I’m taking a comparative politics class this semester, focusing on devising election behavior metrics in various countries. We were asked to made a bid on a ticket that pays $100 if Obama wins the election and nothing if he loses. I bid $55 and the class of about 13 averaged to $59 (30s to 80s, IIRC). The instructor then brought up Intrade.com , claiming that “some say” that political polling is much more accurate when you put your money where your mouth is. Apparently, the market thinks Obama is a 60% shot to win.
Now here’s the funny part of this. Hilary Clinton is apparently a 3% favorite. So I could pay $3 and if she wins, I get $100. I can short-sell (sell now, buy later) too, so by “freezing” $100, I can gain $3 when she loses.
The other funny point is that if I buy an Obama ticket and a McCain ticket, I end up paying $98.50 total for them, and if one of them gets elected, I win $100.
So the GQ: Is buying/selling according to these strategies and losing more or less likely than me winning a million bucks from a $1 lottery ticket? IOW, am I dumber for buying a Hilary ticket or a lottery ticket?
I’m not good with probabilites and such, so help me out here.
Well, it is not certain that one of those will win. (Other possibilities are that one of them dies and is replaced by another candidate who wins, and that a third party’s candidate wins – though the latter seems very unlikely to me). You already said that Hillary was rated as having a 3% chance, so to cover all three would cost you $101.50 to win $100. In addition, Senator Biden now has a non-zero (if very small) chance of winning in November, and so would McCain’s running mate.
I wonder how much hedging is going on with these bets. For example, suppose I am a fairly wealthy individual who stands to lose a fair bit if Obama is elected. It would be entirely reasonable for me to bet on Obama winning to hedge my potential losses. Depending on how much money is being thrown around, that could really mess with the odds as presented here.
If a candidate dies, the contracts are void and you get your money back. There’s also an “Unforseen circumstances” clause. I don’t see how anyone but Obama or McCain could possibly win. Even if Clinton DID have a 3% chance of winning, I could just sell all three contracts for $101.50 total and make $1.50.
I’ve been interested in investing some real money (a modest amount) in the Intrade.com political markets. Especially because I still believe that McCain will win the election so I would stand to make a pretty good return if he does (as mentioned above, MCain is a big underdog at Intrade.com).
I have actually signed up and created an account there but when I tried to transfer some money into the account it became a real hassle (because it is offshore and essentially gambling).
I am pretty sure I could at the very least fund my account with a personal check but I would rather do it by credit card or direct wire transfer. Also-- at some point I started to worry about Intrade.com somehow ripping me off in some gigantic Ponzi scheme or whatever.
Has anyone here opened and funded an Intrade.com account? Anyone have any advice on the security, safety and legality of doing so?
Yes, it would appear that intrade is grossly overstating the possibility of an “improbable outcome”–that is, anybody except Obama or McCain winning. I suspect that the reason is that intrade isn’t large enough or trusted enough to be an efficient market.
You’d have to stake an inordinate amount of money to make a meaningful profit on an Obama-or-McCain bet. In large, liquid, and well regulated markets, arbitrageurs do exactly that and bid away even small inefficiencies in price. On intrade, they may be unwilling to do so out of fear that the service may go under, or they may be unable to collect for some reason unrelated to the result of the election.