Thursday, August 28, 2008

More forecasting with predictive markets?

Earlier this week, I posted about the possible use of predictive markets to develop competitive intelligence, citing InTrade’s and InklingMarkets’ early warnings that Senator Biden would be the Democratic VP nominee. These tools were brought to my attention by Tom Davis at Cygnus Associates

Late last night watching the Democratic Convention, I heard CNN report that the presumptive Republican nominee, Senator John McCain, has settled on his pick for a VP running mate. So I trotted over to Intrade to look at the action on Republican VP front-runners. During the preceding 24 hours, Governor Romney’s stock had fallen $20, from $65 to $45, but had started to crawl up again. His price was almost twice that of the next-highest contender, Tim Pawlenty, who was at $24.20.

This morning at 7:30 a.m. I see that Romney’s stock continued climbing overnight and is now up $13.50 at $58.50. In other words, the market predicts there’s a 58.5% chance he will become the nominee. Since midnight, Pawlenty is down by $2.20 to $22.00.

I’m not sure if this is CI or just political obsession, but stay tuned.

2 comments:

Ann Lee Gibson said...

3:20 pm CDT today: InTrade’s VP Nominee predictive market is highly volatile, with Massachusetts Governor Romney’s and Minnesota Governor Pawlenty’s stock prices fluctuating widely. Pawlenty’s stock has risen considerably since this morning.

With such quick price changes, the spread between the two is hard to gauge, but it ranges quickly between a dead heat and a 15 point advantage for Romney. Behind the leaders, Ex-Governor and Homeland Security Chief Tom Ridge and Senator Kay Hutchinson, each around $10, build a lower bench of possibles.

3:27 pm: Pawlenty suddenly jumps to $50 and passes Romney who drops to $40. Then Romney pulls ahead again. For the next 15 minutes, they move in concert around the track in the $45 - $55 range.

3:45 pm: McCain is predicted to announce his VP choice tonight. As I sign off for now, I am reflecting on how decisions reflect the decision-maker’s psychology. If you were McCain the Maverick, who would you choose? The market leader or an outsider / outlier surprise?

Tom Davis said...

The Intrade market may yet be right. Clearly everyone on the planet except for a handful of people was surprised by this pick. Friday I suggested to John Delaney, the CEO, that they begin to trade a contract that says Sarah Palin will not be on the GOP ticket come election day. The contract had traded 8 contracts before I went to breakfast this morning (central time). Currently the contract volume is about 2,400 contracts, priced at 15 (or 15%). In contrast the LIFETIME volume of Mitt Romney's contract is around 34,000 contracts, Tim Pawlenty's contract is 16,000 contracts and Joe Liberman's contract hasn't yet broken 10,000 contracts. While McCain may have fancied Joe as a running mate, the prediction market was already saying "Don't do it John." And, equally clearly, before the announcement, Palin's contract was...well...I need to run a spreadsheet on the figures, but the volume wasn't very high. So the market considered Sarah Palin quite a long shot as well. Within the next 62 days we will find out how much of a long shot.

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