Is there manipulation in the Hillary Clinton Intrade market?

Justin Wolfers and Eric Zitzewitz recently have suggested there have been manipulations in the Intrade market for Hillary Clinton. The primary piece of evidence is the recent increase in her chance of being elected president without a concurrent increase in her chance of winning the Democratic nominee. The argument is that the implicit probability of Clinton winning the election, conditional on winning the Democratic nomination, is too high to be plausible. In particular, the Intrade markets suggest Clinton’s conditional chance of becoming president is currently about 65% and was as high as 77% a few weeks ago.

<For math geeks: leaving aside the unlikely event that she switches parties, this figure can be calculated from the nomination and overall winner markets using the rules of conditional probability,
Pr(Clinton president | Clinton nomination)
= Pr(Clinton President)/Pr(Clinton Nomination)>

This does seem anomalous and perhaps indicates that some individual or group is trying to make Hillary look like a strong candidate. But this possibility might be a bit less likely if it was simultaneously occurring in the other political prediction markets out there. In fact this is exactly what is going on: the Intrade prices are consistent with Betfair and other exchanges, and Clinton’s conditional election probability is substantially higher at bookmaker sites like Ladbrokes.

The attached file [XLS file] contains the details but here are the current conditional probabilities [see also the charts at the bottom]:

Intrade 65.88
Betfair 76.81
Bet365 65.45
expekt.com 60.00
BlueSq 66.67
Paddypower 68.44
Ladbrokes 84.89 (44% chance to win; 52% chance to get nomination)

What is more, the figures in the attachment show that there was price spike in the Hillary for president Betfair market at roughly same time as the one at Intrade (in mid-May).

So what to make of all this? While it is possible that there has been some sort of concerted effort to distort Hillary’s price, this would have required a simultaneous attack on virtually all of the big markets. Moreover, it is difficult to use this story to explain the odds posted at bookmakers like Ladbrokes unless they are setting prices to unwind some substantial Hillary position.

An alternative explanation is that there was in fact some change in market sentiment in the last few weeks. For example, the states of the world which would lead to a Hillary nomination are those in which she is more likely to beat the Republican nominee. For me at least, it usually takes several weeks after a sustained price change to understand how and why they occurred. Perhaps time will also reveal whether this was a case of crowd wisdom or market manipulation.

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P.S.: In case you are interested, I have written a paper with Paul Rhode entitled “Manipulating Political Stock Markets: A Field Experiment and a Century of Observational Data” (link: http://www.unc.edu/~cigar/papers/ManipHIT_Jan2007.pdf )

As the title suggests, this paper examines manipulation in prediction markets using both observational evidence and a field experiment.

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Static Charts [for the dynamic charts click here, or click on the charts]: