Was Intrade being manipulated over the last month? • Hacker News Board

Re: Was Intrade being manipulated over the last month?

#11

Post by javert » Thu, Nov 08, 2012, 4:42 AM UTC

CamperBob2 wrote: post #5

hooande wrote: post #3

The author brings up some good points about the potential for arbitrage between prediction markets. But in my experience, intrade has a strong conservative bias. This is more likely a case of people betting on their (incorrect) political convictions as opposed to intentional manipulation. I remember observing a similar thing around the betting on the supreme court healthcare decision. The odds were 3-4 points more ag…

In addition to what you're saying, it could have made sense to buy Obama calls, so to speak, if you think your taxes are going to go up significantly under his second term. That behavior would severely distort Intrade's purpose as a prediction market.

No, it wouldn't. The "purpose" of a prediction market is to let people buy and sell shares in a certain outcome, not to provide information.

That's just a nice side effect of a sufficiently liquid market.

Re: Was Intrade being manipulated over the last month?

#12

Post by javert » Thu, Nov 08, 2012, 4:44 AM UTC

Dn_Ab wrote: post #7

My friend and I also did some 'arbitrage', we almost didn't do it because we were sure we had something wrong, I mean, aren't markets supposed to be efficient? We even made a program that calculated optimal amounts and alerted us when the odds were aligned to a particular criteria taking into account exctraction fees, exchange rates, commission and stuff. Our only explanation was that betfair (our other side) was mos…

aren't markets supposed to be efficient

To a certain extent. Largely because of people doing arbitrage. So, if all arbitrageurs called it quits because they thought markets are automatically efficient, well, they wouldn't be.

Did you make much money?

Re: Was Intrade being manipulated over the last month?

#13

Post by colonel_panic » Thu, Nov 08, 2012, 4:50 AM UTC

One Intrade commenter from London claimed he was set up to earn about $20,000 in arbitrage against Betfair. If you expect the manipulation to continue over a period of time (which I certainly did, and wished I could register on other betting sites), it's worth it to deposit larger sums of money with bank transfers despite the wait.

At one point I wondered whether the manipulators were making large purchases once per day and whether this could explain why the different betting sites never came back in line with each other. In that case, a savvy arbitrageur might take advantage of prices while they're at their widest differential, and then wait to buy more the next day. I thought I saw a pattern like this going for a few days in a row but it was gone by the time I felt confident enough to trade around it.

Re: Was Intrade being manipulated over the last month?

#14

Post by cypherpunks01 » Thu, Nov 08, 2012, 4:50 AM UTC

A commenter over there mentioned that a similar phenomenon was noticed during the 2008 presidential election, and quoted John Delaney (Intrade founder, now deceased):

Mr. Delaney conceded there had been erratic behavior - including spikes in the direction of Mr. McCain and away from Barack Obama "by up to 10 points." And he said "trading that caused the unusual price movements and discrepancies was principally due to a single 'institutional' member on Intrade."

But, after interviewing members of the institution involved and tracking its trades, Mr. Delaney wrote in an e-mail message on Saturday: "I do not believe based on our investigations and over seven years' experience in such matters that the trading on Intrade was designed or motivated to artificially inflate McCain’s chance of winning."

http://www.nytimes.com/2008/10/20/business/20predict.html

Re: Was Intrade being manipulated over the last month?

#15

Post by zecho » Thu, Nov 08, 2012, 5:01 AM UTC

javert wrote: post #12

Dn_Ab wrote: post #7

My friend and I also did some 'arbitrage', we almost didn't do it because we were sure we had something wrong, I mean, aren't markets supposed to be efficient? We even made a program that calculated optimal amounts and alerted us when the odds were aligned to a particular criteria taking into account exctraction fees, exchange rates, commission and stuff. Our only explanation was that betfair (our other side) was mos…

aren't markets supposed to be efficient To a certain extent. Largely because of people doing arbitrage. So, if all arbitrageurs called it quits because they thought markets are automatically efficient, well, they wouldn't be. Did you make much money?

