How Many Times Do I Have to Say it?

The WSJ does it again. Every time someone comments on political markets, they have to say that these markets “fail” because the a contract going for over $0.50 didn’t pan out.

John McCain’s presidential campaign is doomed — at least, if you still believe what political futures markets indicate.
At the Irish electronic exchange Intrade, on which people bet on election outcomes and other events, the futures market suggests Mr. McCain has a 38% chance of becoming the 44th president. In the Iowa Electronic Markets, set up at the University of Iowa, Mr. McCain’s Republican Party gets a 41% chance of winning the popular vote for the White House.

No. No. No.
They’re NOT predictions markets, they’re odds-setting markets. That’s something quite different. A 38% chance of winning is not a doomed campaign. I think a baseball player who’s batting .380 would be doing pretty well.
Google IPO’d at $85, today it’s at $585. That’s a $500 miss. Did the market fail? No, they adapted to new information.
As I’ve said several times before, these market are really just for fun and should be seen as nothing more than that.
Still, I don’t understand how people can so often miss this basic fact about the political markets. The markets move with new information. It doesn’t mean that a favored outcome is correct or incorrect. That’s not what the markets are trying to do. They’re trying to analyze new information as quickly as possible. They usually, but not always, do a pretty good job.

Posted by on May 13th, 2008 at 2:02 pm


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