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URL:  http://boards.fool.com/i-dont-think-people-are-just-talking-about-prez-30302997.aspx

Subject:  Re: Intrade Prez odds... Date:  10/5/2012  5:16 PM
Author:  warrl Number:  647221 of 734383

I don't think people are just talking about prez elections.....you can bet on all sorts of things there.....from sunspots numbers next year to when Iran may be attacked to box office grosses of movies. Supposedly it's accurate in all of this. I have no evidence myself that they are accurate, but that's what I hear.

In principle it ought to be accurate (albeit not perfectly accurate, and not necessarily with great precision), but one must always weigh that principle against potentially-distorting facets of reality.

There's an InTrade contract for a magnitude 9.0 earthquake to occur *anywhere in the world* before the end of this year (US eastern standard time). Would there be any advantage to distorting that market? I don't see any. Certainly what people think of the likelihood of that event does not, through any discernible causative mechanism, affect the likelihood of that event. So it's plausible that this market would be accurate... although with only about 1,460 shares outstanding I wouldn't expect great precision. (Right now Intrade predicts a 3% chance of this event, by the way.)

With markets in election outcomes, the problem arises that an "air of inevitability" can affect the outcome, and the market can affect such an "air". In other words, betting on the event can make the event more likely. A feedback loop. (If a campaign were to engage in manipulation, appropriately altering an "air of inevitability" might also garner an increase in donations that more than pays for the manipulation - enabling further manipulation. Another feedback loop. However this does not work for manipulators independent of the campaign.)

And unfortunately the Intrade market on the presidential campaigns is puny compared to either campaign, so it would be easy for either campaign - or a few wealthy partisans on either side - to manipulate. Purely hypothetically, a Buffett-equivalent could delegate someone to spend $30K a day going long Obama, and he'd be about 10% of daily volume all by himself. That's plenty to manipulate a market. Doing this daily for 4.5 months (assuming no trading on weekends) would cost less than $3 million including the flunky's salary - petty cash for quite a few of this country's and planet's richest socialists. Including many who can't legally contribute to a US Presidential campaign. At present a similar manipulation in favor of Romney would be even cheaper.

Please note that I have NOT alleged that the market is being manipulated to affect the election outcome. Let alone accused anyone in particular of such manipulation.

I am only pointing out that it would be foolish to assume no such manipulation is going on. And if you don't make that assumption, you cannot draw any conclusion from the InTrade market.
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