It's not predictive. It's reflective. Intrade simply reflects conventional wisdom as published by sites such as Cook Political Report or RCP. It's thus a lagging indicator of external data. Except that it's easily subject to market manipulation.
In summary, it's crap.
“It’s not predictive. It’s reflective.”
Yet it PREDICTS outcomes better than polls do 3 out of 4 times. As the paper suggests, polls are subject to a lot of volatility based on breaking news, hence they won’t necessarily be an accurate indicator of what voters actually will do a few days later in the polls. The prediction markets, OTOH, can take such volatility into account based on past experience and do a better job of predicting a future vote (as opposed to predicting how people would vote on the day a Gallup poll is conducted etc.).
If you know of a superior prediction tool, please advise. But until you weigh in, I’ll regard political markets as superior to reliance on polls: they may not be perfect, but neither are they crap, IMHO.