Thursday, September 27, 2012

If the polls are so wrong, why is O at 77 percent on Intrade?
Tom Smith

The right wing blogosphere is abuzz with analysis that explains why the polls are skewed and Obama is not actually ahead in his reelection efforts, nor Mitt behind. But the prediction market Intrade has O at 77 percent, almost a shoo-in. What are we to make of this?

I'm not sure, but I don't think it bodes well for the man from Massachusetts. Sorry to say so; nothing would please me more than for the polls to prove wrong and for O to begin his career next year making 20 million a year in speaker's and director's fees. I think it's fair to say he would do a lot more good fronting for various efforts to save the world than he would trying to do so as America's CEO. Be that as it may -- Intrade would have to be far off for Mitt to actually be ahead in the race so far.

How likely is that? I don't really know.  It could be that punters on Intrade are simply uncritically reflecting the bias of the polls, which arguably are using methodologies that oversample Dems. But bettors on Intrade have every incentive to look at polls critically. The question is, are enough of them doing so to make Intrade what financial economists call informationally efficient? I don't know the answer to that either.

However, I do find it hard to believe that current polls could be as grotesquely biased as various Mitt leaning pundits say they are, and a pretty good prediction market such as Intrade would not be discounting noticably for that bias. But that is not what appears to be happening. Rather, it looks like the prediction market thinks O is about as far ahead as the polls say he is. If it thought it was a close race, O shares should be selling at more like 50 than 77.

Of course it could be the polls are wildly wrong and so is Intrade. It could be, as Jay Cost suggested, the polls will tighten up considerably and O's stock on Intrade will fall.  We'll see what happens.

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I can't help but wonder if we aren't seeing the "Bradley Effect." People don't want to tell pollsters they are voting "against" the black dude.

Posted by: Hank Archer | Sep 27, 2012 6:14:03 PM

I’ve looked into Intrade every once in a while, and just looked again a few days ago because I’d heard about Obama’s 77 percent. I keep forgetting that it isn’t easy to trade on Intrade: you can’t use a credit card that’s tied to American banks. That leaves mailing them a check—and risking the numbers changing and having money sitting doing nothing on Intrade—or doing a bank wire transfer.

This is all for numbers that are fairly small. Sure, I can buy Romney wins for $2.29 and get $10 back when he wins; but it isn’t like I can buy a thousand dollars of shares and get back $4,366.81. There are only 97 shares available at that price. The rest are higher; there are only 293 shares at $2.33 or lower as I write this.

The number of shares on the Obama side are similarly low. Unless I’m misunderstanding the numbers, there just doesn’t appear to be very many people trading that bet.

Posted by: Stephen Price Blair | Sep 27, 2012 7:17:12 PM

Intrade is thinly traded, but it does indeed move in response to news, which theoretically is accurate. As I've mentioned before, I followed the Dem primary on intrade back in '08 and Obama's share price doubled to the detriment of Clinton after Super Tuesday.
Markets are not perfect indicators and disseminators of information, that's why the rights worship of them is stupid. Nevertheless, they do provide a vague idea of which way the wind is blowing.

Posted by: molly | Sep 29, 2012 11:55:47 AM