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Wisdom of Markets

December 17th, 2007 by Jacob Ukelson

I was looking at company that wanted to build a generalized market trading mechanism for anything (which seemed to me to be another name for gambling) and decided to look at intrade wondering whether a market mechanism could actually be used to acurately predict future events. I looked at some of the most highly traded intrade political markets (over 100K trades, which I guess doesn’t really mean over 100K different people) to see who will be the future president in 2008. According to intrade (on Dec 17th)  it will come down to Hillary (with VP candidate Bayh or Obama) vs. Giuliani (with VP Huckabee), and it looks like Hillary is a shoe-in.

One interesting thing I noticed is that there seems to be an internal consistency to these markets, even though the participants are (probably) different.

There is a close correlation between the nominee front runner charts and the presidential winners charts (even though they are unlinked as markets). It will be interesting to see how these predictions change as we get closer to the election, and whether they will actually predict the future…

 BTW - according to intrade there is about a 50% chance of a US recession next year (below the sentiment in September, but above the low in October), but only small chance that Israel/US will bomb Iran (way down from September)…

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