Presidential Betting Market Acting a Little Oddly

September 24, 2008 1:37 PM

Nate Silver, the proprietor of the fantastic electoral projection site FiveThirtyEight.com, notices that the presidential betting market on Intrade is behaving very oddly: "[S]ome individual trader or some small group of traders are shorting all the Obama contacts in bulk and resetting the entire market. The markets then organically climb back upward until the rogue trader strikes again six or eight hours later."

"So?" you say. "Meh." But adding a little curiousity to this matter, "this [rogue] trader is not only selling Obama contracts and buying McCain contracts ... they also seem to be buying Hillary Clinton contracts. [...] So someone is betting on some sort of disqualifying event happening to Obama."

Is this a zomgzomgzomgCONSPIRACY?! No. But it is a intriguing little side wrinkle. And I imagine you didn't know that "[b]etween the Obama and McCain contracts, there appears to be about $400,000 in contracts changing hands every day."¹

And, as Silver points out, "I don't think this is any cause for alarm ... if Joe Biden contracts were being bought up as part of this scheme, that might be more concerning, but they aren't. Still, if I were the FBI, I would probably want to know the identity of this trader."

¹"Contract" being analogous in this case to "bet."

posted by WCityMike (39 comments total)

from the link: Those things just don't happen in efficient, sufficiently liquid markets, because they create arbitrage opportunities

Um, the irony here is killing me. Maybe the anonymous trader in question needs $700 million to prevent the "presidential bidding market" from crashing.
posted by ornate insect at 1:47 PM on September 24, 2008 [2 favorites]

Heh, markets can be manipulated in crazy ways.

Who knew?
posted by wabashbdw at 1:47 PM on September 24, 2008 [2 favorites]

(Just to clarify, I'm not thinking this is a huge red-alarm big deal. I just found it interesting, and thought that others on Mefi might find it interesting.)
posted by WCityMike at 1:49 PM on September 24, 2008

Also, doesn't Chelsea Clinton run a hedge fund?
posted by wabashbdw at 1:50 PM on September 24, 2008 [1 favorite]

I have been noticing this too, and our favorite trader-cum-Pyrrhonian skeptic Taleb noticed this on his Wilmott blog. I don't bet heavily on Intrade, but I have before. It is kind of a pain in the ass if you're American and have to Western Union your money around (and expensive). Also I'm not 100% sure my money will actually get back and the government will decide what I'm doing is wrong and take my money. So with this in mind, I doubt you'll see big lines on sites like this. It doesn't react like it should if smart bettors were putting their money in it. This can often times offer some great opportunities to earn a couple hundred dollars rather quickly. In any case this doesn't surprise me in the least and I have been sort of waiting for this to happen.

Keep in mind that $400k is nothing in betting markets, not just Wall Street. To give you an idea, for any given competitive college football game it would take a multi-million dollar vote to move the line. The Cris line is what moves this now, and the Vegas line reacts to that (NB have been told this by big gambling friends of mine, do not know for sure but I have no reason to not trust them).

It is not clear what is going on here, and if Intrade wants to maintain face they would suspend betting by whoever is doing this. Betfair (I believe) also went through something similar on tennis matches and some crooked Russian betting. That was more clearcut, with the heavy favorite (who was Russian) went out on a match they shouldn't have lost by any stretch of the imagination.

Again, I can't really figure out what is going on here, but Intrade is known as a fairly illiquid market compared to Betfair, ergo easier to game if you wanted to. I'm guessing there's some sort of money laundering or other foul play that doesn't make sense from just looking at the betting patterns. In a small market like this, it would be a good way to exchange money as you'd have a good idea who the counter party is going to be. It is not like there's a bunch of people on their Bloombergs that will move in and take the other side of the bet. Pure speculation, but it makes sense on the gut level.
posted by geoff. at 2:01 PM on September 24, 2008 [1 favorite]

There is still a somewhat popular idea on some rightwing forums that Biden is going to drop out, blaming health reasons, and Clinton will be the new VP nominee. I think this was more popular for the week or so that McCain/Palin were up and seemed to have the momentum. Maybe there is some crossover with that idea and this shorting Obama thing.
posted by bluejayk at 2:01 PM on September 24, 2008

Yes, it's a good blog, but 538's been FPPd already, and talked about in most of the election threads.
posted by a robot made out of meat at 2:05 PM on September 24, 2008

"Hope" and "Maverick" would be good race horse names. See you down at the tracks.
posted by Blazecock Pileon at 2:06 PM on September 24, 2008 [1 favorite]

last time I pAid attention to that thing was when they were suggesting Palin would have her name pulled and a new running mate would replace her. I think they might have been wrong.
posted by Postroad at 2:06 PM on September 24, 2008 [1 favorite]

