Recent Blog Posts
-
The Times' Rorshach Geithner Story
Apr 27 20099:04am EDT -
Sinking Animal Spirits
Apr 27 20098:04am EDT -
Counter-cyclical Urban Policy
Apr 26 200910:04am EDT -
Be Your Own Counterfeiter
Apr 26 20099:04am EDT -
Being Tim Geithner
Apr 25 200912:04pm EDT -
Notes From a Press Conference Naif
Apr 25 20099:04am EDT -
What Good is the News?
Apr 25 20098:04am EDT -
Stressful Enough
Apr 24 20092:04pm EDT -
Not Regretting the Pound
Apr 24 20091:04pm EDT -
Introducing the New Ford Squeeze
Apr 24 20099:04am EDT -
Non-Economic Questions of the Day
Apr 24 20099:04am EDT -
The Stress Test Blind Alley
Apr 24 20098:04am EDT -
Happy Hour
Apr 23 20099:04pm EDT -
Recovery Without Rebalancing
Apr 23 20096:04pm EDT -
The Shape of Your Recession
Apr 23 20095:04pm EDT
Links
- Felix Salmon
- DealBreaker
- Ryan Avent: The Bellows
- The Epicurean Dealmaker
- Chris Anderson
- Ultimi Barbarorum
- MarketBeat
- Michelle Leder
- John Quiggin
- The Panelist
- Andrew Leonard
- Streetsblog
- Brad Setser
- Michael Mandel
- Financial Crookery
- Kash Mansori
- Dean Baker
- Calculated Risk
- Free Exchange
- Curbed
- Lance Knobel
- Econospeak
- Carbon Tax Center
- Overcoming Bias
- Mark Thoma
- Naked Capitalism
- Alphaville
- Barry Ritholtz
- Alexander Campbell
- The Bayesian Heresy
- Brad DeLong
- DealBook
- Greg Mankiw
- Deal Journal
- FP Passport
- Carl Bialik
- Marginal Revolution
- A Fistful of Euros
- Dan Gross
A Simple InTrade Arbitrage
While I'm on the subject of prediction markets, I might also add that they're not even internally consistent, some of the time. Brian Weatherson has looked at arbitrage opportunities across markets, but they exist within markets as well. Here's some free money for people trading at InTrade.
Consider: PRESIDENT.REP2008, the probability that a Republican will be the next president, can be bought in bulk at 37. If you want to be really safe, you can buy PRESIDENT.FIELD2008 at 1.7 as well, for a total cost of 37.7.
Then, on the short side, you can sell both NONDEM.PRES-GOVT.DEBT and NONDEM.PRES-TROOPS.IRAQ at 43.8. Those are contracts which expire at zero if a Democratic president is elected, and expire at somewhere between zero and 100 if a non-Democratic president is elected.
If a Democrat is elected, then, you lose 37.7 on your long but gain 43.8 on your short, for a net gain of just over 6. And if a non-Democrat is elected, you gain 62.3 on your long and lose a maximum of 56.2 (and quite possibly substantially less than that) on your short, for a net gain of at least 6.
Now there is an opportunity cost to tying up your money until after the elections. But if prediction markets were remotely as efficient as many people seem to think they are, these kind of obvious arbitrages wouldn't exist.
