Presidential Decision Markets
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About a week and a half ago, Robin Hanson announced on Overcoming Bias and on the Prediction Markets Google Group that InTrade is now hosting Presidential Decision Markets. Users can now trade on what will happen to the US Debt and the number of troops in Iraq if either a Democrat or non-Democrat wins the upcoming election for the presidency. Additionally, users can also trade on what will happen to oil futures and T-bond interest rates on the day of the election.
Fortunately, Peter McCluskey has funded a market-maker for these contracts, which gives them liquidity that hasn’t necessarily been available on other specialised InTrade markets. I think this is a great model for future contracts that are a little theoretical for average traders. The results have already proven to be interesting!
Shock Response Futures
As expected, there has been very little trading on the contracts that compare the movements of T-bond interest rates and oil prices on election day. Both markets will likely develop significantly in the coming months, so trading now means committing funds with very little information. I’m not sure what will happen to these markets even close to election day. If the race is competitive until the very end (like it was in 2000 and 2004) than these could be interesting markets. But if the winner of the election is largely expected in the days and weeks before election day (like 1984), the ramifications of that decision will be priced into the various markets. Then the results will be based on the very short-term daily price movement on election day.
Currently only a total of 32 contracts have being traded between these two securities, and I don’t expect many more for quite some time.
Conditional Estimates
There has been significantly more interest on the contracts that compare what will happen to the US Debt and Iraq Troop Levels if a Democrat or non-Democrat is elected to the presidency.
As I write this post, these are the current last traded prices (volume in brackets):
DEM.PRES-GOVT.DEBT = 52.4 (141)
NONDEM.PRES-GOVT.DEBT = 39.5 (586)
DEM.PRES-TROOPS.IRAQ = 49.9 (62)
NONDEM.PRES-TROOPS.IRAQ = 37.5 (625)
PRESIDENT.DEM2008 = 62.0
PRESIDENT.REP2008 + PRESIDENT.FIELD2008 = 38.0
which yield:
Democrat & Debt = 84.5
Non-Democrat & Debt = 104.0
Democrat & Troop Levels = 80.5
Non-Democrat & Troop Levels = 98.7
What can we learn from these (early) results?
- There is clearly an interest in these markets, despite the fact they will not be settled for at least three years. I highly doubt this would have been possible without Peter’s market-maker and InTrade’s suspension of trading fees.
- There is a clear early difference between Democrats and Republicans. The results show that a Democratic President will result in less federal debt and fewer troops in Iraq by the middle of their first term in office.
- Contracts on the Non-Democrat side are traded much more than the Democratic contracts.
Summary
There is clearly quite some time before the election, and these prices should still move around quite a bit. But it’s quite encouraging to see that with a subsidised market-maker (and no fees!) that the results show a clear difference between the two parties. I don’t expect that this will make it into the general consciousness of the popular press anytime soon, but is encouraging news.