Manipulating InTrade

I’ve posted before about my fascination with predictive markets. In an election season InTrade is especially fascinating. During the primaries you could watch how candidates “stock” would rise or fall on the actual primary day and get an early (and accurate) prediction of the winner before the networks announced anything (presumably people are betting based on some inside information on exit polls).

So this article was hugely interesting to me. Apparently a single “institutional” member on InTrade was deliberately bidding up the overall McCain for president contract value. There is one contract that you can trade for the overall chance of McCain (or Obama) winning the election and there is also a contract for each state for who will win that state. This person was bidding up the overall contract, but not the individual state contracts.

I do recall a point after the Republican convention where if you added up all of the states electoral votes based on who InTrade was prediction you would forecast an Obama win, but the overall contract was predicting a McCain win. Markets are supposed to be rational, but this one was clearly not.

Now we know why. But we don’t know why this person was doing it. A McCain fan with money to throw around? Did he/she really think that InTrade could drive the conventional wisdom and influence the election? There aren’t enough people as geeky as me for that to work…