Thursday, September 27, 2012
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.