Put that in your Bayes’s Theorem and smoke it

One of my favorite pastimes is calculating implied conditional probabilities from Intrade contracts.  (I lead an exciting life.)  But try this one on for size.

As I write, the contract for Hillary winning the Democratic nomination has a bid of 4.6 and an ask of 4.8.

The contract for Hillary winning the Presidency has a bid of 5.0 and and ask of 5.1.

Thus the market believes Hillary has a better chance of becoming President than she does of becoming the nominee.  But the only way that could happen is…


2 comments to Put that in your Bayes’s Theorem and smoke it

  • I am an engineer, so I may have forgotten how to do math. But why is it unusual that she should have better chance of winning the election than getting the nomination. Doesn’t that just mean that she has better chance of beating McCain?

  • Because under any reasonable sequence of events, she cannot win the election unless she first becomes the nominee. Thus the probability of the former should be strictly less than the probability of the latter. And the ratio should represent the probability that she could beat McCain.

    Current market prices imply a non-negligible probability that she will win the election without winning the nomination. That is only possible if she runs AND WINS as a third-party candidate (which is nearly impossible), or that something happens to Obama after the convention but before the general election. The market seems to be giving this possibility serious credence.

    My guess is that this is just a market fluke. Now that Obama has secured the nomination, people who are already short the Hillary contracts have some desire to close their positions now rather than wait until they expire (to free the capital for other investment). Since the “Hillary nominee” contract expires in August, but “Hillary president” does not expire until November, the desire is stronger to close the “Hillary president” contract today.

    Still makes for a great conspiracy theory, though. “Somebody knows something and is betting on it!” Heh heh

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