Prediction Market Inefficiency

**Justin7** · 10-13-12, 10:47 AM

How much Obama can you buy at Intrade? Pinny is taking 10k a pop. Whichever takes the larger amount is priced more accurately.

**HeeeHAWWWW** · 10-13-12, 10:51 AM

Any rules differences at work? Most votes? A "which party" rather than "which candidate"?

**hutennis** · 10-13-12, 11:34 AM

I think it's a matter of size.
There are just a few hundred dollars to be made if you want to make the same no matter who wins.
I'm sure someone will pick them up soon, but this tiny amount is not enough reason to draw any serious conclusions.
There could be a few opinionated morons on Intrad trying to give money away.
There is nothing wrong with that. But they are not a Market.

**VLR100** · 10-13-12, 11:53 AM

@ Justin7
There's 4587 shares to be bought on Obama at $6 +/- 4 cents, so roughly 4587*6 = $27522. This isn't counting the roughly parallel markets of Romney to win and the Democratic party to win the presidential election. Can pinnacle bettors have a maximum open position of 10k or may bettors re-bet? Alternatively, could you consider all internet sportsbooks offering the market at similar odds an aggregated 'market', where it may be possible to bet more than at Intrade?

I was considering buying Obama on Intrade as a 'good' play, as so many sportsbooks have him at shorter odds. Perhaps the discrepancy is due to Intrade accepting US customers, while many sporsbooks don't. Obama has a way higher approval rating outside of the USA than Romney, so maybe there is a bias towards what traders subjectively want to happen in geographically disparate markets, or bias in the perceived likelihood of the candidate winning (e.g. Europeans' high approval of Obama translating into the belief that he is likely to win, subconsciously discounting the prevalence of Conservative opinion in America).

@Heehawwww
I can't find any significant rule differences, however pinnacle's market is for which party will win the election while Intrade offers both party and candidate markets, so barring the replacement of a candidate (surely a miniscule probability), the markets are effectively the same.

**indio** · 10-13-12, 02:31 PM

So if you buy up all the shares of Obama at Intrade, you have $27,522 to win $18,348. You turn around and buy Republican at Pinnacle at +180. Let's say $16,400 to win $29,520. So your shelling out $44,000 to win $2,000. Only way you can lose is if a Democrat other than Obama wins (or a 3rd party wins). So you're betting that prop 44k at -2200. That would be a 95.65% market probability.

What if Obama gets assassinated, gravely ill, has an accident, or has some sort of scandal that causes him to bow out? Chances are highly unlikely right? Sure they are. But out of 43 men that have held the presidency, 8 have died while in office, 1 has resigned, 2 have been attempted to be impeached, and some others survived attempts on their lives, Reagan being actually shot.

Now, I'll grant you that it is much lower than a 4.35% chance that someone could lose money on this prop. But the chances of it occurring are higher than you think.

**antifoil** · 10-13-12, 03:15 PM

impeachment would take longer than the 3 weeks left until the election. not to mention the house of rep isn't in session until after the election, and they are the body that does the impeaching.

the last president to die of natural causes was FDR, but he had polo and an increase probability of dying in office because he served 4 terms. i don't know how much the polo contributed to his death though. obviously, medicine has greatly improved since the day presidents died naturally while in office. life expectancy was much less then. you would also need to consider the age of obama when making a natural causes probability.

the only real risk would be an assassination, but i have no knowledge about security procedures that are used for protection. it seems remote unless he plays to drive through birmingham, AL in a open top vehicle.

**hutennis** · 10-13-12, 03:17 PM

Originally posted by indio

So if you buy up all the shares of Obama at Intrade, you have $27,522 to win $18,348. You turn around and buy Republican at Pinnacle at +180. Let's say $16,400 to win $29,520. So your shelling out $44,000 to win $2,000. Only way you can lose is if a Democrat other than Obama wins (or a 3rd party wins). So you're betting that prop 44k at -2200. That would be a 95.65% market probability.

What if Obama gets assassinated, gravely ill, has an accident, or has some sort of scandal that causes him to bow out? Chances are highly unlikely right? Sure they are. But out of 43 men that have held the presidency, 8 have died while in office, 1 has resigned, 2 have been attempted to be impeached, and some others survived attempts on their lives, Reagan being actually shot.

Now, I'll grant you that it is much lower than a 4.35% chance that someone could lose money on this prop. But the chances of it occurring are higher than you think.

Please, take under consideration that something must happened not just at any time during presidency, but precisely during next 3 weeks.
You do that and you'll see that chances of it occurring are much lower than you think.

**indio** · 10-13-12, 04:44 PM

Originally posted by hutennis

Please, take under consideration that something must happened not just at any time during presidency, but precisely during next 3 weeks.
You do that and you'll see that chances of it occurring are much lower than you think.

