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The Uselessness of Prediction Markets

Wednesday, October 1, 2008

You can make a Dutch Book against the Presidential prediction contracts at Intrade.com: Step 1: Sell an identical number of contracts of each of the three active Presidential contracts – Obama, Clinton, and McCain. Hit the bid. Step 2: Wait until the election is over. You’ll pay out the maximum loss on the contract that won, and keep the premium on the other two. You’re guaranteed a net profit, while a buyer of all three is guaranteed a net loss.…

The Long Palin Vertical Spread

Tuesday, September 2, 2008

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As the market sighs and concedes a monster gap up, isn’t it good to know that there’s always a bull market somewhere? We’re speaking, of course, about the Intrade contract betting that Sarah Palin will withdraw (or, more likely, be withdrawn) as the Republican VP nominee before the 2008 election. If you were actually long this PALIN.VP.WITHDRAWN contract, perhaps you could hedge the gamble with some long 2008.PRES.McCAIN, on the view that these might be close to inversely…