InTrade prediction markets got health care wrong… – dixit Daniel Gross of Slate, a site I will no longer read.

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Slate&#8217-s Daniel Gross:

Don&#8217-t Short Obama

Why political futures markets got the health care bill so wrong.

By Daniel Gross

Posted Monday, March 22, 2010, at 6:05 PM ET

It would be very difficult to tote up all the times pundits pronounced the health care bill dead, and the prospects for the Obama administration dire—especially after the election of Scott Brown in January. Intrade, the political futures market, which functions as a conventional-wisdom-processing machine, also got health care wrong. Check out this chart for the contract on health care reform being passed by June 2010. The contract is worth 100 if it is passed, zero if it is not. After Brown&#8217-s election, it slumped to as low as 20. As recently as March 17, it was below 40. Even as late as Friday, it was trading in the mid-80s. These trading data show that &#8220-investors&#8221- in this market were skeptical of the Obama administration&#8217-s ability to pass significant health care legislation, right up until the end.

Is there a larger lesson here? (Aside from the obvious one, which is political futures markets usually aren&#8217-t very good at predicting what actually will happen in the future?) I think so. And it&#8217-s this: Don&#8217-t short Obama. In fact, that&#8217-s been the lesson of Obama&#8217-s entire career so far.

[Stock market stuff inserted here.]

On some level, it&#8217-s tough to blame the Intrade crowd for getting Obama and health care wrong. The type of people who trade there, folks who think they&#8217-re quite savvy about money, the market, and politics, are the same conventional wisdom hawkers who were so monumentally wrong before the financial crisis. If you&#8217-ve tuned into CNBC or Fox Business Channel, or read the Wall Street Journal since January 2009, you would have been subject to a constant stream of money managers, pundits, talking heads, and policy wonks declaring that the U.S. economy is becoming a socialist hellhole that is hostile to business and investors. (If there were a way to short Fox Business Channel, I&#8217-d do it in a hurry.)

The conventional wisdom market has not yet internalized the message that it&#8217-s dangerous to your financial and professional health to short Obama. Judging by the debate in the House last night, by the talk on cable news shows this morning (full of talk about how this is going to kill Democrats in November), and by the chatter on the business networks this morning (full of talk about how the tax increases in the health care bill will destroy the markets and the economy), the shorts haven&#8217-t learned anything.

I agree with Dan Gross that prediction markets are a &#8220-conventional-wisdom-processing machine&#8221-. Prediction markets incorporate expectations (informed by facts and expertise) just like the mass media do.

Prediction markets can&#8217-t look into the far away future.

In the ObamaCare case, prediction markets have just been summarizing objectively, dynamically and quantitatively (day in, day out) what the political media were reporting about the health care reform, and about the prospect of its passing in Congress and of its signing by the President.

It would be easy for a scientist to verify that &#8212-by comparing archived media articles with the historical InTrade prices.

ADDENDUM: To answer Hutch&#8217-s question, the only trouble I saw in the history of this contract is the brief manipulation that happened on March 16, 2010.

UPDATE: Funny video:

The Real Arithmetic Of The Health Care Reform

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The Real Arithmetic Of The Health Care Reform &#8211- NYT &#8211- by a former CBO director.

Required reading for Paul Hewitt. :-D

Prediction Market Chart


More info on health care reform on Memeorandum, Politico and Slate.

Nate Silver: InTrade probability on ObamaCare is quite right.

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Nate Silver:

I&#8217-m not sure if you should particularly care about the little 5 or 10 point hedges (usually to the pessimistic side) that I&#8217-ve periodically been recommending around the Intrade contract on the chances of reform passing. Even if you staffed a whole room full of the smartest vote-counters, modelers and analysts and had them work 24/7 on trying to beat the Intrade contract, I&#8217-m not sure if they could come up with anything sufficiently rigorous to provide them with a real advantage. (That doesn&#8217-t necessarily mean the market is &#8220-efficient&#8221-, but we&#8217-ll save that conversation for another day.) But for what it&#8217-s worth, the Intrade contract, which is trading at 75 percent right now, now looks about right to me or perhaps even a hair pessimistic.

Prediction Market Chart


More info on health care reform on Memeorandum, Politico and Slate.

Peter Schiff on Wall Street, US dollar, US Treasury bonds, China, Barack Obama, US economy, US jobs, US housing market, US tax credits, US student loans, Warren Buffett, Bill Gates, America, capitalism, assett bubbles, US bailouts, Ron Paul, gold standard, paper money, our Founding Fathers, etc.

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Peter Schiff (November 13, 2009):

Peter Schiff (November 9, 2009) on US dollar carry trade:

He is running for US Senate:

Flawed New Hampshire polls = Non-accurate New Hampshire prediction markets

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The most comprehensive analysis ever conducted of presidential primary polls:

&#8220-a handful of methodological missteps and miscalculations combined to undermine the accuracy of predictions about presidential primary winners in New Hampshire and three other states.&#8221-

Via Mister the Great Research Scientist David Pennock &#8211-who is an indispensable element of the field of prediction markets.

As I blogged many times, prediction markets react to polls&#8230- See the addendum below&#8230- – [UPDATE: See also Jed’s comment.] – Prediction markets should not be hyped as crystal balls, but simply as an objective and continuous way to aggregate expectations. So, if you think of it, their social utility is much smaller than what the advocates of the &#8220-idea futures&#8221-, &#8220-wisdom of crowds&#8221- or &#8220-collective intelligence&#8221- concepts told us. Much, much, much, much smaller&#8230- They all make the mistake to put accuracy forward. (By the way, somewhat related to that issue, please go reading the dialog between Robin Hanson and Emile Servan-Schreiber.)


California Institute of Technology economist Charles Plott:

What you&#8217-re doing is collecting bits and pieces of information and aggregating it so we can watch it and understand what people know. People picked this up and called it the &#8220-wisdom of crowds&#8221- and other things, but a lot of that is just hype.

New Hampshire – The Democrats

The Hillary Clinton event derivative was expired to 100.

Dem NH Clinton

Dem NH Obama

Dem NH Edwards

New Hampshire – The Republicans

The John McCain event derivative was expired to 100.

Rep NH McCain

Rep NH Romney

Rep NH Huckabee

Rep NH Giuliani

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