Analysis of Barr and Nader 2008 Intrade contracts

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I&#8217-ve used the Bob Barr contracts at Intrade to poke fun at the totally unrealistic expectations of Libertarian Party advocates (a couple times at Midas Oracle), so here&#8217-s a brief (and completely amateur) analysis of those contracts (and Nader contracts), post-election.

You may need to click on each chart to see the whole thing.

The probability of Barr obtaining 1% or more of the vote remained about .4 (40%) throughout the past several months. More optimistic scenarios became more discounted as the election grew nearer, and presumably it became clear Barr would not break through. Even 1% would have been seen as a breakthrough by LP advocates, but in the end Barr obtained only 0.4% of the vote. (Note that obtaining .4% of the vote and a .4 probability of obtaining 1% of the vote are very different things!)

Ralph Nader contracts attracted very little trading, though the 1% or greater contracts gave Nader a 60% chance of obtaining 1% of the vote as late as early October. Nader contracts for 3% and above did not trade at all &#8212- or almost not at all &#8212- Intrade&#8217-s web page table (screenshot below chart) shows a few trades, but no advanced chart or closing price/volume download, and there seemed to be an (unrelated?) possible bug with Nader contract reporting fairly consistently &#8212- last trade prices would not be remembered and reported in the aforementioned table &#8212- or it could be user (me) error/misunderstanding.

Both Barr and Nader contracts were traded heavily (for them) post-election, presumably as traders freed up cash and unwound positions &#8212- for unkown reasons Intrade still has not expired the contracts.

Spurred by comments from David Nolan (scan the page for &#8220-Intrade&#8221- or my name), I also attempted to gauge what traders thought about the average vote percentage candidates would receive across all scenarios &#8212- even a small chance of a genuine breakthrough could make an otherwise hopeless campaign (in the LP&#8217-s case, 9 such presidential campaigns prior to 2008) worthwhile. See below for the average (not most likely!) vote percentage over time each candidate might be expected to receive if the campaign were re-run may times. Assumptions: a floor of .5% (cases in which 1% is not met), very generous given that Barr did not reach even that, and only one LP candidate ever has, if candidate crosses threshold, they do so by .5%, also generous, and if 7% (the highest contract) is crossed, they obtain 7.5% of the vote, slightly ungenerous given the non-impossibility of obtaining a much higher percentage of the vote. Longshot bias should also expected to be at play. I don&#8217-t think these numbers should give LP or other third party advocates any comfort, though I admit my own bias on the matter. The average of all Barr scenarios declined steadily as the election approached, while Nader contracts did not trade until closer to the election, and they both ended at an average of 1% across all scenarios just before the election.

In the end Nader received 0.54% of the vote, beating Barr for (a very distant) third place behind Obama and McCain.

All of the data used above may be found in The spreadsheet file intrade-2008-barr-nader.ods aggregates everything.


I&#8217-d like to see:

  • Fewer contracts (in 2008 there were 7 for Barr and Nader each, from 1% through 7%- actually 8 each counting an electoral vote contract that received almost no attention) might be better, and one testing 0.5% of the vote, which is a more relevant barrier for the LP (only broken once, in 1980) &#8212- maybe 0.5%, 1%, and 3%, or perhaps a single log-scaled contract.
  • Minor vote total contracts contingent on nominee &#8212- assuming they had attracted trades, would they have expected the more mainstream for US politics (but less mainstream among libertarians) Bob Barr to outperform other candidates for the LP nomination?
  • Even better than contingent nominee/vote total contracts, contingent nominee/some measure of welfare or liberty contracts. Presumably these would show no difference among LP nominees, on the theory that no such nominee will make a difference in the world.
  • More trades! Why are libertarians afraid of the market?

Bob Barr markets

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Reason, a libertarian periodical, writes that the Bob Barr effect is &#8220-confirmed.&#8221- Because Obama&#8217-s campaign manager says it is.

Yes, pathetically a pro-market publication heeds the remarks of a political operative rather than markets that say Bob Barr will not make an impact.

Admittedly we have very little signal from prediction markets and lots of noise from political operatives, so writing about the latter makes for easier journalism.

There are now Intrade contracts on Barr&#8217-s share of the popular vote. Perhaps they&#8217-ll provide a little more signal, but I don&#8217-t have high hopes for reasonable trading volume &#8212- or for libertarian politicos embracing markets when the message of market prices might not correspond to their hallucinations.

Bob Barr candidacy fails market test.

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Yesterday at about 5:30PM EDT the Libertarian Party (U.S.) nominated ex-Congressperson Bob Barr for U.S. President. Barr’s nomination does not appear to have been certain — it took five rounds of voting, including two rounds where he tied for first and one in which in placed second.

So what do the relevant prediction markets make of this new information? Is Barr a contender, a potential spoiler, or irrelevant?

At Intrade, PRES.FIELD2008 has attracted no trades since May 22, three days before Barr&#8217-s nomination. We didn&#8217-t need a market to tell us a Libertarian Party nominee would not be a contender, nor help the chances of another non-Democrat and non-Republican.

The idea that Barr could be a spoiler is not completely ridiculous on its face (Barr and Wayne Allen Root, his running mate, are both recent ex-Republicans). However, PRES.DEM2008 has attracted no trades since May 24, the day before Barr&#8217-s nomination, while PRES.REP2008 did not trade between 18 hours before the nomination and over 3 hours after.

I think we can conclude that traders believe Barr’s nomination will have no impact on the outcome of the election. And, sadly, that volume on Intrade is pathetic.