There's an economics joke as old as the hills:

An economist and a non-economist are walking down the street when the non-economist notices something on the ground and says, "hey there's a $10 bill!" The economist replies, "Impossible. If there was a $10 bill on the ground, someone would have picked it up already."

Re: Was Intrade being manipulated over the last month?

#16

Post by CamperBob2 » Thu, Nov 08, 2012, 5:09 AM UTC

javert wrote: post #11

CamperBob2 wrote: post #5

Earlier quoted context omitted.

In addition to what you're saying, it could have made sense to buy Obama calls, so to speak, if you think your taxes are going to go up significantly under his second term. That behavior would severely distort Intrade's purpose as a prediction market.

No, it wouldn't. The "purpose" of a prediction market is to let people buy and sell shares in a certain outcome, not to provide information. That's just a nice side effect of a sufficiently liquid market.

True, I really should have said it would distort Intrade's utility as a prediction market.

Re: Was Intrade being manipulated over the last month?

#17

Post by javert » Thu, Nov 08, 2012, 5:21 AM UTC

CamperBob2 wrote: post #16

javert wrote: post #11

Earlier quoted context omitted.

No, it wouldn't. The "purpose" of a prediction market is to let people buy and sell shares in a certain outcome, not to provide information. That's just a nice side effect of a sufficiently liquid market.

True, I really should have said it would distort Intrade's utility as a prediction market.

It doesn't distort its utility for the people who are hedging (on the one side) or speculating (on the other), and those are the actual clients of the prediction market.

But it does make it less useful for third party observers :)

Re: Was Intrade being manipulated over the last month?

#18

Post by lincolnq » Thu, Nov 08, 2012, 5:36 AM UTC

javert wrote: post #12

Dn_Ab wrote: post #7

My friend and I also did some 'arbitrage', we almost didn't do it because we were sure we had something wrong, I mean, aren't markets supposed to be efficient? We even made a program that calculated optimal amounts and alerted us when the odds were aligned to a particular criteria taking into account exctraction fees, exchange rates, commission and stuff. Our only explanation was that betfair (our other side) was mos…

aren't markets supposed to be efficient To a certain extent. Largely because of people doing arbitrage. So, if all arbitrageurs called it quits because they thought markets are automatically efficient, well, they wouldn't be. Did you make much money?

I had a friend who made $10,000 (off a $200k bankroll) in 2008 doing this exact form of arbitrage...

Re: Was Intrade being manipulated over the last month?

#19

Post by bodyfour » Thu, Nov 08, 2012, 5:40 AM UTC

qq66 wrote: post #10

If a prediction market is famous enough to affect an election, it will generally cost more than $1 million to manipulate. I doubt that voter turnout would have increased if Intrade had predicted a Romney win -- too few Americans know what Intrade even is.

I'm sure all political reporters know what Intrade is. If you were going to spend money to move the market, those are the people you're most trying to influence.

I'm still personally skeptical of the whole manipulation theory, however. It's probably just a combination of too many conservatives buying with their heart instead of their head, and too few active arbitrageurs taking them to the cleaners.

Re: Was Intrade being manipulated over the last month?

#20

Post by bcoates » Thu, Nov 08, 2012, 5:58 AM UTC

Dn_Ab wrote: post #7

My friend and I also did some 'arbitrage', we almost didn't do it because we were sure we had something wrong, I mean, aren't markets supposed to be efficient? We even made a program that calculated optimal amounts and alerted us when the odds were aligned to a particular criteria taking into account exctraction fees, exchange rates, commission and stuff. Our only explanation was that betfair (our other side) was mos…

One thing you have to watch out for on Intrade-Betfair arbitrage is the not insignificant risk of not doing the trades you think you're doing. I know Intrade has rules that various events will cause trades to be stopped and completed trades will be undone. Betfair might as well, but the two markets don't have any synchronization on when or why.

Since you'll constantly have many times what you expect to gain in a day at risk on the markets, a single rollback event could put you very deep in the red.