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The author brings up some good points about the potential for arbitrage between prediction markets. But in my experience, intrade has a strong conservative bias

by hooande 14y ago

The author brings up some good points about the potential for arbitrage between prediction markets. But in my experience, intrade has a strong conservative bias. This is more likely a case of people betting on their (incorrect) political convictions as opposed to intentional manipulation. I remember observing a similar thing around the betting on the supreme court healthcare decision. The odds were 3-4 points more against the legislation on intrade than they were on other sites. The comments were overwhelmingly partisan and conservative. "The Supreme Court will find this unconstitutional because Obama is a socialist." The idea behind prediction markets is that people will only bet when they know something that the rest of us don't. But we shouldn't underestimate the human ability to convince ourselves that everyone else feels as strongly about an issue as we do.

CamperBob2 14y ago
In addition to what you're saying, it could have made sense to buy Obama calls, so to speak, if you think your taxes are going to go up significantly under his second term. That behavior would severely distort Intrade's purpose as a prediction market.
- javert 14y ago
  No, it wouldn't. The "purpose" of a prediction market is to let people buy and sell shares in a certain outcome, not to provide information. That's just a nice side effect of a sufficiently liquid market.
  - CamperBob2 14y ago
    True, I really should have said it would distort Intrade's utility as a prediction market.
    - javert 14y ago
      It doesn't distort its utility for the people who are hedging (on the one side) or speculating (on the other), and those are the actual clients of the prediction market. But it does make it less useful for third party observers :)
- yummyfajitas 14y ago
  Hedgers are giving money away (on average) in order to hedge against undesirable outcomes. If speculators respond to incentives and take their money, markets will be pushed back to normal. I think Robin Hanson even has a paper or two proving this is the equilibrium strategy. As the article indicates, he even put his money where his mouth is.
modarts 14y ago
Markets are by in large not NEARLY as rational as conservative economists make them out to be. Your point about the political biases informing the positions that traders were taking further supports that.
- deleted 14y ago
  [deleted]
- 001sky 14y ago
  Your use of the word 'conservative' is ill-advised, both technically and rhetorically. Free-market Economics is rooted in [l]iberal traditions in the first instance, not conservative (see: repeal of the corn laws)[1]; and in the second: Modern [L]iberals (ie, interventionists) require near-perfect rationality as an operating behavioural assumption, ex-ante. Not to be pedantic, but this is an important point. [L]iberal economists are part of the Orthodoxy. Non-orthodox behavioural assumptions[1] are (arguably) quite problematic to an Orthodox interventionist. This is glossed over because it threatens the 'myth of expertise' that is required to politically implement a such an ideology. This is not a partisian point, but one of history and terminology. ______________ [1] http://en.wikipedia.org/wiki/Corn_Laws http://en.wikipedia.org/wiki/Corn_Laws. [2] In particular, bounded rationality and opportunism. edits: clarity
  - lmm 14y ago
    For rhetorical/conversational purposes current usage is more important than historical derivation, and the current political reality is that the "market liberal" position is espoused almost exclusively by those in the "conservative" (i.e. social conservative) camp - blame the two-party US system. Surely the liberal interventionist position requires an assumption of irrational behaviour from market participants - that's the only way e.g. regulation to prevent bubbles would make sense.
  - gjm11 14y ago
    You appear to be arguing that because (1) the historical foundations of free-market economics come from a group different from the one now called "conservative", and (2) the people now called "liberal" also make overoptimistic assumptions about people's rationality, it's wrong to say that (3) the people boosting markets like Intrade as reliable information sources tend to be the ones now called "conservative". But there is no contradiction of any sort between (1,2) and (3). Which is maybe just as well, because in fact (3) is true. (It seems to me that (1) is an interesting but irrelevant historical point, and (2) is merely irrelevant smoke-blowing, whose best explanation is that you're more partisan than you let on here. But I could be wrong.)

by hooande 14y ago

CamperBob2 14y ago

In addition to what you're saying, it could have made sense to buy Obama calls, so to speak, if you think your taxes are going to go up significantly under his second term. That behavior would severely distort Intrade's purpose as a prediction market.

javert 14y ago
No, it wouldn't. The "purpose" of a prediction market is to let people buy and sell shares in a certain outcome, not to provide information. That's just a nice side effect of a sufficiently liquid market.
- CamperBob2 14y ago
  True, I really should have said it would distort Intrade's utility as a prediction market.
  - javert 14y ago
    It doesn't distort its utility for the people who are hedging (on the one side) or speculating (on the other), and those are the actual clients of the prediction market. But it does make it less useful for third party observers :)
yummyfajitas 14y ago
Hedgers are giving money away (on average) in order to hedge against undesirable outcomes. If speculators respond to incentives and take their money, markets will be pushed back to normal. I think Robin Hanson even has a paper or two proving this is the equilibrium strategy. As the article indicates, he even put his money where his mouth is.

modarts 14y ago

Markets are by in large not NEARLY as rational as conservative economists make them out to be. Your point about the political biases informing the positions that traders were taking further supports that.

deleted 14y ago
[deleted]
001sky 14y ago
Your use of the word 'conservative' is ill-advised, both technically and rhetorically. Free-market Economics is rooted in [l]iberal traditions in the first instance, not conservative (see: repeal of the corn laws)[1]; and in the second: Modern [L]iberals (ie, interventionists) require near-perfect rationality as an operating behavioural assumption, ex-ante. Not to be pedantic, but this is an important point. [L]iberal economists are part of the Orthodoxy. Non-orthodox behavioural assumptions[1] are (arguably) quite problematic to an Orthodox interventionist. This is glossed over because it threatens the 'myth of expertise' that is required to politically implement a such an ideology. This is not a partisian point, but one of history and terminology. ______________ [1] http://en.wikipedia.org/wiki/Corn_Laws http://en.wikipedia.org/wiki/Corn_Laws. [2] In particular, bounded rationality and opportunism. edits: clarity
- lmm 14y ago
  For rhetorical/conversational purposes current usage is more important than historical derivation, and the current political reality is that the "market liberal" position is espoused almost exclusively by those in the "conservative" (i.e. social conservative) camp - blame the two-party US system. Surely the liberal interventionist position requires an assumption of irrational behaviour from market participants - that's the only way e.g. regulation to prevent bubbles would make sense.
- gjm11 14y ago
  You appear to be arguing that because (1) the historical foundations of free-market economics come from a group different from the one now called "conservative", and (2) the people now called "liberal" also make overoptimistic assumptions about people's rationality, it's wrong to say that (3) the people boosting markets like Intrade as reliable information sources tend to be the ones now called "conservative". But there is no contradiction of any sort between (1,2) and (3). Which is maybe just as well, because in fact (3) is true. (It seems to me that (1) is an interesting but irrelevant historical point, and (2) is merely irrelevant smoke-blowing, whose best explanation is that you're more partisan than you let on here. But I could be wrong.)