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A St. Patrick’s Day Farewell to Intrade

This past November, 26th, I posted the following short piece to this blog.

For several years, I and others have pointed to Intrade.com as a premier forecasting tool, a betting market or prediction market.  Take a look at this blog’s archives in the category “Prediction Markets.”  Intrade has been far more accurate at predicting elections than any polls, where people share information by betting, or setting a buying or selling price to trade at based on the information that they have.  Stossel did a 20/20 report on Intrade some years back where he explains why it works so well, a video you can see here.  It looks as if today, Americans are being forbidden from taking part in this market, from sharing in our knowledge, by our federal government.  Stossel explains how our government closed Intrade to Americans in this article.  It is not only a shame, but what our government has done here should be a crime.

Well, it seems as if things have deteriorated since.  With such a drop in trading activity from the loss of the US market, Intrade has been forced to shut down, as Adriene Hill reports at Marketplace (I was asked for an interviewed for her article, but I could not respond before her deadline).

There is an idea in financial economics literature called the “efficient markets hypothesis.”  The idea is that markets incorporate all of the public information about asset values and do so immediately.  You can read a bit more on efficient markets here.  Intrade was a public betting and futures market (and so, financial regulators insisted on regulating Intrade as a futures market) based in Ireland.  Betting on events such as US presidential elections, who would win American Idol or which movie would win the best picture Oscar, the betting odds adjusted to reflect the beliefs of the traders.  Intrade was well-known as an accurate predictor of elections, far better than any of the polls were, as it took into account all of the polls plus other information not polled, such as the get-out-the-vote efforts.  Intrade did not predict things such as Supreme Court rulings as well.  Had it continued in existence, there would surely have been a betting market on who would be the next Pope, though again, it probably would not have done that well.  Intrade was a great tool for studying expectations and how people’s expectations were affected by events in the market.  Both academicians and political commenters relied on Intrade trading prices.

Even with Intrade gone, there is another betting market for things such as elections, the Iowa Electronic Markets.  Rebecca Morton, now with the Political Science Department at New York University, former Nicholls State economist, did research with the Iowa Electronic Markets while she taught at Iowa State.  While Intrade has ended, new markets will be created and will take Intrade’s place.  While the loss of Intrade has increased the cost of important information in our society, a replacement will surely come into existence soon.

-MC

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