Like a Pair of Wolves

The Android Developers Blog announces the availability of the M5-RC14 release of our SDK.

As predicted, Senators McCain and Obama sweep the Potomac Primaries. And on the topic of prediction, in today's Times, David Leonhardt on prediction markets and politics:

Intrade has done an excellent job of predicting election results over the last few years. In 2004, President Bush won every state in which Intrade’s contracts—as of the night before Election Day—gave him a better than 50 percent chance of winning. He lost every state where the traders thought Mr. Kerry was the favorite. Late on election night in 2006, while the talking heads on CNN and MSNBC were still saying that the Republicans would hold onto the Senate, Intrade knew better.

On the flip side, however:

Mr. Ravitch has made a nice profit betting against Ron Paul, the libertarian who late last year was, amazingly, given almost a 10 percent chance of becoming the Republican nominee. "If you asked anyone in politics whether there was ever, at any point, a 10 percent chance of Ron Paul being the nominee," Mr. Ravitch said, without finishing the sentence. "That sort of makes my case for me."

You can see this sort of negative bias in other prediction markets, too—including Google's internal market. Techie favorites, such as Senator Obama and Rep Paul, are overvalued. You could argue Paul never had even a one percent, let alone a ten percent, chance at the nomination, but the collective wisdom priced the event otherwise.

Senator Obama to win the the Democratic party nomination

Despite flaws, Mr Leonhardt concludes:

I'll be back at Intrade to try to figure out what’s going on [with the 2008 election]. If you have any better ideas of where to look, let me know.

I agree that prediction markets are the best prognosticators we have on the long-run, but their illiquidity means they fail to quickly capture short-run information such as, say, a recently released poll. I have written on this before. The lack of liquidity leads to, in Mr Leonhardt's words, a dearth of "smart money." The markets need more insiders: those on the ground, folks actually caucusing, or campaign staff. Otherwise you just get the miscellany of polls and buzz and hope we see now.