Passing Along a Rumor

Apparently, the L.A. Times might be sitting on a scoop that could implicate one of the presidential candidates in a sex scandal.

If this is true and the revelation is juicy enough, one of the candidate's campaign's could be completely derailed. We'd expect that only a select few would know about this supposed salacious event. But in the age of prediction markets is it possible that we can deduce who the candidate might be?

Looking at the candidates' contracts on InTrade, James Miller at Overcoming Bias speculates that Barack Obama might very well be this potential candidate:

If there really is some "devastating sexual scandal involving a leading Presidential candidate" that the general public is not aware of but everyone in the "DC mainstream media political reporting world" knows then we have a perfect test for political prediction markets.

The price of candidates in prediction markets should take into account information known only to DC mainstream political reporters.  The prediction market Intrade gives Obama a 12.6% chance of capturing the Democratic nomination.  I follow politics fairly closely and this 12.6% seems low to me based on the information I have.  Obama has lots of cash, is doing well in the Iowa polls and lots of Democrats are worried about Clinton's chance of winning in a general election.  So it seems very possible to me that Obama's prediction market price is being negatively influenced by something that the general public is unaware of.

Intrade gives Clinton a 71.3% chance of winning the Presidential election and a 47.7% chance of becoming president.  Some people are speculating that Rosenbaum's devastating sex scandal involves Clinton.  If this is true then her Intrade prices should be much lower than they currently are. 

In sum, if many media members have private information about an Obama sex scandal then the Intrade prediction markets are working as prediction market enthusiasts would hope and thus the Obama scandal represents a victory for prediction markets.  If, however, many members of the media have private information about a devastating Hillary Clinton scandal then prediction markets, in this instance, have failed us and supporters of prediction markets will have to rethink our enthusiasm towards them.

It's important to stress that this purported L.A. Times story is a rumor and most likely nothing will come of it.

Still, it is odd that Obama's InTrade numbers are so low. The latest polls put him at 26% and Clinton at 49%, which is consistent with the idea that people with inside knowledge are exerting their influence on InTrade.