Markets: As Good With Elections As They Are With The Economy

Tuesday, May 13, 2008 | 02:30 PM

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"What you'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 'wisdom of crowds' and other things, but a lot of that is just hype."

-California Institute of Technology economist Charles Plott
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Interesting piece in the WSJ on prediction markets and politics, Traders' Calls Just as Bad On Elections. (I may have mentioned something about this in the past).

"John McCain's presidential campaign is doomed -- at least, if you still believe what political futures markets indicate. At the Irish electronic exchange Intrade, on which people bet on election outcomes and other events, the futures market suggests Mr. McCain has a 38% chance of becoming the 44th president. In the Iowa Electronic Markets, set up at the University of Iowa, Mr. McCain's Republican Party gets a 41% chance of winning the popular vote for the White House.

Then again, six months ago, the Iowa markets gave Barack Obama less than a 30% chance of winning the Democratic nomination. Academic studies suggest these markets are more reliable than opinion polls, but that might be giving the markets too much credit.

Intrade futures had John Kerry beating President Bush well into the evening of Election Day 2004. They also said there was a good chance Mr. Obama would top Hillary Clinton in January's New Hampshire primary, which she won."

The article details many of my favorite quibbles: thinly traded, plagued by bad information, skewed participation, bubbles, head-fakes and manipulation.

What did it reflect when all those people bought all those Hillary Clinton and Rudy Giuliani presidential futures when each was a front runner? Somehow, the phrase "Wisdom of Crowds" just doesn't seem to capture the full essence of that . . .




Previously:
Iowa and Prediction Markets, January 24, 2004    http://bigpicture.typepad.com/comments/2004/01/iowa_and_predec.html

Why Prediction Markets Fail  January 11, 2008      http://bigpicture.typepad.com/comments/2008/01/prediction-mark.html

Misunderstanding Prediction Market Failures   February 14, 2007      http://bigpicture.typepad.com/comments/2007/02/misunderstandin.html

Source:
Traders' Calls Just as Bad On Elections   
MARK GONGLOFF
WSJ, May 13, 2008; Page C1
http://online.wsj.com/article/SB121063385437486555.html

Tuesday, May 13, 2008 | 02:30 PM | Permalink | Comments (28) | TrackBack (0)
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Comments

The fix is in. Forget about the elections.
I am all for some voter ID. But proof of citizenship? That is hard to prove for an average person without putting in a lot of effort. And yes, I would like to know which illegal immigrant is going to invite trouble by trying to vote. Who are these people kidding? These measures smack of other motives.

http://www.nytimes.com/2008/05/13/opinion/13tue1.html?ref=opinion

Posted by: ReturnFreeRisk | May 13, 2008 11:19:52 AM

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