Menus Subscribe Search
intrade

Intrade, We Hardly Knew Ye

• March 19, 2013 • 4:00 AM

The prediction market that shut down last week was fun, but it wasn’t any better at predicting politics than polls are.

If you’re a gambler, you might have noticed that the prediction market known as Intrade shut down last week. Theories abound as to why that happened. It’s not clear what will become of Intrade—perhaps it will be back up next week, perhaps we will never see it again. But I wanted to mention some of Intrade’s contributions to politics. (At the risk of being presumptuous, I’ll be referring to Intrade in the past tense, although I’ll be happy to be wrong about that.)

If you never used it, Intrade was really a clever gambling device, allowing you to bet on the probability of an event occurring. You establish an account and put some money in it. Then you look among hundreds of different betting “contracts” (who’s going to win the presidency, who’s going to win American Idol, will US GDP growth average above 3 percent this year, etc.) and decide where to place your money. Surer things were more costly bets. But you could buy and sell a contract any time prior to the event. So, for example, if you had bought an Obama re-election contract on May 1, 2011 (then valued at about 60) and then sold it on May 3, 2011, the day after Bin Laden was killed (when the contract was valued at about 70), you’d have turned a tidy profit.

Beyond the gambling fun, Intrade was believed to be very useful for those interested in forecasting elections. Polls have the disadvantage of being meaningful and accurate only within a few months—or weeks—of an election, since most voters aren’t well aware of the candidates or issues until then. By contrast, people betting on political events are a self-selected group of highly informed political observers, people with enough interest and confidence in their knowledge to actually put down money. In theory, at least, these folks should be able to provide much more reliable predictions much earlier in the race. And, indeed, some studies (like this dissertation by Ian Saxon) have found early political betting markets to be better predictors than early polls. Robert Erikson and Christopher Wlezien, however, note that markets and polls aren’t actually measuring the same thing, and that when properly compared, polls tend to do a better job forecasting.

Part of the problem with using markets like Intrade to forecast elections is that they may be subject to short-term manipulation, which compromises their predictive value. For example, back before banking laws made it prohibitively difficult for Americans to place bets on Intrade, I made a few. I made a bit of scratch (i.e., enough to buy a high-end Frappuccino) by betting on Hillary Clinton to win the 2008 Democratic nomination right before the Ohio primary (which she was expected to win) and then selling that contract the day after. I did the same with Mitt Romney right around the Michigan primary that year. (I also lost a few dollars here and there.) Notably, I did not think that either Clinton or Romney would win their respective parties’ nominations that year. I was just betting that enough other people would think that to briefly raise the value of their contracts, and it worked.

And that, of course, was part of the problem, if you were trying to use Intrade to actually estimate a candidate’s chances of winning a contest. My purchases slightly distorted the value of the contracts, and if enough other people were doing that at the same time, it just ended up inflating the candidates’ apparent chances of winning after a day of good news, even though their chances really hadn’t improved.

More generally, it turned out that people who bet on Intrade were subject to the same biases and impressionability that people surveyed in polls were. Or worse: as Josh Tucker notes, bettors may have been just relying on polls in placing their bets. Take an example from the 2012 Republican presidential nomination contest. Below is a chart from Real Clear Politics showing the poll standings of the Republican candidates. It was an odd contest in that almost every candidate saw some time as a front-runner. Note in particular Newt Gingrich (in green), who had two poll surges, one in late 2011 and the other in early 2012:

gingrich polls 2012

Now note Gingrich’s Intrade contract from the same time period. Basically, he sees the exact same double-surge pattern.

gingrich intrade

Now what, in fact, were Gingrich’s actual chances of winning the Republican presidential nomination in 2012? Virtually zero! He had almost no endorsements, most of the Republicans who served with him in the House were not only not backing him but actively opposing him, he had a history of flip-flopping on key Republican issues, he hadn’t served in office for over a decade, he had loads of personal baggage, etc. Either he never had a shot, or everything we knew about presidential nominations was wrong. Ideally, the markets should have reflected that, and should not have been so easily impressed by a few weeks of good press for him or a strong debate performance. But the markets proved as fickle as poll respondents.

So, if Intrade comes back on line, or if you want to use another site like the Iowa Electronic Markets, by all means have fun with it, but just know that you’re not necessarily getting any inside dope on the next election by watching people bet.

Seth Masket
Seth Masket is a political scientist at the University of Denver, specializing in political parties, state legislatures, campaigns and elections, and social networks. He is the author of No Middle Ground: How Informal Party Organizations Control Nominations and Polarize Legislatures (University of Michigan Press, 2009). Follow him on Twitter @smotus.

More From Seth Masket

A weekly roundup of the best of Pacific Standard and PSmag.com, delivered straight to your inbox.

Recent Posts

August 21 • 6:33 AM

One Toxic Boss Can Poison the Whole Workplace

Office leaders who bully even just one member of their team harm everyone.


