We are coming up on the one year anniversary of the last presidential election and so we are at least getting a bit of clarity on some of the political shenanigans that took place during that consequential event. Earlier this month, two researches Rajiv Sethi and David Rothschild presented a paper that looks at a very strange bit of electioneering, Trading Strategies and Market Microstructure: Evidence from a Prediction Market. It has to do with the use of the political betting market Intrade to push the narrative, that counter to all available data, Mitt Romney was actually doing really well in his race against President Obama.
I wrote about this at the time, Republicans Gaming Intrade. About two weeks before the election, all the polling outfits and gaming markets gave Obama at least a 65% chance of winning re-election. But Intrade was and had been an outlier. It gave Obama only a 55% chance of winning. As I wrote at the time, Intrade got more coverage than any other “predictive” source other than Nate Silver’s Five Thirty Eight blog. Thus, betting big money on Romney at Intrade was a good political move because it would get a lot of media attention.
The whole thing became a minor scandal when a single trader made an $18,000 bet that sent the market way out of balance. I reported on it, suggesting that it was very much like a scam that conservative publishers worked on New York bookstores to get their books on the New York Times bestseller list, thus getting undeserved attention and greater sales nationwide. This got a response from Intrade Exchange Operations Manager Carl Wolfenden, who said that it was just a statistical anomaly and that it wasn’t a single bettor.
I accepted his statement, although right before the election, I revisited the subject noting that Intrade continued to be way out of balance with other betting markets. Now it looks like Wolfenden was just covering for the company. Sethi and Rothschild found that a single person bet between $4 and $7 million on Romney at Intrade during the two weeks leading up to the election. What’s more, this represented one-third of all the money that was bet on Romney during that time.
It is possible, of course, that the bettor could just have thought that Romney was a great bet. But that doesn’t make any sense. The bettor could have made a whole lot more money if he bet at one of the other markets where Romney was an even better deal. In addition to this, at the time, Nate Silver noted that if you really thought Romney was going to win, you could make a whole lot more money investing in coal, that would have gone way up in price had Romney won.
It is certain that Intrade knew what was happening. One-third of all the action on Romney was from a single bettor and they knew that Romney was way over valued on their market! I’m more certain than ever that Wolfenden was involved in a deliberate disinformation campaign. Intrade and the other markets should be illegal. It is wrong that people who want to bet on their favorite football team can’t, but millionaires who want to bet on presidential elections can. And given intrade’s complicity in an obvious effort to game the election, it is particularly villainous. But despite this, I’m sure that in 2016, the mainstream press will again be pushing Intrade as a source of real value in the political horse race.
H/T: Josh Voorhees