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Prediction markets seem to be doing a really terrible job at predicting an election that already happened... Right now predictit.org has Biden winning at 89% a

Prediction markets seem to be doing a really terrible job at predicting an election that already happened... Right now predictit.org has Biden winning at 89% and Trump winning at 15%[1]. But if you look at it by "electoral margin victory" and add up all the Republican win margins, you get that Republicans have 28% chance of winning and Democrats have 95%.[2] This is two weeks after the election that is pretty clear a Joe Biden/Democratic victory. These markets may get things right, but they also get things really, really wrong. [1]Yes, adds up to over 100. You could bet against both for a guaranteed profit, however I believe the markets aren't allowing new traders and there are also fees and counter party risk to consider [2] https://www.predictit.org/markets/detail/6653/What-will-be-the-Electoral-College-margin-in-the-2020-presidential-election https://www.predictit.org/markets/detail/6653/What-will-be-t...

MengYuanLong 6y ago
The reason they add to over 100% is due to the 10% fee on profits which limits arbitrage. Specifically, all profits have a fee assessed but it doesn't account for money lost on associated contracts so if you buy Biden winning the election for $0.90 and buy Trump losing for $0.10 ---> if Biden wins, that contract resolves to $1 but you only receive $.99 due to the fee. Meanwhile you have lost $0.9 on your other contract. This effect is most noticeable in markets with multiple contracts (e.g., who will be named secretary of state).
- ja3k 6y ago
  This is a reason things will get slightly out of line but not to this degree. You can (and I did) buy all the NOs in the Predictit electoral college market and get a guaranteed immediate return. If you can buy n NOs for less than (n-1-0.1) on predictit you'll make money net of fees. The bigger issue is trader limits. I could only take $50 worth of arbitrage because I can only own $850 worth of shares in each bracket. They also limit markets to 5k traders (which most markets have hit at this point) so other arbitragers can't come in and correct the prices.

MengYuanLong 6y ago

The reason they add to over 100% is due to the 10% fee on profits which limits arbitrage. Specifically, all profits have a fee assessed but it doesn't account for money lost on associated contracts so if you buy Biden winning the election for $0.90 and buy Trump losing for $0.10 ---> if Biden wins, that contract resolves to $1 but you only receive $.99 due to the fee. Meanwhile you have lost $0.9 on your other contract. This effect is most noticeable in markets with multiple contracts (e.g., who will be named secretary of state).

ja3k 6y ago
This is a reason things will get slightly out of line but not to this degree. You can (and I did) buy all the NOs in the Predictit electoral college market and get a guaranteed immediate return. If you can buy n NOs for less than (n-1-0.1) on predictit you'll make money net of fees. The bigger issue is trader limits. I could only take $50 worth of arbitrage because I can only own $850 worth of shares in each bracket. They also limit markets to 5k traders (which most markets have hit at this point) so other arbitragers can't come in and correct the prices.