade, but also increased them on Betfair. To get the odds properly equalised requires someone with a clearer idea of the actual odds and a propensity to take some risks. This doesn’t feel like a bit demand, but given that even the arbitrage opportunities weren’t disappearing, perhaps it’s not surprising that it’s not immediate.

    • Douglas Knight

      Why did you do the arbitrage with Betfair rather than a bookie? The bookies offered better odds. I believe that the bookies have much greater volume, so you would not have distorted their odds. Arbitragers like you may explain why Betfair did not match the bookies, but was a little bit in the direction of Intrade.

      • Owen CB

        Fair question. Simply because I’d noticed the arbitrage between those two and didn’t think to compare to bookies (probably because they didn’t fit into my mental categorisation as prediction markets). Later I wondered, but at that point I’d already dealt with the bureaucratic hurdle of establishing accounts. 

  • MC Escherichia

    “Why haven’t wealthy Obama supporters attempted the same trick?”

    Actually, didn’t anything that made the race appear close benefit Obama, since he was the one with the actual lead, assuming he could just get his supporters motivated enough to actually vote…?

    • Owen CB

      Is this documented as being the direction of that effect? I can see reasons it could move it in either direction.

    • http://juridicalcoherence.blogspot.com/ srdiamond

       Getting his own supporters out to vote was the strategic nub.

    • Robert Wiblin

      It would also discourage Romney voters and donors. Romney tried to seem more likely to win.

      • Dániel

        Romney’s and Obama’s (and the media companies’) incentives were almost perfectly aligned: they all wanted the perception of a close race.

      • Lorem Ipsum

        Since for Obama and Romney it’s more or less a zero-sum game, their incentives couldn’t have possibly been aligned. Although I’m not actually sure who benefits from a particular margin…

  • http://twitter.com/TheZvi Zvi Mowshowitz

    Manipulation, or one large market agent (which is not effectively different) are the only theories that match what happened in the markets in 2012. This is simply what happens to markets of this type; there is a limited amount of money people are willing to risk (on the outcome, at the betting website, and so forth) that is willing to step in front of the issue up to a point, but eventually that money dries up and only over the very long term does that increase the stores of such money. 

    In this case, it was about Intrade itself. There was an essentially limitless supply of money looking to bet on Obama at Pinnacle and Betfair, and at prices much worse than Intrade’s price, which is what allowed the arbitrage; this was because people faced limitations on ability to move money in and out of Intrade. The documentations they require and limits they impose made people consider going there an unnecessary/unacceptable hassle/risk. 

    • http://twitter.com/jruspini Jason Ruspini

      Add to this the margin system where most traders have to post $6 to buy at 60% but only $4 to sell there, and you get a real bias towards 50%, beyond the classic favorite/longshot bias.

    • Douglas Knight

      Maybe there was a limitless supply of money at bookies, but Betfair had the same volume as Intrade ($30e6 by a day before the election).

      It seems to me that there is a big difference between manipulation and a single large agent. A manipulator might have chosen Intrade over Betfair because Intrade is quoted more in America. Whereas a single large agent, either with weird beliefs or hedging chose Intrade over Betfair and bookies arbitrarily. (Last cycle, Intrade claimed some suspicious transactions were from a hedger who could be bothered to spread the transactions over days, but not over finer intervals.

  • Mitchell Porter

    “a broad pool of Intrade participants being enthusiastic about Romney against all the evidence”

    There were large numbers of people on the right expecting a Romney win or a Romney landslide.

    • Robert Wiblin

      I doubt that such unsophisticates are active on Intrade.

      • David Barry

        I agree with Robert.  While I was watching Intrade the other night, Obama’s price had gone to about $7.05 and was heading upwards.  Someone offered to sell 5000 shares at $7.30, about two seconds later another 5000 shares were offered at $7.20, and a few seconds later again some large number (I don’t know how many, more than a thousand, a lot of them were bought quickly) at $7.10.
        Most trades on the market were in 10′s or 100′s of shares, so it was a pretty transparent effort to keep Obama’s price below $7.30 for as long as possible.

      • Pat W Brooks

        there are lots of idiots on intrade, no question. The comments are occasionally astounding.

    • http://www.facebook.com/profile.php?id=599840205 Christian Kleineidam

      Why do you think that such people are more frequent at inTrade then at the other sites that provide prediction markets?

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  • http://twitter.com/kaznatcheev Artem Kaznatcheev

    Could this be a marketing ploy? 

