As I write this, Intrade gives the advantage to McCain over Obama and has the Republican party even with the Democratic party to win the election, whereas all the other prediction markets, meaning IEM, Betfair, and the NewsFutures play-money kind still favor a Democrat in the White House. That disconnect prompted Chris to wonder aloud whether Intrade is faster than the other markets to incorporate the latest polls, perhaps because of its “-bigger liquidity”-.
That’-s an interesting reaction on several levels.
First, reactivity and accuracy are not to be confused for one another. Given that market prices are supposed to be more accurate and more stable that fickle U.S. raw polls (Berg et al, 2008), one should not necessarily be impressed by the market that is quickest to mirror the latest polls. I very much doubt that traders in the “-other”- markets have not heard about the latest polls giving McCain an edge. Rightly or wrongly – it is too soon to tell – they just gave those polls less weight that the Intrade traders apparently did.
Second, the argument from “-bigger liquidity”- is not receivable. Recently, Paul Tetlock analyzed Tradesports data in depth and found that more liquidity may in fact make the market dumber. He concludes: “-In both sports and financial prediction markets, the calibration of prices to event probabilities does not improve with increases in liquidity- and the forecasting resolution of market prices actually worsens with increases in liquidity.”-
My personal theory is that Intrade has a hair-trigger Republican bias which is not found in the other markets, because Intrade appeals to, and is marketed to, the more Republican-leaning segments of the U.S. population. In my opinion, the Intrade/Tradesports Republican bias was already evident in the 2004 election, as this analysis shows.
Of course, I may be completely wrong. In any case, I find today’-s dual disconnect between the polls and most of the markets, on the one hand, and between Intrade and the other markets, on the other hand, to be two very interesting data points that should be duly recorded so we can come back to them later, with hindsight.
I still have Barack Obama winning the US presidency at NewsFutures. I don’t plan to sell. I would need many more Palinesque polls to let me think that Obama is toasted… since people favor the Democrats overall.
But I could be damn wrong. The near future will tell.
Somebody has analyzed the InTrade prediction markets reactions to the Sarah Palin interview with Charles Gibson?
PS: I personally favor Ron Paul, politically.
Another thing I agree with:
– A good prediction market analysis can be done only after the event has passed. I have the “Sarah Palin for VP” prediction market in mind. I will blog about that, later on.
– InTrade is not reacting as quickly as one might think, reading Emile’s post. There has been a certain period of time between when we first heard about the fact that Sarah Palin made a good impression (she is more popular than either Barack Obama or John Mccain) and when the John McCain event derivative went up over Barack Obama’s one.
– The InTrade traders have had ample time to think things through.
– The fact is that the GOP convention bounce was bigger than the Democratic’s one —and the boosting is still there today. So, the InTrade traders are acknowledging that.
Does Liquidity Affect Securities Market Efficiency? – Paul Tetlock’s new abstract
No change: Mispricing is greater in illiquid markets.
Under that last post, see Justin Wolfers’ comment.
The fact that the differences between real money market prices are not
quickly arbitraged is a serious warning sign that trader incentives
are relatively weak, and trading fluctuation noise is substantial. Still,
I don’t know of a more accurate source of estimates.
Emile: Do you think that InTraders would exhibit a strong bias towards free markets (especially given the uncertainty of current US legislation and its enforcement)? If so, then a political party that projected a similiar free market bias might yield some similarities.
All I know is that I bought my PRESIDENT.REP2008 at 37 and have been selling at 49.
I am happier than a pig in lipstick.
I am with Robin on this. Why aren’t people buying their Obama futures on Intrade if it has the lowest price? Could there be some subtle difference in the contracts between Intrade and other contracts that could make them less than perfect substitutes?
[…] Chris F. Masse commented on Is Intrade out on a limb? […]
I changed the Tetlock link for this one:
I was told Emile’s link wasn’t working well.
[…] are, well, better at this game than the professional pollsters is worth a read, as (via MR) is this piece on whether they have a pro-Republican bias. In the meantime I will wait here and worry. No […]
[…] Is Intrade out on a limb? | Midas Oracle .ORG Says compared to other prediction markets, intrade may have a slight republican bias __________________ Eagles may soar high, but weasels never get sucked into jet engines. […]
FYI, there are comments about Emile’s post made there:
Looking at how trading has spiked on the other exchanges, I think that there most likely are a lot of “Buy Obama on intrade, short on [other exchange]“. But the amount of volume on intrade is huge, it would take a lot of capital to bring prices in line.
