I don’t want to start a war with my AEI colleagues, specifically Intrade junkies Mark Perry and Jim Pethokoukis, but can I offer a small bit of skepticism about Intrade?
I understand why prediction markets are interesting. But am I the only one who thinks they are incredibly overblown? On any given day, some friend of mine will blog or tweet or otherwise opine about how Mitt Romney is now at X on Intrade or how Newt Gingrich now has a 29.3 percent chance of Y on Intrade. I am always at a loss about how much, if at all, I should care about this information.
From what I can tell, the “prices” for shares in political candidates have been all over the place over the last year. So how predictive are they, really? It seems to me they don’t really measure the likelihood of anything so much as the prevalence of certain aspects of conventional wisdom. It’s a clever way to poll people in a given moment, not some ingenious new mechanism for gleaning the future.
When I complain about Intrade to some of my Intrade-obsessive friends, they say that the numbers change because the facts on the ground change. And in the end, the accuracy is great. Well, first of all, isn’t that true of conventional wisdom, pundits, polls, etc. too? In the end, everyone’s accuracy is great. The closer you get to an actual event, the more ironclad the predictions that that event will occur become. Predictions that your plane will crash in a giant fireball decrease precipitously once the plane’s wheels safely hit the ground, and they drop to zero when the plane parks at the gate.
It reminds me a bit of that scene from Fletch when Chevy Chase pretends to know someone who died.
Dr. Joseph Dolan: You know, it’s a shame about Ed.
Fletch: Oh, it was. Yeah, it was really a shame. To go so suddenly like that.
Dr. Joseph Dolan: He was dying for years.
Fletch: Sure, but… the end was very… very sudden.
Dr. Joseph Dolan: He was in intensive care for eight weeks.
Fletch: Yeah, but I mean the very end, when he actually died. That was extremely sudden.
At the very end, when Mitt Romney, Newt Gingrich, or Rick Santorum actually wins the Republican nomination, Intrade will predict that outcome perfectly. Until then, it’s just another kind of focus group.
Or am I wrong? What is the metric that proves the value of Intrade? I am open to correction on all of this.
Editor’s note: See Jim Pethokoukis’s response here.