    It is in the interest of news agencies to report the election as close and a “toss-up” even when it isn’t (as was evident from every news source except 538). If your betting site predicts odds that are closer to 50-50 than other sites then your site is more likely to be mentioned by pundits to support their case for the race being close. If your primary money making comes from other sources (like betting on sports) and the election is just a small event compared to it, then doing some in-trading on InTrade could be a good way to be mentioned on the news more. The perception of your users as being not good at betting is also not bad to your business  since most people think they are smarter than average and so might join InTrade just to beat the ‘dumb InTrader’ and lead to more revenue in the long run as they stick around for sports betting, etc.
    Just a random thought, mostly because I heard about InTrade much more than other sites during the election coverage.

  • Railroad Tom

    You also failed to mention that betfair.com had appropriate odds, discounting most of this theory.

    • JoeBuck

       betfair.com is much less known in the US than InTrade; InTrade gets lots of coverage. It is the discrepancy that supports the theory; if all betting sites had the same wrong odds, that would indicate that the election was a genuine surprise (but it came out exactly the way Nate Silver, Real Clear Politics, and PollTracker.com said it would, so there was no surprise at all to anyone who had done the research before “investing”).

    • Robert Wiblin

      I explicitly said the odds were different at Betfair, and that supports the theory rather than contradicts it.

  • Phil

    Robert Wiblin, why did you give the money to charity?  

    • Robert Wiblin

      It would improve the welfare of other people dramatically more than it would improve my welfare. And I care about those other people. Read more: http://www.givingwhatwecan.org/why-give

  • 4thaugust1932

    HFTs are making money with computerized https://en.wikipedia.org/wiki/Information_asymmetry 

  • http://xeric-front-yard.tumblr.com/ Tim Thomas

    I honestly think the huge number of market players watching Fox news is starting to manipulate the market. Mark Cuban even admitted on his blog that he was blindsided by Romney not winning in a land slide. I think Fox news has a lot more influence over the market than reality. There are probably lots of things that are being reported on that channel that could be manipulated in the real world.

    You have states that didn’t move at all on health care reform because of these blinders. You still see business news reporting that fossil-fuel based energy is going to be more regulated in the next administration. I’m betting you could make quite a bit of money watching for these disconnects from reality on Fox news and then playing the market based on them.

  • JoeBuck

    Since InTrade already favored Obama (even if by less than on other sites), it would be irrational for the Obama side to push it up higher. Too huge an apparent lead could suppress turnout for your side, as overconfident but busy supporters conclude that it’s not necessary to vote.

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  • RichardSerlin

    “Cards
    are instantaneous and free (if denominated in US dollars anyway) but have a
    $2,000 deposit limit in the first month, and $5,000 thereafter.”

    So is the most you can put in your account, by any means of transfer, $5,000/month?

    In this way, in preparation for an arbitrage in 2016, you could store up about $240,000, but do you get any interest for this money sitting there for years?

    • Owen CB

      You can put any amount in by wire transfer, regardless of where you live, but it takes a few days.

      • Richard Serlin

         Then why didn’t people put larger amounts in to bid away this arbitrage? The market was too shallow and illiquid for it to be worth much effort,and trouble? The arbitrage spread was very illiquid and would have collapsed quickly before you could gain that much anyway?

  • Ebrendanm

    I think the simpler explanation is that they were just hedging against an unknown unknown, the chance that polls were systematically biased against Romney.

  • Douglas Knight

    Robert Wiblin, could you supply more detail? I cannot tell what you are saying and thus I cannot tell whether Betfair is evidence for or against it. You have a bunch of bullet points about Intrade, but it is not clear whether they are meant to contrast with Betfair.
    Intrade and Betfair seem very similar to me. They have the same legal situation and the same volume ($30 million). Thus it seems important to me to examine them in the light of any hypothesis.Maybe the details you supply differ between Intrade and Betfair, but since they have the same volume, it seems implausible to say that the barriers were materially different. Perhaps they had equal barriers and were equally vulnerable to manipulation, but Intrade’s popularity in American media made it the target. There could be speed bumps which make Intrade less responsive than Betfair, without much impact on total volume. This might explain the much larger divergence on the last few days, but does not seem relevant to the three weeks of opportunity. (Do you have time series to say that the smaller divergence was only a month old?)If Intrade is quoted more in America, then that makes it a good target for manipulation, but it also means that its population is probably more American. It is possible that Americans had different opinions than Europeans. However, some of the bookies, such as Pinnacle, were based in the US. Americans could not use their web site, but probably most of their action was in person in Vegas. (does anyone know?)

