– Manipulation?
– Logical flaw?
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ADDED BONUS: Additional thought on arbitrage.
UPDATE: The HubDub PM on who will win the 2nd debate.
Criticism about InTrades prediction markets on the InTrade prediction markets
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Category Archives: Analysis (Data) – Market Arbitrages
Arbitraging on InTrade
Sell everything. 
Jason Ruspini will probably point the cause of the problem to InTrade’-s transaction cost structure.
As Justin Wolfers noted, maybe there are today bigger practical obstacles to prediction market arbitrage.
– Legal restrictions for US traders on foreign prediction exchanges (BetFair, etc.)-
– Transaction fees (you would need to operate on 2 exchanges)-
– Currency risks and cost for hedging on that.
Eric Crampton (a Canadian exiled in New Zealand) says he has managed to turn a buck, though, by arbitraging between InTrade and iPredict New Zealand. He also makes 2 theoretical points. Go read it.
With regard to the 2008 US elections, both Justin Wolfers and Robin Hanson implied that BetFair is not as predictive as it should be.
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Previously: About Justin Wolfers’-s column
Justin Wolfers’- Freakonomics post (which suggests that BetFair would have a better predictive power if US traders could use it).
Is this a sign that the BetFair prediction exchange and the BetFair blog are not the best sources of information on the 2008 US presidential elections?
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Previously:
– the latest InTrade predictions
– Emile Servan-Schreiber’-s post on market arbitrage
WORLDS #1 PREDICTION MARKET GURU IMPLIES THAT THE PREDICTION MARKETS ARE NOT MATURE ENOUGH.
Problem 17: Prediction Markets – USMA D/Math Problem of the Week – Submission Deadline: April 3, 2008 at 1600
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HubDub
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And we have a winner, Chris Hibbert of Zocalo:
You can buy Giuliani on Q2 for .12 and sell Giuliani on Q1 for .52, and have a combination that will pay $1 no matter what for an outlay of .64. We want to take that .36 gain and turn it into $100. 100 / .36 = 277.777…-
So we’-ll buy 278 shares of each.The 278 shares cost 278 * (.12 + .52), which is 177.92. Whatever happens, you’-ll win $278, which puts you ahead by $100.
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