The New York Times on InTrades US political election prediction markets

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The NYT writers discusses 2 (different?) issues.

#1. There was market arbitrage opportunies in the recent past between InTrade and BetFair &#8212-unlike 4 years ago, and contrary to the laws of economics.

– The price of the Barack Obama event derivative was cheaper on InTrade than on BetFair and the Iowa Electronic Markets. Conversely, the price of the John McCain event derivative was more expensive on InTrade than on BetFair and the Iowa Electronic Markets.

#2. The NYT writer reports (without linking to it) the findings of the InTrade investigation about the behavior of their unnamed &#8220-institutional investor&#8221-.

– InTrade CEO John Delaney suggests that that institutional investor:

  1. might operate on InTrade at specific times where it might not be able to find liquidity on BetFair and/or IEM-
  2. might be a bookmaker willing to hedge its risks on a prediction exchange (a.k.a. betting exchange).

– Justin Wolfers&#8217- PHD student remarks that that institutional investor is not making an effort to shop around for the best prices, within each InTrade political prediction market.

RELATED: See the comments on Midas Oracle here, here, here, and here.

With regard to the 2008 US elections, both Justin Wolfers and Robin Hanson implied that BetFair is not as predictive as it should be.

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Previously: About Justin Wolfers&#8217-s column

Justin Wolfers&#8217- Freakonomics post (which suggests that BetFair would have a better predictive power if US traders could use it).

InTrade vs. the other prediction exchanges

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Justin Wolfers gives his views about the (now past) differences between the probabilistic predictions given by InTrade on the 2008 US presidential elections&#8230- and the ones generated by the other real-money and play-money prediction exchanges. One hypothesis: US political insiders can&#8217-t access BetFair, legally, and thus can&#8217-t arbitrage. (But they can trade legally on the Iowa Electronic Markets, NewsFutures, Inkling, and HubDub, one could retort.)

Emile Servan-Schreiber&#8217-s hypothesis still holds.

Or else &#8212-your own hypothesis is welcome.

P.S.: The latest news is that InTrade now gives Barack Obama slightly above John McCain.

Intrade 2008.PRES.McCAIN > PRESIDENT.REP2008

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How frequent are arbitrage opportunities such as the following?

In addition to title, the reverse is true of OBAMA/DEM.

Do traders really think there&#8217-s some probability of McCain being elected as an idependent and Obama being replaced as the Democrat nominee?

Arbitrage in the InTrade Dem VP Market

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There has been an unexploited arbitrage opportunity in the Intrade Democratic VP market (&#8221-2008 Democratic VP Nominee (others upon request)&#8221-). As the attachment shows, you can sell the slate of candidates for 123.2 (just sum the bids) while you will only have to payout 100. This possibility has existed for at least three weeks, and is particularly puzzling now given that the announcement is likely to occur this week.

What is also a bit odd is that Intrade has another market (&#8221-2008 Democratic Vice-Presidential Nominee (with Field contract)&#8221-) on the same outcome which includes a catch-all field contract which does not have the same arb&#8211-again see the attachment below. It is substantially cheaper to buy the field contract in the second market than the omitted candidates (Kaine, Sebelius, Hagel, Schweitzer, Gephardt, Kerry, and others) in the first market.

Any thoughts on why this is occurring?

attachment: intradedemvp_summedbidsexceed100.pdf