Wednesday, February 13, 2008

(untitled 223)

bawb's comment on my previous post reminded me of something I haven't really thought about in a while - Intrade works essentially as a stock market, only instead of shares of stock, futures are sold. Traders purchase a contract for a set price. If the terms of that contract are met, then it pays out $100; if not, the contract pays out nothing. For example, one might buy a future on No Country For Old Men. The asking price is currently just under $64. If the film wins the Oscar for Best Picture, the future pays out $100; otherwise, the buyer earns nothing. The market tends to be a more accurate predictor than polling is, for the simple reason that people tend to be more honest when their money is on the line.

bawb pointed out that the future on Hillary Clinton winning the Democratic presidential nomination is trading at 24.7 right now. That's a far cry from the 44% she's polling in national surveys. Essentially, while 44% of those polled said they prefer Clinton as a candidate, the average person would only be willing to pay just under $25 on a contract that could potentially pay out $100. On the flip side, Barack Obama futures are trading at 74.7.

That's not to say that this is a fail-safe method for predicting the nominee. Obama futures were trading at just over 30 only a couple of weeks ago. Just like the real stock market, seemingly small events can have a significant impact on the market. (This isn't the best place to invest your life savings.) But while it isn't perfect, it's certainly a compelling new way to look at the election. With their own money on the line, people are far more likely to back Obama than Clinton.

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