Wednesday, July 13, 2011

The Latest Prediction Market Odds

Those of you who have followed the Naked Dollar know we like prediction markets, which can be found at Intrade. These are continuously trading contracts where speculators make markets on the odds of certain binary future outcomes, e.g. the U.S. gets hit by a Cat 5 hurricane this year or not. If the contract trades at, say, 42, it means the "market" thinks there is a 42% probability of the event occuring.

Prediction markets are interesting because they give a "best available" probability on all sorts of events. They are particularly interesting for politics; since they involve actual money, they tend to be more accurate than polls.

Here are some current probablities and whether I am (hypotheitically) long or short:

Obama re-elected                                  57%   (short)

Romney nominated                                34%   (long)
Bachmann nominated                            16%    (neutral)
Huntsman nominated                              9%    (big time short)
Perry nominated                                    17%    (long)
Pawlenty nominated                                8%    (short)
Cain nominated                                       2%    (long)

Euro dropped by any nation by 2013       25%   (long)

Note that the event doesn't have to actually happen to make money since the market is continuous. For instance, if the probability of Cain's nomination rises from 2% to 4%, one doubles their money (assuming the trade is unwound at that time).

1 comment:

  1. sounds like betting at Vegas. I am long on Obama, neutral on Romney but short on him actually winning the election-mormon thing. Translated-I think Obama will win election today, Romney will get nomination unless someone new enters the arena and if he gets the nomination he will not win since mainstream christian america thinks mormans are a cult. Could get crossover votes if they neutralize the religious issue because of his history on healthcare. Have a mental block on the whole short/long stuff-uncle and cousins work or Merrill Lynch ( or what ever it is now BOA?)Apparently the long short knowledge i only allowed to exist in certain family members