THE MARKET IS ALWAYS RIGHT. CHANGE THE MARKET, CHANGE THE FUTURE.
posted by Artw at 2:06 PM on September 24, 2008 [1 favorite]

As a side question, Joe Biden contracts? Is that how it works? Obviously the VP is supposed to take the President's place if he's killed or incapacitated. But they're not yet the President and Vice President so there's no constitutional issue. If, god forbid, Obama's plane goes down tomorrow, does Biden automatically become the Dems' Presidential candidate?? If not, what would happen?
posted by Naberius at 2:09 PM on September 24, 2008

I don't think I understand this.
posted by Lacking Subtlety at 2:16 PM on September 24, 2008

Also, look at the Obama + McCain prices. Taking the ask prices, we're looking at 99.1 to take both positions. Is there a possibility either, at this point of time, will not be elected? Sure but not as high as .9%, not in a lifetime. That's free money on the table. What's the APY equivalent on that, 7%? In 44 (or however many days) until the election? That's crazy, unless I'm doing my math wrong, which is entirely possible.
posted by geoff. at 2:18 PM on September 24, 2008

This ought to change the odds....McCain Suspends Campaign
posted by timsteil at 2:21 PM on September 24, 2008 [1 favorite]

a robot made out of meat: "Yes, it's a good blog, but 538's been FPPd already, and talked about in most of the election threads."

Metafilter's been Dugg before. Therefore, any story Metafilter runs since the time of that Dugg-ing should be disregarded as not worthy of being Dugg, because Metafilter's been Dugg before.

Doesn't make sense, does it?
posted by WCityMike at 2:21 PM on September 24, 2008

geoff: Intrade take 10c per bet on expiry when you profit.
posted by HaloMan at 2:23 PM on September 24, 2008

Perhaps some lovable goof of a mafioso misunderstood the meaning of the phrase "take out a contract on Obama".
posted by Rhaomi at 2:37 PM on September 24, 2008 [7 favorites]

Since it's only InTrade affected, have we ruled out a bug and/or haywire auto-buys/sells?
posted by DU at 2:48 PM on September 24, 2008

It could also be an effort to control the perception of McCain's position in this horse race. No one I know can understand why he's even still in it. He naturally benefits if everybody thinks he still has a chance to win

On the other hand, as soon as Obama becomes the favorite the whirl-wind of dumb will get fired up.

Or, yeah, maybe a computer glitch. Whatever the case, definitely innerestin'.
posted by From Bklyn at 2:57 PM on September 24, 2008 [1 favorite]

geoff. -- "I'm guessing there's some sort of money laundering or other foul play that doesn't make sense from just looking at the betting patterns."

Yah, absolutely correct geoff.; there is something else going on that we can't see and more than likely someone just wants to launder some money. I'm on intrade and you see people placing all sorts of screwy trades, all the time.

The three steps to effective money laundering are relevant here (anyone who has ever worked at a bank already knows this by heart because it's drummed into to you as something to watch out for it) :

1. Placement -- money is injected into "The System" via a variety of mechanisms, such as spread betting, see above
2. Layering - the illegal proceeds are mingled with funds obtained from legitimate activities such as the winnings (?) from spread betting - repeat this step multiple times for maximum opaqueness
3. Integration - the illegal proceeds now reenter the financial system, indistinguishable from funds derived via legal means

You got all three going on there - place a lousy bet, lose half (more, less, cost of business, it doesn't really matter) and withdraw your freshly laundered winnings.


"Those things just don't happen in efficient, sufficiently liquid markets, because they create arbitrage opportunities"

Ha! This is someone who clearly either hasn't formally studied finance nor traded much. Arbitrage opps are around all the time, even on better funded exchanges. The magnitude of the opp and how long it lasts is another question, but their existence is undeniable.

But still, what the individual is rote reciting is theory taught in the first semester at Business School: "the markets are efficient, and arbitrage opportunities just don't happen".

Second semester we tell them how financial markets work in the real world. Shock. Horror. Disbelief. Usually takes the students a week or two to get over it. And some - perhaps this guy? - never return to class.

Thanks for posting this WCityMike .
posted by Mutant at 3:00 PM on September 24, 2008 [3 favorites]

On the 538 thread, they decided that it was someone who went long on Clinton during the primaries and is slowly selling off their Clinton shares.
posted by goethean at 3:05 PM on September 24, 2008

Are they betting real money at intrade?
posted by Brian B. at 3:36 PM on September 24, 2008

Are they betting real money at intrade?

Nope, just American dollars...
posted by aswego at 3:40 PM on September 24, 2008 [10 favorites]

To give you an idea, for any given competitive college football game it would take a multi-million dollar vote to move the line.