  • Ryan Carey

    The effect could plausibly be explained by Republicans being more subject to wishful thinking and related biases than Democrats. But then why would they only be subject to these biases on Intrade, and not on other betting websites?

    • http://www.philosofiles.com/ Tom Ash

      I believe that US gambling laws naturally drive Americans to InTrade (which IIRC has some special legal status which allows it not to count as ‘gambling’) over UK betting sites like BetFair.

    • Daniel Carrier

      Or maybe Democrats are more subject to overconfidence.

      The question isn’t why the price was so low. It’s why it differed from other makets.

  • http://juridicalcoherence.blogspot.com/ srdiamond

    There’s been controversy: what to follow, the prediction markets or the polls, and the statisticians seem to have carried the day–if only because it is impossible to do better than the perfect prediction of electoral votes.

    Nathan Silver’s acing of this exam provides–it would seem to me–a standard against which to evaluate the prediction markets. At the end, Silver held for Obama at 92%. How closely did the prediction markets approximate statistical perfection (since Silver also presented statistical ranges, presumptively as solid as his point estimates). Certainly Intrade flaked, but, I admit, explanations are easy to find in the severe barriers to entry in imposed.

    What might discourage prediction-markets’ proponents is the possibility that statisticians perform better than the market. It is true that this is only one kind of prediction, but do prediction markets predict well where statistical prediction is infeasible? Not so, we know, with the Chief Justice’s vote on Obamacare. Is there some middle ground where prediction markets work better than statistical analysis?

    • Martin-2

      “What might discourage prediction-markets’ proponents is the possibility that statisticians perform better than the market”

      Unless, of course, that proponent happens to be a statistician :)

    • gwern0

       > the statisticians seem to have carried the day–if only because it is
      impossible to do better than the perfect prediction of electoral votes.

      Of course you can do better. First, the electoral votes is not the only prediction to make: you can predict total number, you can predict popular vote, you can assign higher odds to Obama winning than many did, you can assign higher odds to all 50 states’ outcomes, you can more precisely predict vote-shares for all 50 states, you can predict all ~30 Senate races *and* again their vote-shares, and so on. Compiling predictions, I think I wound up with something like 163 unique 2012 predictions from Nate Silver alone.

      When you take these full prediction sets and run  the commonly accepted measures among these statisticians (Brier & RMSE), you find that far from all doing equally well, there are striking rankings, and for example, Nate Silver does not always come out on top. Indeed, Wang trounced him soundly on the Senate races because he predicted them all correctly while Silver lost *2*.

      See https://docs.google.com/document/d/1Rnmx8UZAe25YdxkVQbIVwBI0M-e6VARrjb0KdgMEVhk/edit and http://appliedrationality.org/2012/11/09/was-nate-silver-the-most-accurate-2012-election-pundit/

      • http://juridicalcoherence.blogspot.com/ srdiamond

        Of course you can do better.

        Well, you trivially can’t do better with respect to predicting electoral votes, which was Silver’s primary objective. If you want to throw other predictions into the pot, what’s “better” depends on your choice of criterion of overall success. 

        Since what’s of practical interest is the electoral votes, the question of how the prediction markets predicted the distribution (whether directly or by implication) seems the most important, at least in a direct sense. So how did the prediction markets stack up against Silver )or against Wang on Senate races)?

        Your response is mostly irrelevant to my point, harping, LW style, on a single, isolated phrase (“do better”). We all know other things were predicted. The point is the comparison between statisticians and the markets.

      • gwern0

         > Well, you trivially can’t do better with respect to predicting electoral votes, which was Silver’s primary objective.

        Both Linzer & Wang had better Brier scores on electoral votes.

        > Since what’s of practical interest is the electoral votes

        Since you’re complaining about harping, I’ll harp some more: electoral votes aren’t of ‘practical interest’, winning the Presidency is. There too Silver assigned a lower probability than others (Wang, Jackman, & Linzer).

        > So how did the prediction markets stack up against Silver )or against Wang on Senate races)?

        If you had read the link… But anyway, Wang was #1 at 0.012, Silver and Intrade were very similar at 0.044 & 0.048 respectively.

        > The point is the comparison between statisticians and the markets.

        The whole point about looking at the full set of predictions is to make that comparison you want possible! Since if we adopted your minimalist ‘the only thing that matters is whether the real outcome was assigned >50%’, Intrade did as ‘perfectly’ as many – why, it predicted Obama with >50% odds! What is this manipulation everyone is getting all hot and bothered about?!

