Is Intrade Really a Valuable Predictor?

This is a syndicated post from The American Catholic. [Read the original article...]

Intrade is an online trading platform where participants actually place (legal) bets on the outcomes of certain events. For close to a decade political pundits have been using it as a reference to predict election outcomes. Indeed it seems to have a good record, correctly predicting the outcomes of the 2004 and 2008 presidential elections, and getting all but two states correct in 2008. Currently, Intrade gives Barack Obama a 62.4% chance to win re-election.

So is Intrade a valuable resource that can be relied upon to accurately predict election outcomes? Not in the least.

This Business Insider article sums up several of the problems with Intrade, and hits upon the point that has bugged me the most about it, namely that all it does is distill current conventional wisdom. Take, for example, that 62.4% number above. Sure that looks good for Obama, but over a week ago that number was well over 80%. In other words, as Obama’s poll numbers moved down so did confidence by Intrade investors. As Joe Weisenthal put in when discussing the Republican primary:

So why ignore InTrade? Well, basically, because all it does is distill conventional wisdom. Seriously, what good is it to know that on InTrade Mitt Romney is far ahead, and that Hermain Cain doesn’t have a chance? All you have to do is read any DC-based political pundit, and they’ll tell you the exact same thing.

And when the conventional wisdom changes, so does the market.

Rick Perry is down in the dumps on InTrade now, but back in August — when everyone was talking about how he was the frontrunner — he was the frontrunner on InTrade as well.

Weisenthal then tracks Perry’s chances on InTrade, and notes how they basically just mirror Perry’s poll numbers.

Even the 2004 and 2008 results aren’t that impressive in retrospect. When people woke up on election day 2008, did anybody really doubt that Barack Obama would win, other than people who clung to fleeting hopes of a miracle McCain victory? And in 2004, Bush’s chances were just over 50% – meaning that the market as a collective was leaning the same way as most polls which, with a few exceptions, generally gave Bush a slight edge. In fact, if you look at Intrade activity on election day itself, Bush’s chances plummeted as early exit poll leaks suggested a Kerry victory, and then rose again as actual election results came in and a Bush victory became more apparent. In other words, Intrade just reflected the polls. And while the state predictions seem impressive, again, how many states were truly up for grabs? Intrade was therefore no more useful a guide than any reasonably informed individual with access to polling data.

Some fans of Intrade like to point out that participants literally have to put their money where their mouth is. I don’t really see how this makes the platform any more valuable as an index. Bookies all over the country would be the ones fearing having their legs broken if money induced wiser gambling behavior – and Intrade is, in essence, simply a gambling platform.

Long story short, Intrade offers no more insight into how the election will play out than some cranky guy writing on a blog who can look at the Real Clear Politics average of polls (which has Romney up by 1.3 percent, incidentally). So then why do pundits insist on citing it, and why do people continue to think it has any meaningful predictive value?

 

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Paul Zummo (110 Posts)


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