I’d say it should converge pretty quickly.
[…] – Emile Servan-Schreiber’s post on market arbitrage […]
“one should not necessarily be impressed by the market that is quickest to mirror the latest polls. I very much doubt that traders in the “other” markets have not heard about the latest polls giving McCain an edge. Rightly or wrongly – it is too soon to tell – they just gave those polls less weight that the Intrade traders apparently did.”
That’s right. Betfair’s markets are more mature, meaning they have lots of experienced players who know what to look for, and what to discount. Most of the US players are gamblers at this stage, thinking they can make money the easy way.
They are called mugs, btw.
I doubt that an entire market has a bias. This author however…
@ Robin Hanson’s comment: Doesn’t IEM limit your deposit to $500 and take a long time to join? Also, BetFair is closed to US customers. These obstacles would explain why arbitrage hasn’t taken place.
@ Medemi: I have no idea what the support for your comment is, but I imagine it is mere assertion plus wishful thinking in this case. No matter, BetFair is closed to US customers. It’s safe to say that US citizens have better information about who will win their presidency than Europeans.
Medemi: I have no idea what the support for your comment is
It’s based on experience, knowledge, hard facts (I did study how market efficiency has evolved over the years) and insight. Doesn’t mean I’m right, but doesn’t mean I’m telling nonsense either.
but I imagine it is mere assertion plus wishful thinking in this case.
Again, thanks for your confidence. Actually I don’t have any money on this. Can’t be bothered with what’s in my account currently.
It’s safe to say that US citizens have better information about who will win their presidency than Europeans.
You’re mixing up quantity with quality.
It’s based on experience, knowledge, hard facts
What experience, knowledge, and facts do you know that tell you that Intrade participants are a bunch of mugs while BetFair participants are experienced gamblers? Then, explain to us unenlightened folks how that translates into systematic mispricing.
You’re mixing up quantity with quality.
I’m doing no such thing. I am asserting that people know more about politics in their own nation than they do about politics in someone else’s. That’s a reasonable thing to say and a lot more moderate than your assertions about betting markets.
I’m not getting into details with you, because I don’t like the way you’re twisting my words to suit your purpose.
But I’m saying one shouldn’t pay too much attention to these polls because there’s not a lot of predictive power in them. Also, it is widely known that most (if not all) people lose money in their first year betting. It seems a valid assessment to me that most US players are new to prediction markets, while a lot of people from the UK have been around for many years, betting almost daily. Now, if you have problems with me calling US players mugs (in your judgement) then I can’t help you.
Does Intrade Have a Republican Bias?
Friday’s pageviews for Emile’s post: 1,810
Total Friday pageviews for the entire site: 3,557
Does Liquidity Affect Securities Market Efficiency? – (PDF – Listed at CFM) – [previous title: Does Noise Trading Affect Securities Market Efficiency?] – by Paul Tetlock – 2008-05-XX
[Statement below is circa end of 2006.]
[…] – Emile Servan-Schreiber’s post on market arbitrage […]
“@ Medemi: I have no idea what the support for your comment is, but I imagine it is mere assertion plus wishful thinking in this case. No matter, BetFair is closed to US customers. It’s safe to say that US citizens have better information about who will win their presidency than Europeans.”
I just love to bet against those holding such assumptive and xenophobic attitudes as shown above in bold type!
Or perhaps none of us should have a bet, on the basis that we are destined to lose; to the infallibility of American onshore opinion?
Perhaps people from the US are inclined to hit the “delete button” whenever we mention betfair because they are not allowed to bet there. That’s unfortunate, but just because the betfair management are making a mess of things doesn’t mean there’s not a lot of value hidden beneath those markets. I’m absolutely convinced that you’ll get all the answers to your questions should you take the effort and talk to some of the experienced players there. Unfortunately, you’re not allowed to. Blame your Government for that. As an illustration, I still find it a lot easier to make money in the stock market (should I decide to trade it) as opposed to trying to beat my opponents at betting. It’s amazing how quick these markets have developed, and the sheer competition that is out there. Science would never have been able to keep up. Maybe that shouldn’t be surprising as there is a lot of money to be made. When you’re right.