In the seven days leading up [Joe Biden's] share price on Intrade went up about three and a half times. In the seven days leading up his share price on Intrade went up about three and a half times. In a field of about four or five different viable candidates he became the clear leader on Intrade more than about 48-72 hours before he was named, even before anyone was floating his name as a serious candidate.

Chad Rigetti suggests that there was insider trading at work, which informed the InTrade prediction market on Joe Biden —well before the leak and/or announcement.

I have a different reading. The reality is that the Barack Obama campaign had been leaking the fact that they needed a VP experienced in foreign affairs (so as to counter-balance Barack Obama’s inexperience in this crucial area –that was before the financial crisis), and it happened that in the short list of potential VPs, Joe Biden was the only one who was fitting this narrative. It was thus easy for journalists (and for the InTrade traders) to anticipate that Barack Obama would choose Joe Biden.

This is typical of the overselling done by the InTrade pushers —they suppress the existence of the primary indicators (which event derivative traders rely on to get informed), and they tell gullible reporters that InTrade has magical power. It’s total bullshit. The life of the InTrade prediction market on “Joe Biden as the VP nominee” represented the simple reflection of what event derivative traders could read in the Press. There was no magic whatsoever.

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The play-money and real-money prediction markets were easily fooled with the Pawlenty rumors, yesterday.

That vindicates my message that the VP prediction markets feed on unreliable primary indicators.

I said from day one to be careful with the VP prediction markets.

I told you so.

UPDATE: It’s probably Sarah Palin.

No official VP announcement has been made, yet. Why can’t we trade on HubDub till the very end…???????…

HubDumb…?…

UPDATE: Markets un-suspended, now. Nigel Eccles does not know why the category editor did suspend that.

UPDATE: The HubDub category editor has published a comment, below.

- The bad point is that, at the time he wrote up his column, Virginia governor Tim Kaine was the favorite of the InTrade VP prediction markets. The others were, in decreasing order, Evan Bayth, Kathleen Sebelius, and then… Joe Biden. So, the critic reading his column today could say that the prediction markets are oversold to a gullible public and that a prediction market bubble ready to pop up is forming under our very nose.

- Now, we know that Barack Obama made his decision while vacationing in Hawaii (less than 2 weeks ago). That’s only from that date that the VP prediction markets started generating probabilistic predictions worth quoting. The trick is that Justin Wolfers (and the other prediction market analysts) didn’t know that, on August 1st. (PDF file)

- I don’t regret my decision not to publish about the VP prediction markets. I’d look like an idiot today.

MS. BERNARD: Well, here’s what I think. I think the dirty little secret is Barack Obama probably already knows who he’s going to select to be his vice presidential running mate. You put out the search committee, probably because Hillary Clinton was all over his back last week –

DR. MCLAUGHLIN: So this is a smokescreen. This is a smokescreen.

MS. BERNARD: I don’t know if it’s a smokescreen, but I think he has a good idea who his vice presidential running mate is going to be. And the search committee is much ado about nothing.

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I told you so.

No good advanced, primary indicators.

Don’t trade on VP prediction markets.

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Betting & Information

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#1. Don’t trade on the VP predictions markets.

I have stong reservations about those VP prediction markets. Only 2 men in the world know what is going to happen: Barack Obama, and John McCain.

You can’t divine their final thoughts.

Politicians often lie about their intentions —they also change mind, frequently.

The decision to name one VP nominee could be made in secret —without any early warnings.

Surprise is a card that Barack Obama and John McCain could play. Don’t bet against their final will.

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#2. Don’t believe in “vice presidential selection committees”.

Last time, in 2000, a man named Dick Cheney was appointed to head George W. Bush’s vice presidential selection committee.

He was supposed to scout around to find and assess good candidates.

Surprise, surprise, that fake committee ended up putting Dick Cheney on the Republican ticket —and the rest is history (Iraq war, etc.).

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#3. Don’t bet on Hillary Clinton as VP.

She does not have the slightest chance.

