Financial Time‘s columnist Tim Harford discusses allegations that there are efforts to manipulate prices of Hillary Clinton-related shares on prediction markets. Hartford writes:
Justin Wolfers and Eric Zitzewitz have pointed out that Hillary Clinton’s chances of becoming president, as predicted by one betting market, InTrade, started to climb dramatically mid-May, topping 40 per cent after months of fluctuating between 20 and 30 per cent. Her odds of winning the Democratic nomination stayed around 50 per cent, implying that if nominated, her chance of then winning the presidency would be about 80 per cent. You can’t get much more electable than that.
So is someone in Hillary’s camp trying to boost her chances by manipulating the market into a self-fulfilling prophecy? Or is it a rival candidate trying to make her look like a manipulator?
Or neither? It’s almost impossible to prove that manipulation is taking place….
The Wolfers-Zitzewitz claims have been extensively discussed at prediction market group blog Midas Oracle. Start with this recent post which mentions the Hartford column, and follow the numerous links to get the back story.
Hartford references work by Robin Hanson and Ryan Oprea, who assert that manipulators can increase the accuracy of prediction in markets. Hartford sums up their main idea: “by making big, unprofitable bets they are effectively subsidising the market and paying other traders to pay attention.” (A link to the Hanson and Oprea working paper. See also Oprea et al.)
For anyone who thinks political prediction markets – or attempts to manipulate prediction market outcomes – are recent innovations, Hartford draws attention to the work of Paul Rhode and Koleman Strumpf. The Rhode and Strumpf work is detailed in a working paper: “Historical Prediction Markets: Wagering on Presidential Elections.”
Spurred by the profit motive, people bring to markets everything they know, and place their bets accordingly. That means markets, with all their chaotic buying and selling and hedging and speculation, are really very efficient mechanisms to bring together information.
Crenson also quotes yours truly:
Top traders in the Inkling market say they are motivated by competitiveness, the simple desire to see themselves at the top of the site’s leader board.
“When I log in the first thing I do now is check the top 10 list and see how No. 2 has been doing,” said Mike Giberson, who was in first place for most of this spring but slipped into second himself just before this story went to press.
Slipped? More like a free fall. After a couple of months at the top, I have moved solidly into second place. Now when I log in, I check the top 10 list to calculate the distance between No. 1 and No. 2. Lately it has been growing.