      • http://juridicalcoherence.blogspot.com/ srdiamond

        But anyway, Wang was #1 at 0.012, Silver and Intrade were very similar at 0.044 & 0.048 respectively.

        So, the statisticians tied or did better than the markets. (But what about BetFair?)

        Since if we adopted your minimalist ‘the only thing that matters is whether the real outcome was assigned >50%’, Intrade did as ‘perfectly’ as many – why, it predicted Obama with >50% odds! What is this manipulation everyone is getting all hot and bothered about?!

        You’re distorting my comment. I never advocated “minimalism.” I said it made sense to look at predicting the electoral vote because that’s what Silver focused on perfecting and because he did it perfectly, whereas no one else did. To test the prediction markets, you should look at the best the statisticians can provide, and Silver focused his efforts and succeeded in predicting the electoral vote better than anyone else. Other measures, some in some ways more sensitive, can be devised pertaining to electoral votes, but whether they are “better” depends on what your formulas and intellectual effort is concentrated on. 

        Did Silver do better than the prediction markets generally or better than Wang generally? That’s your question, not mine. (Problem is, you insist on imagining it’s mine.) Silver performed perfectly on what he tried to optimize, and it’s instructive to test the prediction markets against the best performance by a statistician (with respect to the one prediction where he performed best).

    • http://juridicalcoherence.blogspot.com/ srdiamond

      I’m surprised that the issue of comparing prediction markets to the best statistical analyses (based on poll results) has drawn no other real attention here. After all, isn’t this really a variant of the question of the efficiency of the market versus central planning (which is, in essence, statistical prediction). Robin’s ingenious procapitalist concept could prove the undoing of capitalist ideology if statisticians prove superior to the market.

      It should  be embarrassing to be outdone by statisticians because the statisticians’ analyses were available to the traders. The markets are supposed to excel at combining information, but in, fact, they seem to have done worse due to whatever traders believed that they added to the available statistical knowledge.

      There are biases known to affect the prediction markets–unlike the best statisticians. What happens to the “wisdom of the crowds” when Silver and Wang, “loners,” did better?

      The capability of science and technology grows faster than the complexity of markets, which they are destined to replace.

      [For a communist far future, see Iain M. Banks Culture series.]

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  • Daniel Carrier

    “If I were a Democrat supporter”

    How is that relevant? Isn’t making money improving Intrade’s perfomance good regardless of your political position?

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  • Joonasaur

    Both candidates have an incentive for the race to be perceived as a dead heat. One doesn’t want their base to take anything for granted, the other doesn’t want to be perceived as weak. The media likewise has an incentive for the race to be perceived as close, to keep people watching. 

    • http://juridicalcoherence.blogspot.com/ srdiamond

       I don’t think this is quite right. Romney’s interest, it is quite true, was in not appearing weak. But people like to vote for winners, and being the overwhelming favorite would have helped Obama. (That’s why the Democrats liked Silver and the Republicans hated him.) What gives rise to the impression that Obama wanted the race to appear close is that Obama couldn’t be seen as believing he was a shoe-in, for that would appear to “take the electorate for granted” (as in the first debate).

  • Peter Gerdes

    Just consider how much money is spent every year driving to voting booths just to align yourself with a certain attitude/philosophy.  A number that is dwarfed by inefficient charitable contributions chosen to support causes that capture our imagination and let us look good rather than for their success.

    Given these facts does it really seem so implausible that it was demographics and the lure of showing off your confidence that caused this result?

    The lack of arbitrage in response could easily be explained in the same fashion.  It wouldn’t feel like stating your confidence your candidate couldn’t lose but rushing in to take advantage of someone’s bad gamble. 
     
    ——-
    Another likely possible explanation is that the market simply isn’t liquid enough to provide an accurate price signal in the face of even one large corporate or individual investor wishing to buy insurance against a political outcome.

    Most individuals don’t have the time, psychological distance, research and hedging opportunities to make it worth their while to dump in the fairly sizable quantities of money that would be needed to move the market back and the overhead/uncertainty (esp the gambling angle) discourage professional well funded attempts at arbitrarge.  However, this doesn’t mean that some individuals/organizations might not have an incentive to hedge their economic bets on the election.

    —-

    As far as Romney vs. Obama they do stand in considerably different situations with respect to influencing the market.

    Romney has a much larger personal fortune, the disposition of which he has kept far more private than Obama.  Also, as he was losing the risk was much less to him.  Had Obama tried to influence the market it would have caused a scandle during his next term.  Finally, republicans may be more likely to be moved by the indications of a market.

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