August 21 • 6:00 AM

The Fox News Effect

Whatever you think of its approach, Fox News has created a more conservative Congress and a more polarized electorate, according to a series of recent studies.


August 21 • 4:00 AM

Do Children Help Care for the Family Pet?

Or does mom do it all?


August 20 • 4:00 PM

Why Can’t Conservatives See the Benefits of Affordable Child Care?

Private programs might do a better job of watching our kids than state-run programs, but they’re not accessible to everyone.


August 20 • 2:00 PM

Oil and Gas Companies Are Illegally Using Diesel Fuel in Hundreds of Fracking Operations

An analysis by an environmental group finds hundreds of cases in which drillers used diesel fuel without obtaining permits and sometimes altered records disclosing they had done so.


August 20 • 12:00 PM

The Mystery of Britain’s Alien Big Cats

In a nation where the biggest carnivorous predator is a badger, why are there so many reported sightings of large cats?


August 20 • 10:00 AM

Death Row in Arizona: Where Human Experimentation Is the Rule, Not the Exception

Recent reports show that chemical roulette is the state’s M.O.


August 20 • 9:51 AM

Diversity Is in the Eye of the Beholder

Perception of group diversity depends on the race of the observer and the extent to which they worry about discrimination.


August 20 • 8:40 AM

Psychopathic or Just Antisocial? A Key Brain Difference Tells the Tale

Though psychopaths and antisocial people may seem similar, what occurs in their brains isn’t.


August 20 • 8:00 AM

What the Cost of Raising a Child in America Tells Us About Income Inequality

You’ll spend nearly a quarter of a million dollars to raise a kid in the United States, or about five times the annual median income.


August 20 • 6:00 AM

In Praise of ‘American Greed’

While it remains semi-hidden on CNBC and can’t claim the car chases of Cops, American Greed—now with eight seasons in the books—has proven itself a worthy endeavor.


August 20 • 4:00 AM

Of Course I Behaved Like a Jerk, I Was Just Watching ‘Jersey Shore’

Researchers find watching certain types of reality TV can make viewers more aggressive.


August 20 • 2:00 AM

Concluding Remarks About Housing Affordability and Supply Restricitions

Demand, not supply, plays the dominant role in explaining the housing affordability crisis. The wages are just too damn low.


August 19 • 4:00 PM

Can Lawmakers Only Make Laws That Corporations Allow?

There’s a telling detail in a recent story about efforts to close loopholes in corporate tax laws.




August 19 • 12:00 PM

How ‘Contagion’ Became Contagious

Do ideas and emotions really spread like a virus?


August 19 • 10:00 AM

Child Refugees: The New Barbarians

The disturbing rhetoric around the recent rise in child refugees into the United States from Central America may be shaping popular opinion on upcoming immigration reform.


August 19 • 8:00 AM

Making Police Departments More Diverse Isn’t Enough

Local police departments should reflect the communities they serve, but fixing that alone won’t curb unnecessary violence.


August 19 • 7:15 AM

Common Knowledge Makes Us More Cooperative

People are more inclined to take mutually beneficial risks if they know what others know.


August 19 • 6:00 AM

Seeking a Healthy Public School Lunch? Good Luck

Mystery meat will always win.


August 19 • 4:00 AM

The Positive Effects of Sports-Themed Video Games

New research finds sports-themed video games actually encourage some kids to get onto the field.


August 19 • 1:00 AM

DIY Diagnosis: How an Extreme Athlete Uncovered Her Genetic Flaw

When Kim Goodsell discovered that she had two extremely rare genetic diseases, she taught herself genetics to help find out why.



August 18 • 3:30 PM

Mister Rogers’ Heart-Healthy Neighborhood

Researchers find living in a friendly, cohesive neighborhood lowers seniors’ chances of having a heart attack.


Follow us


One Toxic Boss Can Poison the Whole Workplace

Office leaders who bully even just one member of their team harm everyone.

Diversity Is in the Eye of the Beholder

Perception of group diversity depends on the race of the observer and the extent to which they worry about discrimination.

Psychopathic or Just Antisocial? A Key Brain Difference Tells the Tale

Though psychopaths and antisocial people may seem similar, what occurs in their brains isn’t.

Common Knowledge Makes Us More Cooperative

People are more inclined to take mutually beneficial risks if they know what others know.

How a Shift in Human Head Shape Changed Everything

When did homo sapiens become a more sophisticated species? Not until our skulls underwent "feminization."

The Big One

One in two full-time American fast-food workers' families are enrolled in public assistance programs, at a cost of $7 billion per year. July/August 2014 fast-food-big-one
Subscribe Now

Copyright © 2014 by Pacific Standard and The Miller-McCune Center for Research, Media, and Public Policy. All Rights Reserved.