Intrade markets predict Obama victory
Following last night’s first presidential debate, speculators playing the Intrade prediction markets still anticipate an Obama victory on November 4th. Intrade is a gambling site where you can bet real money that a certain event will or won’t happen, and the presidential election is just one such event; you buy shares that will pay a fixed amount, I believe $10, if the event happens and nothing if it doesn’t; the value of the shares varies as people buy and sell them as their perception of the likelihood of the event occurring rises and falls.
At this moment, shares that will pay $10 if Obama wins (and nothing if he doesn’t) are trading at $5.60 and shares that will pay $10 if McCain wins (and nothing if he doesn’t) are trading at $4.36. This means that gamblers—or investors, if you prefer—think there is about a 56% chance Obama will win and about a 43.6% chance that McCain will win; this is a slight move in Obama’s favor since last night’s debate. They also sell shares for the contests in each of the 50 states plus the district of Columbia. Currently, speculators think that Obama will win 311 electoral votes and McCain will gain 227, this is with the Democrat winning Nevada, Colorado, Virginia, and, by the thinnest margins, Ohio.
These predictions markets are somewhat like polls in how they attempt to gauge support and predict the ultimate outcome. However, unlike polls, they anticipate future moves: investors knew that Obama’s poll numbers would rise during the Democratic convention and McCain’s during the Republican convention and share prices took this into account and didn’t move when the expected bumps came.
People interested in the outcome of the election, which is hopefully everyone, may find it interesting to watch the political futures markets. By putting real money at stake, they attempt to harness the wisdom of crowds, which is often better at predicting the future than even what experts say.
I recently saw the wisdom of crowds at work, though in a considerably different context. One gentleman, a fireman, had shared an anecdote about the aluminum siding on a house melting in the course of one conflagration he witnessed. This got me to asking what the melting point of Aluminum is; I didn’t know, and neither did anyone else. Eventually, I took guesses from everyone to see who could come the closest, promising a prize to the winner. There were ten guesses, ranging from 162.5° F all the way up to 3200° F. The actual melting point of Aluminum is 1220.6° F; the two closes guesses were 550° and 1800°. However, if we’d taken the average of all the guesses (omitting the guess of 8° by the two year old son of one attendee) we’d have 1031.95°—which would have been, by far, the most accurate and would have won the prize: a nickel.
In any event, if you find poll numbers interesting, check out the Intrade prediction market, it just may prove more accurate than Gallup.