Tuesday, September 9, 2008

Election 2008: Another way to speculate the winner besides voting polls

Intrade Prediction Markets is another potentially valid method of judging the November election's outcome. Whereas polls evaluate how many voters will go republican or democrat on a given day, the prediction market is a place to trade stock on the election's speculated outcome. The key difference between polling and speculation market is this: today there is only 1% difference in the polls but an 8% difference in favor of Obama to win the election in the speculation market.

The Intrade website clarifies exactly what is being traded:

When the election is over and the result is official, if Obama is elected that contract will close at 100. If on the other hand he fails to win the general election, the contract - Will Obama be elected President - will close at 0.

However, until the election is over that contract will fluctuate in value between 0 and 100 just like a stock, reacting to the news of the day and buying & selling by you the trader.

Who determines the prices?

You do - along with thousands of traders around the world. Just like the price of Microsoft stock is determined by the buying & selling activities of thousands of traders in the financial markets, the price of our contracts are determined by traders, like you, who are confident enough to back up their opinion by risking real money.

Thousands of individuals' money on the line is more trustworthy and interesting to me than a CNN poll. The news agencies have incentive to represent the race to be as tight as possible. This sells adspace and keeps the public interested (and hopefully voting as well). However, the wisdom of monetary crowdsourcing tells us that Obama has been favored to win since early '08, and even has enjoyed a 35% lead over McCain in July.

Recently, the McCain-winning stock has gained considerable value. Is it time to sell Obama-winning stock, or just ride out the storm?

Another question; if the race is really tight like it was in 2000, which state will mysteriously fail to have a full vote count in favor of the Republicans?