I'm quite aware of that variable. But it doesn't surprise me that the resident self-important windbag would make an obvious conclusion to try again in vein to make himself appear sharp. You better start seeing your shrink a couple more times a week boy, you're not improving.

I already stated that the probability was MUCH lower than 4.5%. That means I'm in the under 1% category. With all the geo-political implications, random nut cases, and Mossad agents running around, a presidential election with an assassination attempt succeeding on a sitting president 1 month before an election occurring once every 150 times, or once every 600 years (which is .066%) is probably in the ball park. And 99.33% is hardly a sure thing in the world of statistical probability.

**hutennis** · 10-13-12, 05:07 PM

Originally posted by indio

I'm quite aware of that variable. But it doesn't surprise me that the resident self-important windbag would make an obvious conclusion to try again in vein to make himself appear sharp. You better start seeing your shrink a couple more times a week boy, you're not improving.

If you have an argument to make - make an argument.
If you have an argument to consider - consider an argument.
If you want to attack or be sarcastic about argument - be my guest.
By why do you feel an urge to make a personal attack every time?
Why are you attempting to undermine a speaker's argument by attacking the speaker instead of addressing the argument?
Ad hominem is something that is very typical in high school cafeterias, but that's where is should be left
if you want to be taking more or less seriously by others in the rest of your life.
Its fallacy, it's weakness, it's wrong!

I already stated that the probability was MUCH lower than 4.5%. That means I'm in the under 1% category. With all the geo-political implications, random nut cases, and Mossad agents running around, a presidential election with an assassination attempt succeeding on a sitting president 1 month before an election occurring once every 150 times, or once every 600 years (which is .066%) is probably in the ball park. And 99.33% is hardly a sure thing in the world of statistical probability.

Would be nice to know your definition of "MUCH" before hand.
There is a lot of room in between 4.5 and 0.66.
Since you did not provide any, I had every right to put your "MUCH" at around 2.5% so my comment that chances are much lower than you think was a correct one.

**Pot luck** · 10-15-12, 01:14 AM

My intrade account is American and my sportsbetting accounts are English. If the intrade bet came through I would take the 4.35% and then pay it all and more on taxes owed. Not to mention the FX fees.

Out of curiosity, can you have am American Pinny account in $ and if so, could you pay tax on the net winnings of this arbitrage?

Also . . .

Intrade and betfair have been off on this market for ages and ages. The flowing link shows the prices up to and immediately after the killing of Osama. What is even more interesting than the offset is that Intrade and Betfair went off in different directions after the event. (no idea what the volume was at this time)

http://www.predictwise.com/node/103

**skrtelfan** · 10-15-12, 01:44 AM

others have theorized small intrade markets are manipulated by one party or the media

**TomG** · 10-15-12, 09:08 AM

google mccain intrade manipulate

it's an election strategy the same thing happened four years ago

**VLR100** · 10-15-12, 03:01 PM

Very interesting. With regard to that Osama graph, I think there is a Euro/US bias in US politics prediction markets.

I find it hard to fathom the logic of someone willing to lose hundreds of thousands of dollars merely to shift the Intrade price. Not that I'm saying someone wouldn't do it. Sure, it might look good to the journalists and policy makers that keep track of these things, but it could hardly win you votes. Money better spent on advertising.

**TomG** · 10-15-12, 03:24 PM

not really there are already hundreds of millions of dollars being spent on tv advertising. the marginal value of those dollars is pretty small especially considering its impact is just on specific tv market regions. the media quotes intrade predictions often enough that lighting a few hundred thousand dollars on fire for some favorable national media coverage (the so called confidence game). and who knows romney could win and then the guy is getting paid so it's maybe just a hundred thousand in lost ev. the better question is why no one bothers to buy it back

**big0mar** · 10-15-12, 04:55 PM

I believe Intrade's Obama price has been directly correlated to traffic to unskewedpolls.com.

**sayhey69** · 10-15-12, 06:29 PM

i bought back as much as i could. join me

**mr.ed** · 10-31-12, 06:57 AM

Originally posted by sayhey69

i bought back as much as i could. join me

Regarding Mccain manipulation of Intrade markets, sounds more like a whale that wanted action on Mccain rather than a manipulator, as price was quickly whipped back into shape by other savvy investors who recognized that price was out of whack. I fail to see how this could be an election strategy when any gains will be corrected in a matter of minutes.

Same thing happened this year with Romney on a smaller scale.....somebody bought 17k on Romney after Denver debate but it took only 6 minutes for price to return to the old number. So these are "investors", not "manipulators", unless there is some benefit of a candidate rising on Intrade for a few minutes that I am not seeing.

**VLR100** · 10-31-12, 01:21 PM

Nate Silver wrote a post about this very topic on 538 http://fivethirtyeight.blogs.nytimes...ction-markets/