Intrade: Make Money on Reason over Emotion

That Barack Obama is trading so low on Intrade befuddles me. Yes, befuddles.

Now, much has been written about the fallability of prediction markets so I won't even go there. But here's my guess: if you really, truly, deeply want John McCain to win this election, it's got to be pretty tough to put your money down against him. You trick yourself. The Bradley Effect is going to make a comeback, you say. Undecideds have broken strongly against Obama before, like in the New Hampshire primary, you convince yourself. The last two times Virginia went blue were for LBJ and Harry Truman; there's no way it'll flip this year you tell yourself. (By the way, I'm not immune to this. In 2004 there were three states I couldn't decide how to call - Iowa, New Mexico, and Ohio. I was 48 for 48 by midnight on election night. The next morning I was 48 for 51, because I just couldn't get myself to believe that they'd actually pull the lever for Bush, and I incorrectly called all three for Kerry.)

But look at the facts. Let's take Virginia. Barack Obama has led every poll in October - a streak of 18 consecutive. I project his lead to be nearly 7 pts. Nate Silver says 96% chance Obama wins it. Even the networks have moved the Old Dominion out of the tossup section. Yet you can still buy an Obama contract - today - for $82 (provided you're not American).

Hell, you can still buy a Pennsylvania contract for 86. 86! McCain hasn't led a poll in Pennsylvania since April! April for God's sake. Stick $86 in now, get $100 in a week (we'll call it $99 after fees to be conservative) and you've earned an effective annual return of 151,000%. On Virginia - 1,800,000%. This is ridiculous. I can't play on Intrade because I'm an American, but if I only could ...

As an aside I just noticed that Intrade now has options contracts? Holy cow that's cool. I gotta find a way to get around these regulations.