More on Palin and Intrade

Yesterday I wrote about the action on the vice presidential contracts over at Intrade last week. But it's also worth mentioning that Justin Wolfers did a very nice job foreshadowing the volatility that we saw:

While I believe that these market-based estimates are better indicators than the narrative speculation that dominates press discussion, it is still worth issuing a note of caution. The race for VP differs from other political races, because the truly relevant information -- who really is on which shortlist and who the respective nominees favor -- is so heavily invested in a handful of people.

This can change the role played by the market. This column has often characterized prediction markets as aggregating widely dispersed local information. Instead, the VP markets are likely parsing publicly-available information, and pundits may be equally as adept at this task.

If there is the possibility that political insiders are betting, this further complicates things, as no trader wants to be on the losing end of a bet with a true insider. This anxiety, in turn, makes traders particularly sensitive to any new activity, as the fear of being beaten by an insider can lead informed speculation to be mistaken for inside information. In such an atmosphere, prices can move sharply even when only small amounts are bet.

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