Systematic Bias In The Presidential Market
Interestingly Intrade’s forecast for Obama is actually at the low end for the betting markets. If you take the prices from Oddschecker (http://www.oddschecker.com/specials/politics-an…), strip out the overround (that’s the bookmaker’s margin) and convert to percentages, you will see that Obama is trading at between 61% and 65%.
Around the question if the betting markets are likely to be politically biased, this is highly unlikely. Many years ago you could make money by, for example, betting against England when betting with a English bookmaker (and then potentially arb it by laying off with a Swedish bookmaker) however the betting markets are so transparent and so many bettors use bots that systematic bias doesn’t really occur (or if it does it is fleeting).
The Hubdub presidential market has been consistently about 5% more in favor of Obama than the betting markets. We believe part of the reason for this is the automated market maker we use but we are still investigating. We believe it isn’t because of emotion based trades (as someone suggested above). The price the market settles on is mostly controlled by our heavy traders. These users spend up to several hours a day on the site competing with friends and trying to climb the leaderboards. They tend to treat their trades as they would real money. The emotion based trades cause volatility but shouldn’t set the long term price.
Originally posted as a comment by Nigel Eccles on A VC using Disqus.
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