There seems to be a long running inconsistency between Intrade and Betfair on who the 2012 president is going to be. For example, at the moment on Intrade I can buy 100 shares of Barack Obama winning at $6.62.
If Obama wins, I get $1000 (including my original stake). If Obama loses, I lose $662.
However, at the same time I can go over to Betfair and lay Obama at 1.41, decimal odds. What does that mean? Well suppose I lay a stake of $1000. If Obama wins, I will lose $1000. However, if Obama loses, I will win $709. In other words I have a free bounty of $47 if Obama loses, and it costs me nothing if he wins.
(Equally, you can be even more clever and equalise outcomes, more or less. The above also doesn’t take into account fees which are significant but not enough to destroy the opportunity. I do not know whether the opportunity would still exist if you decided to hedge foreign exchange as well but I should think so)
Anyway, my question is: what can we learn from this consistent abberation?
I believe that the only major difference between Intrade and Betfair is that Americans cannot use the latter due to silly US gambling laws (I don’t see how intrade isn’t gambling just by pretending it’s “shares”, but whatever).
And thus my answer to my question is this: American republicans are putting enough money on Intrade to distort the betting markets. Eventually of course cause of arbitrageurs, this will feed through to betfair and other bookies, but they are restircted to using Intrade cause of American laws.
And if I’m correct about this - isn’t this very interesting indeed - it won’t cost them all too much, and it may generate some headlines. Notoriously Chris Hune did this when he was running to be a leader of the Liberal Democrats in the UK, which while he didn’t win most assuredly boosted his profile; and had he not been a corrupt bugger currently trying to avoid being sent to prison for perverting the course of justice, this relatively cheap in terms of political campaigning act could have been extremely effective.
Is there anything in American election law that would stop Republicans trying to distort consensus like this? And more generally, is my theory plausible?