Intrade: An Ohio Story

Why is Intrade so (relatively) cautious? It may be the story of just one state

A consensus is emerging. The national and state polls, the aggregators and model-makers, and many of the mainstream pundits willing to make a stand (except The Washington Post’s horse-racing columnist) are starting to converge. President Obama is likely to eke out a popular vote victory and a win the electoral college. Nate Silver puts the likelihood of an Obama victory at 86.3 percent. The poll average at Real Clear Politics average puts Obama at a 48.5-48.1 advantage, and gives the incumbent 303 electoral votes to Romney’s 235.

But what about Intrade, the electronic betting market that is supposed to be a true aggregator of the all good knowledge there is about the outcome of a future event? If anyone should heed the quantitative modelers, it’s the bettors, right? (After all, Nate Silver used to be a professional poker player.)

Right now, Intrade has the odds of an Obama victory at around 66 percent. That makes him a solid favorite, but not an overwhelming one. The Intrade crowd gives Romney a one-in-three chance of winning on Tuesday. And as any baseball player will note, one out of three isn’t bad.

Why the (relative) caution? One possible explanation is that when people have real money on the line—and some Intrade users have substantial amounts in play—they become risk averse. That may make them more likely to, collectively, hew to a more moderate path when giving odds on the election. On the other hand, hitching your wagon to Silver and other state-poll aggregators might seem like a way to tip the odds in your favor.

Perhaps another explanation is that in the last dying days of the election, there has been a realization among Intraders that Ohio is really going to determine the election. If the winner of the Buckeye State is going to win the election, then the odds of Obama winning the election should more or less match the odds of him winning Ohio. As the chart above shows, this correlation has held true more of less since at least the beginning of June. The polls in Ohio show a narrow but solid Obama lead.

But that doesn’t explain the relative caution on Obama’s chances we’re currently seeing. In the past five months, there have been very few sustained days where Obama’s Ohio odds and his reelection odds have significantly gapped out. They’ve closely tracked each other the entire time. While the betting market may be getting the relationship right, it could very well be selling Obama’s chances short in Ohio. We’ll find out soon enough.