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Mitt Romney and President Obama point fingers during the second presidential debate at Hofstra Univesity in New York. We first reported on presidential prediction markets in a favorite story of ours that aired back in Since then, more and more people have been talking about electronic markets like Intrade based in Dublin and IEM based in Iowa. And recently, there was even a proposal for presidential arbitrage.

Over at The Daily Beast , Alex Klein revealed a just about risk-free way to make an annual return of more than 40 percent on a simple pair of bets.

As a European, he is permitted to play various online markets in Europe, including Betfair in the UK and Paddy Power in Ireland, among others. He constantly searches for the widest disparities between markets and arbitrages accordingly.

You make the difference. You lock it in. We pay attention to what the market is doing at any given time, and when we find that prices fall out of line in different markets we get an opportunity of locking in some riskless profit. If you were trying to make money right now, what do you do?

Well, I would if I could — Betfair is locked for U. So come November 6th, both of these contracts will expire at the same value, but because I sold one high and I bought the other one low, I will pocket the 8 points difference between the 2 contracts. And, in fairness, this is what traders all over the world do, in currencies, in commodities. You put enough money on each side of the trade and you lock in an arbitrage.

But the night is young. One thing I would note is that Intrade consistently has higher odds of Mitt Romney winning the presidential election than other sites, other prediction markets, and so there appears to be a pro-Romney bias on Intrade. Yeah, so here is a letter from the CEO of Intrade, back in , where Intrade apparently identified attempts to manipulate certain markets.

So one ought to treat day-to-day, even week-to-week, and certainly hour-to-hour prices with a degree of skepticism, as one ought to in any market, right, because there are traders all over the world who are constantly trying to manipulate markets, if you will, by pretending to buy and then selling? Inside information is definitely one thing to wonder about. Say you were a polling company and you know that a poll that is later to come out that day favors Romney.

Well, you can buy Romney on the cheap, early in the day, and sell for more once the poll is out.

Prediction market - Wikipedia

So these markets are prone to that behavior. Thin trading — you mean a thin market: In the grand scheme of things, with the money available to the campaigns, this is peanuts. And these days, where lots of media outlets are finally paying attention to the prediction markets, that could be more and more valuable.

Here are the links to various markets, so you can see the odds for yourself right now: Intrade ; Iowa Electronic Market , prices in the two boxes at the lower right; Betfair , divide the odds like 1. Support the kind of journalism done by the NewsHour Become a member of your local PBS station.

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