It’s highly unlikely that Barack Obama selects her on the Democratic ticket.

Hillary Clinton as VP nominee (and as VP) would present many quasi insurmountable problems.

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#4. Don’t listen to betting bloggers who tell you that Hillary Clinton has a chance to be on the Democratic ticket.

They are clueless.

Don’t read clueless people. They are a waste of time.

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#5. Select well your primary, advanced indicators.

1. Go to the sources of information. Discard filters. Your insatiable curiosity should drive your search for information.
2. Use technology to select the best news articles out there. Bookmark Memeorandum for US politics (and TechMeme for information technology) —they use bloggers’ links to select what’s hot, a bit like Google’s PageRank does.
3. Use the crowd to sense what’s hot or to discover marginally interesting tidbits. I have 56 friends on Google Reader who share their best items with me. I got many interesting stories that way, every day, from sources I would have never known about, otherwise. (Plus, I receive many e-mails each day from potential sources.)

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#6. Choose your bets (and trades) carefully.

Just because an event derivative is cheap doesn’t mean that it’s a good bet.

Don’t pluck down money on a bet unless you’ve seriously researched the topic by yourself —and possesses some expertise or experience in that field.

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FOLLOW-UP POST: 2 days after my ringing the alarm bell… THE FREE FALL

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InTrade

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Democratic Vice President Nominee

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Republican Vice President Nominee

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BetFair

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Next Vice President:

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Democratic Ticket

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Democratic Vice President Nominee

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Republican Vice President Nominee

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NewsFutures

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Barack Obama will pick a woman as running mate.

© NewsFutures

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Explainer On Prediction Markets

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Prediction markets produce dynamic, objective probabilistic predictions on the outcomes of future events by aggregating disparate pieces of information that traders bring when they agree on prices. Prediction markets are meta forecasting tools that feed on the advanced indicators (i.e., the primary sources of information). Garbage in, garbage out… Intelligence in, intelligence out…

A prediction market is a market for a contract that yields payments based on the outcome of a partially uncertain future event, such as an election. A contract pays $100 only if candidate X wins the election, and $0 otherwise. When the market price of an X contract is $60, the prediction market believes that candidate X has a 60% chance of winning the election. The price of this event derivative can be interpreted as the objective probability of the future outcome (i.e., its most statistically accurate forecast). A 60% probability means that, in a series of events each with a 60% probability, then 6 times out of 10, the favored outcome will occur; and 4 times out of 10, the unfavored outcome will occur.

Each prediction exchange organizes its own set of real-money and/or play-money markets, using either a CDA or a MSR mechanism.

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Take that, Mike R.

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Reminder: I have stong reservations about those VP prediction markets. (But Bo compels me to publish about them anyway. )

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InTrade

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Democratic Vice President Nominee

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Republican Vice President Nominee

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BetFair

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Next Vice President:

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Democratic Ticket

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Democratic Vice President Nominee

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Republican Vice President Nominee

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NewsFutures

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Barack Obama will pick a woman as running mate.

© NewsFutures

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Explainer On Prediction Markets

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Prediction markets produce dynamic, objective probabilistic predictions on the outcomes of future events by aggregating disparate pieces of information that traders bring when they agree on prices. Prediction markets are meta forecasting tools that feed on the advanced indicators (i.e., the primary sources of information). Garbage in, garbage out… Intelligence in, intelligence out…

A prediction market is a market for a contract that yields payments based on the outcome of a partially uncertain future event, such as an election. A contract pays $100 only if candidate X wins the election, and $0 otherwise. When the market price of an X contract is $60, the prediction market believes that candidate X has a 60% chance of winning the election. The price of this event derivative can be interpreted as the objective probability of the future outcome (i.e., its most statistically accurate forecast). A 60% probability means that, in a series of events each with a 60% probability, then 6 times out of 10, the favored outcome will occur; and 4 times out of 10, the unfavored outcome will occur.

Each prediction exchange organizes its own set of real-money and/or play-money markets, using either a CDA or a MSR mechanism.

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