Not according to Michael Konik's book, The Smart Money. According to Konik, if one of a handful of bettors (the eponymous 'Smart Money' referred to in the title) bets as little as $100k, that can be enough to make many of the bigger online sports books or one of the Vegas books move their line by a couple of points.

And it has a knock on effect. One bookie moves, the rest will often follow.

Of course, it might take a few million in sucker bets to make the line move. But Konik's book is all about the lengths that these gamblers go to to avoid alerting bookmakers to the fact that it's them who are betting, precisely to attempt to prevent that line from moving when they regard it as favourable.
posted by PeterMcDermott at 3:49 PM on September 24, 2008

Nope, just American dollars...

So they are betting money then? Otherwise why would anyone care what the FBI thinks about it?
posted by Brian B. at 3:58 PM on September 24, 2008

It could also be an effort to control the perception of McCain's position in this horse race.

Pretty poor effort that only targets one of many prediction markets.
posted by DU at 4:23 PM on September 24, 2008

Wow. This is an entire world I knew nothing about. I'm really enjoying reading through 538's odds for different scenarios. Of course the odds that Obama will win would be different from the percentage he's getting in the polls, but I'd honestly never thought about that before.

Oh, this is weird. The current odds that the electoral map will be identical to 2004 are 0%. I'm totally going to bet a dollar on those odds. If I win, free money forever!
posted by roll truck roll at 4:26 PM on September 24, 2008

(Not that "poor effort" excludes this from being a GOP tactic.)
posted by DU at 4:27 PM on September 24, 2008

timsteil writes "This ought to change the odds....McCain Suspends Campaign"

Why the hell isn't this its own FPP?
posted by orthogonality at 5:03 PM on September 24, 2008

Schmidt: The polls aren't looking too good John.
McCain: I knew you'd say that Stevie. That's why ol' maverick's got a plan here, you see!
Schmidt: (sigh) Another plan?
McCain: What if - now follow me here - we could buy a poll?
Schmidt: I don't think... Sir, you know how polls work, right?
McCain: Let's say we could buy a poll and make it look like we're doing better than we actually are. That'd show them the maverick's still kicking it ragtime!
Schmidt: Well, there are these prediction markets on the internet...
McCain: The internet?! I've been hearing a lot about that.
Schmidt: Yeah there are these online betting sites we could take positions on. But honestly, we could really use all the money that we-
McCain: Blah blah, make it happen Schmidt! (gazing into the distance) Wow, the internet... And they say Obama is the computer guy.
Schmidt: Yes sir. I guess, uh, I guess I'll get going on that.
McCain: Schmidty, did I tell you back in the day I had a typewriter? Yep, first on the block. So how about that?
Schmidt: ...
McCain: (wistful) The internet. It's really happening.
posted by halfling at 5:07 PM on September 24, 2008 [3 favorites]

Maybe the anonymous trader in question needs $700 million to prevent the "presidential bidding market" from crashing.

If so, s/he's getting quite a bargain on the writedown. We're talking about $700 billion in this bailout fiasco.
posted by fourcheesemac at 5:19 PM on September 24, 2008

This ought to change the odds....McCain Suspends Campaign

It seems to be working, if by "working" you mean "getting Obama elected".
posted by DU at 5:33 PM on September 24, 2008

Wouldn't being able to shift the odds against Obama be very useful in another way? If you trust the general other odds ( i.e. 60/40 for Obama ) and you can shift Intrade you could make good money buying Obama on intrade and having him win.

It might not be as sexy a theory as McCain trying to manipulate a market to make him look better, but it may be more plausible.
posted by sien at 5:54 PM on September 24, 2008

if Intrade wants to maintain face they would suspend betting by whoever is doing this

Or alternatively, they could just let the smart people continue to keep taking the stupid person's money.
posted by roystgnr at 6:42 PM on September 24, 2008

The Iowa Electronic Markets (which caps the account size) concurs - giving Obama more than 60% in the winner-take-all market.
posted by milkrate at 7:56 PM on September 24, 2008

On review, I think sien and geoff have the 'answer.' ThoughI am partial to McCain saying kicking it ragtime.
posted by From Bklyn at 11:54 PM on September 24, 2008

Brian B.: "So they are betting money then? Otherwise why would anyone care what the FBI thinks about it?"

My understanding ... from the 538 thread ... is that it's a physical-safety thing, i.e., if Obama was somehow assassinated, Hillary might then become the forerunner. A crazy viewpoint, but those who attempt to assassinate are not traditionally sane individuals ...
posted by WCityMike at 9:10 AM on September 25, 2008

Here's a page on how intrade works, apparently a betting situation between players.
posted by Brian B. at 3:42 PM on September 25, 2008

Heads-up: we're liveblogging the VP debate here over on Politicalfilter.
posted by goodnewsfortheinsane at 5:23 PM on October 2, 2008