A new article in Slate claims that Intrade and perhaps some other markets have an “anti-Obama” bias. According to the article, a wide swath of people (including Intrade participants, economists, Fox and CNBC financial pundits, and the Wall Street Journal) systematically underpredict the Administration’s likelihood of advancing its agenda, and are systematically gloomy about the outcome of the Administration’s successes. The article points out that in the year since a Stanford economist wrote an op-ed entitled “Obama’s Radicalism is Killing the Dow,” the Dow is up 72%.
A few things come to mind. First, if the article’s author (Daniel Gross) really believes what he’s saying, then he should have first made a few thousand dollars (or a few hundred thousand dollars, if that’s possible) doing Intrade wagers to take advantage of this inefficiency. Perhaps he has already done so.
Second, most of what that Slate article about doesn’t have anything to do with political futures markets. What an economist says in a Wall Street Journal op-ed, or what a bunch of economists say when asked to predict next year’s GDP, is very much NOT the same as having these people participate in a market. A market is supposed to evince an accurate reflection of people’s actual predictions, and to provide an incentive to improve those predictions; having some pundits mouth off does nothing of the kind. Only the Intrade case would be an example of bias in the markets, and unfortunately Gross gives only a single example of what he claims is bias: he says that even quite late, the market assigned a rather low probability to the passage of the health reform bill.
Finally, I think Gross may be cherry-picking. He cites examples of people who have been pessimistic about the Administration and the economy, but there are also people out there who have been optimistic. The individuals might be biased, but this doesn’t necessarily indicate that economists, or pundits, are biased as a group.
That said, something does look funny about the InTrade wagers. Right now, they’re assigning about a 25% chance that Sarah Palin will be the next Republican nominee for President!