Wednesday, February 13, 2008
Why is this man smiling? Well, there is website called Intrade that, as described in David Leonhardt's "Economic Scene" column in today's New York Times, permits members to "buy and sell contracts whose price is tied to real-world events." Right now, Intrade is saying that there is a 75% chance that Barak Obama will be the Democratic candidate for President and a 51.2% chance that he will be elected President. According to Leonhardt, Intrade is winning a reputation for being a more reliable predictor of election outcomes than exit polls. That is awfully good news for Mr. Obama.
But Intrade was wrong about the California primary. Intrade predicted that Obama would win, but as you can see, Hillary Rodham Clinton is still smiling. Is that because Ms. Clinton knows that Intrade says there is a 68% chance that a Democrat will win the 2008 Presidential election, and she will be happy so long as a representative of her party is in the White House in 2009?
Perhaps. Or perhaps she, like Serge Ravitch, described in the Times as a "27-year-old lawyer turned poker player" is planning on exploiting inefficiencies in Intrade to make a profit that she can use to fund her stumbling campaign. Ravitch boasts a 35% return. According to the Times then, it seems that one good strategy Clinton might follow is to bet on Intrade against Ron Paul for the Republican nominee or against Al Gore as the Democratic vice presidential nominee. But Clinton will have to beware. Intrade can be exploited because it is slow to react to new information, in large part because the volume of trades is so small. Should Intrade really heat up, she and Mr. Ravitch may have no choice but to return to their day jobs.