Did the Political Markets Fail?

Barry and Felix weigh in on Intrade’s call on the Palin selection. As I’ve said many times, the futures markets are not predictions markets. They’re really odds setting markets.
The markets didn’t “fail” simply because a low-priced contract paid off. Did the markets fail when Google was at $100 a share? Not at all, the long-shot paid off.
Futures markets aren’t particularly useful in this instance because the Veep pick is entirely the selection of one person. They’re more useful with events that are transparent, like an election or the Super Bowl. The markets can’t read Senator McCain’s mind, particularly when he’s trying to give off false signals (hence the dance with Lieberman) and go for an unconventional pick.
The political markets work because they can process lots of information very quickly. With a Veep selection, however, there’s no information. So with these types of events, you have to expect hyper-volatility as the decision time approaches.

Posted by Eddy Elfenbein on August 29th, 2008 at 11:50 am

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