I’m one of those people who do find the prediction markets for political races interesting, so I feel called to once more defend them. Matt writes:
A lot of people seem fascinated with things like the political predictions charts on Intrade. I, frankly, would very much like to be fascinated with them. But in reality, they’re deadly boring. Take the betting on the Republican nomination, for example. It’s clearly just a kind of lagging indicator of semi-informed conventional wisdom. The crowd didn’t have a premonition of Mike Huckabee’s rise and — more damningly — the crowd didn’t have the foreknowledge to recognize that Huckabee’s surge was going to lead to a backlash and heightened scrutiny. So he skyrockets up and then down he dips.
On the Democratic side, meanwhile, Hillary is currently valued at 66.9 and I’m absolutely certain that if she loses in Iowa (of which there’s certainly more than a 33 percent chance of happening) then she’ll plunge.
Not that any of that is wrong, but it’s not especially interesting. You’d like to see some kind of noteworthy divergence between what the betting markets are saying and what people in DC speculate about around the water cooler. Instead, you get something that seems to be an equal blend of what people say around the water cooler with national polls. In formal terms, I guess the problem is that everyone is working off the same bits of inadequate information so nothing’s really being aggregated. We all know what the latest polls say and that the outcomes in the early states matter more. Put all of us knowing the same thing together and what you get is dull, dull, dull.
It strikes me as a little odd to say that the prediction markets reflect conventional wisdom and are dull and then to immediately speculate that they’re almost certainly off on the Democratic percentages. It seems, actually, that knowledgeable pundits look at the markets when they reflect the CW and call them dull, and they look at the markets when they don’t and call them wrong. I think it’s notable that John Edwards is treated like one of the three front-runners by wonks and the media, when he’s rarely been given a better than 10 percent chance of winning by Intrade. And for all the hoopla surrounding Ron Paul, Intrade has never placed him within shouting distance of the leaders.
But these are markets, and actual money changes hands based on outcomes. If Matt believes that Hillary is way overvalued, then I would encourage him to take advantage of this confidence by betting on his hunch. If he’s right, then he has improved the Intrade percentages by trading, and he stands to make some cash. If he’s wrong, then he’s subsidized traders with a better sense of the races, and he can join me in defending Intrade the next time around.
Incidentally, I’ve argued that economics departments should provide accounts for their professors, who have an interest in better prediction market prices. Maybe news organizations should do the same. I have no doubt that if the Atlantic gave each of its bloggers an account, the political race prices would be better.