The Latest Odds on Palin, Ahmadinejad, Strauss-Kahn, and … Another Recession?

Interesting browsing these days on the prediction market InTrade, which is still mourning the loss of its founder John Delaney (a man I very much enjoyed knowing a bit the past few years):

1. Barack Obama to be re-elected President in 2012: 62.0% chance
2. Mitt Romney to be Republican Presidential Nominee in 2012: 29.6%
3. Sarah Palin to formally announce a run for President before midnight ET on 31 Dec 2011: 41.9%
4. Mahmoud Ahmadinejad to no longer be President of Iran before midnight ET 31 Dec 2011: 31.0%
5. Dominique Strauss-Kahn to be guilty of at least one charge: 84.0%
6. Christine Lagarde to be named the next Managing Director of the IMF: 85.0%
7. The U.S. Economy will go into Recession during 2012: 20.0%

We should assume that Nos. 1 and 7 are inversely correlated. I went to the site this morning looking to see if there’s a contract out on Lloyd Blankfein, having read this (NYT) article, but I don’t see one (yet?).


Eric M. Jones

Chance that Sarah Palin's college boyfriend photographer was paid $1-million to turn over the negatives, prints and keep his mouth shut...100%

'jus sayin'...

Chris

"We should assume that Nos. 1 and 7 are inversely correlated." Why? This is a data driven blog. Link some proof please.

Erik

The economy will fall apart if Obama is not re-elected...he had an 8-year plan, not a 4-year plan. Its hard to make a big impact in 4 years especially if all your work is thrown away by a new philosophy. We need to ride Obama out or the economy will suffer. That is what Dubner is saying.

Eric Murphy

There are six names in that list and you had to use a photo of Palin? I thought you guys would be above the the evil forces of the Idiot Queen. Please, you'll just encourage her.

System You

#7......2012? Wouldn't that be 2011...and more like, we were never out of the first recession....I know, data data data.

Ian M

I live in Ottawa, Canada. I am sorry to say that the space we had for an American family has been reserved. What do I speak of?

If Sarah Palin is elected president, we are taking in a family from Long Island (Yes, I am serious! We offered. They accepted.) They may continue to live with us until she is no longer president by whatever means. Maybe other Liberals could claim refugee status in Canada (That is both a shot at both Palin and Canada's sad refugee system)

Colin B.

The problem with using InTrade prices for this kind of prediction is that (1) the exchange requires participants to put up their entire potential loss as margin and (2) the exchange does not account for "hedging" trades (i.e. if I am short "the Democratic nominee for president will be Obama" and long "Obama will win the presidential election," I am basically hedged).

Net effect: arbitrage is costly, and the implied probabilities are often wrong.

This is particularly obvious on (4); the "short" side is incredibly shallow.
Look at Unmatched Predictions on InTrade right now. Current implied probability is 25%, but if I go long three contracts then the implied probability will be 46%.

Having said that, Delaney was a visionary. RIP.

Colin B.

Also, the Trump case is a better example for a good hedge.
As in: long "Trump = Republican nominee" and short "Trump = presidential election winner)