And here was my reply to that same post on this other thread.
The forum over at Intrade has some interesting discussions on how and why Fred has been tanking.
http://www.freerepublic.com/focus/f-news/1922408/posts?page=183#183
To: ellery
Thanks for the articles. I note that even in 2004, Intrade had $2M being bet back & forth on GWB. There was an attempt to manipulate it per Wikipedia, but it failed. These markets are not perfectly efficient (no market is) but they are better predictors than anything else, including pundits and especially MSM Polls more than a year out. These markets are here to stay, and their presence is growing, especially in corporate america as internal vehicles to help get a handle on aggregated conventional wisdom.
From the article you pointed to:
Those Spurious Presidential Futures:
http://www.thestreet.com/p/_rms/rmoney/barryritholtz/10185976.html
Intrade.com claims to be the largest futures exchange in the world, and its biggest contract the George W. Bush futures has about $2 million invested currently.
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Excerpt from
A little before 1 a.m. with the Intrade odds at 37 percent CNN broadcast a live interview with John Aravosis, a liberal activist. We pretty much know where we are, Mr. Aravosis said. The Dems have the House. Republicans have the Senate. And, you know, I dont think thats going to change by morning.
It did change, of course. Mr. Allen soon conceded, and the Democrats began planning their majority. Mr. Wolfers, an economist at the Wharton School of the University of Pennsylvania, sitting in the comfort of his living room, had been a better pundit than most of the professionals on television, thanks to a Web site that is based in Ireland.
Over the last few years, Intrade with headquarters in Dublin, where the gambling laws are loose has become the biggest success story among a new crop of prediction markets.
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Excerpt from
Were the InTrade prediction markets on the November 2006s Senate elections accurate?
Chris. F. Masse August 2nd, 2007
Revisiting the issue, almost one year later.
Lance Fortnow (University of Chicago) wrote:
So how did those predictions go? In short you can say the markets predicted every individual race correctly but got the senate wrong, but let us look a little more carefully.
At about 9 AM CST on the morning of election day I made a snap shot of the map for a Discovery Channel Website article.
Every state colored blue was won by a democrat and every state colored red went to a republican. But also note the 69% given to GOP (Republican) Senate control although this election will give control to the democrats. No outcome would have made all the states and senate control agree with the 9 AM map.
Were the markets inconsistent? No, because the markets predict not absolutely but probabilistically. For example, the markets gave a probability of winning 60% for each of Virginia and Missouri and the democrats needed both to take the senate. If these races were independent events, the probability that the democrats take both is 36% or a 64% chance of GOP senate control assuming no other surprises.
Of course the races were not independent events and there are other states involved making it more difficult to compare the probabilities of the individual races with that of senate control.
So how did the markets do as predictors? Quite well as the outcome seems quite reasonable given the markets. Other outcomes would have also been reasonable such as the Democrats losing Virginia and the senate remaining in republican hands, a possibility that came very close to happening.
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Excerpt from
New York Times on prediction markets REDUX
Chris. F. Masse February 14th, 2007
- New York Times.
- Justin Wolfers Interview - by New York Times - (MP3) - 2007-02-14
http://www.midasoracle.org/2007/02/14/new-york-times-on-prediction-markets-redux/
- Justin Wolfers comment on my 08 is two years away [*] comment:
Your concern about the accuracy of markets two years out seems entirely well placed. But again - and I think it is worth saying this over and over - the relevant question is whether the markets do a better job than alternative information aggregation devices. My own analysis (with Andrew Leigh) of Australian polling data suggests that any polling done more than a year before an election is essentially useless. That is, you are better off simply guessing that the previous election results will repeat themselves, than you are using early polls.
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Excerpt from
http://en.wikipedia.org/wiki/Prediction_market
In the Tradesports 2004 presidential markets there was an apparent manipulation effort. An anonymous trader sold short so many Bush 2004 presidential futures contracts that the price was driven to zero, implying a zero percent chance that Bush would win. The only rational purpose of such a trade would be an attempt to manipulate the market in a strategy called a bear raid. If this was a deliberate manipulation effort it failed, however, as the price of the contract rebounded rapidly to its previous level. As more press attention is paid to prediction markets, it is likely that more groups will be motivated to manipulate them. However, in practice, such attempts at manipulation have always proven to be very short lived. In their paper entitled Information Aggregation and Manipulation in an Experimental Market (2005),[11] Hanson, Oprea and Porter (George Mason U), show how attempts at market manipulation in fact end up increasing the accuracy of the market because they provide that much more profit incentive to bet against the manipulator.
Thompson Tanking in Futures Markets (Intrade, IEM)
Intrade; Iowa Electronic Markets ^ | October 31, 2008
http://www.freerepublic.com/focus/f-news/1919127/posts
Intrade forum discussion
http://bb.intrade.com/intradeForum/posts/list/1805.page