Is there manipulation in the Hillary Clinton Intrade market? Redux.
Justin Wolfers May 31st, 2007
Both Eric Zitzewitz and I have recently noticed some suspicious activity in the InTrade market for whether Hillary Clinton will be elected President, with someone bidding up her odds from about 25 to around 40 (currently hovering at 38). This just strikes as us too high, relative to her chances of even garnering the nomination (around 51). And when we saw this mis-pricing, we suggested that manipulation may be at play (see Eric here; my comments here; Robin Hanson here; and Greg Mankiw here).
But Koleman Strumpf isn’t so sure that this is manipulation. Koleman’s main evidence is that the law of one price appears to (roughly) hold across markets, and so the 2008.PRES.CLINTON security is similarly priced on BetFair, and elsewhere. Of course, this isn’t evidence against manipulation, but it is interesting. He raised the real possibility that this is a rational market response to some recent developments, although for the life of me, I can’t figure out what development that may be.
At the heart of Koleman’s concern is a question about the burden of proof here. And I have some sympathy for the view that when a market price moves in a direction you don’t expect, one should change one’s expectations, not one’s view of prediction markets.
So here is a simple way to resolve the issue of the burden of proof… If the current market price is a reflection of available information, then as future information comes in, it is as likely to rise as to fall. So I want to offer Koleman the following bet: If the price of 2008.PRES.CLINTON is higher than 38 (the current price on Intrade) on June 30, then I’ll buy him his favorite cigars. And if it is lower, I’ll be waiting for a good bottle of Aussie red.
Of course, we would want to make sure that this friendly wager is, itself, manipulation-proof. So I’ll suggest we use the volume-weighted average trading price on June 30 to resolve the bet, and not simply the last 11:59pm trade.
So Koleman, do we have a bet?
And more generally, do we have a useful mechanism for resolving scientific disputes?
[Cross-posted from overcomingbias.com]
“do we have a useful mechanism for resolving scientific disputes?”
I’m a believer in the scientific approach.
http://en.wikipedia.org/wiki/Scientific_method
If I were Koleman Strumpf (but I’m not), I would not take any bet. I would wait the other economists to weigh in (I am curious about any pertinent and mutant ideas they may have on this), and the facts to come in, and see whether they fit the hypothesis/theory.
Plus, just a last word: Somebody who is in the minority can later on win the scientific debate. So I don’t care about the economists’ consensus on this —only the scientific truth counts. And it could come soon or a bit later. To frame right away a betting horizon is a bit cocky. I’d be prudent.
Win Justin’s Money? (re: Is there manipulation in the Hillary Clinton Intrade market? Redux.) - by Koleman Strumpf
http://www.midasoracle.org/200.....ket-redux/
CAT GOT PROFESSOR KOLEMAN STRUMPF’S TONGUE????
http://www.midasoracle.org/200.....fs-tongue/
PROFESSOR KOLEMAN STRUMPF STILL DOUBTS THAT THERE HAS BEEN MANIPULATION OF THE HILLARY CLINTON EVENT DERIVATIVES.
http://www.midasoracle.org/200.....rivatives/
He he. I love it: from “beyond a reasonable doubt” to a “preponderance of confidence.” I totally want in. I’ll take payment in Paso Robles Syrah.
But I hate to tell you Justin, we’ve been anticipated by Robin yet again:
Could Gambling Save Science
When there is a betting market on some topic, offers to bet outside that market at odds that differ from those expressed in that market will obviously favor one party at the expense of the other, relative to the opportunities available in the market.
In fairness to Justin, I think 38.2 was the current price at the time he posted. It’s been bouncing around between 33 and 38 as the bid side of the order book gets eaten away at and then refreshed.
I’d be happy to accept Koleman’s bet at whatever the current bid-ask midpoint is, provided its above 32. That is, if he’s not chicken.