So it makes sense that people with a bigger stake than us — namely lobbyists, corporations, big donors, et al — would eventually make their way to the Intrade politics markets, to get what they perceive to be a more objective gauge of the political climate.

Unfortunately, the politics markets are still not very large. Any serious candidate who knows other people are basing decisions partly on Intrade numbers could easily throw the Intrade numbers out of whack with six figures’ worth of cash. Judging from the 2006 elections, $100,000 worth of marginal campaign advertising is virtually irrelevant in a campaign that spends more than a few million (just ask ex-Sen. Mike DeWine). Donations themselves are one measure of a candidate’s “inevitability,” but once the donation has been made, it will simply gather dust until a couple months before the first primaries, at which point it will compete with noise from everyone else’s campaign kitties. Much better to invest that money influencing numbers that are highly respected by observers. If it is effective in reinforcing the aura of inevitability, it will probably pay for itself, with plenty to spare. Even if it doesn’t pay for itself, a hundred grand of propping up your candidate on Intrade still reinforces that aura of inevitability, which is the more important point.

The Rhode/Strumpf study of the Wall Street 1880-1932 election market (which was orders of magnitude larger than today’s Intrade market) showed lots of manipulation going on by both parties on the market, to influence the public perception of “who the frontrunner was.”

An enterprising political campaign could easily be doing the same thing here. To what extent, it’s impossible to say. But some of the past perturbations in the Democratic nomination market have been very, very strange, exhibiting the exact opposite of conventional, profit-maximizing trader behavior.

Just something for interested parties to keep in mind when they are looking at Intrade numbers.

(cross-posted with editing from the TS Political Maven)