PredictIt: Presidential Market is Increasingly Wrong

post by Zvi · 2020-10-18T22:40:00.968Z · LW · GW · 28 comments

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Previously about PredictIt this election cycle: Free Money at PredictIt: 2020 General Election, 

Free Money at PredictIt?

It is important, on occasion, to state the obvious, on the record, at the proper time.

The prediction (alternatively, read: gambling) markets on the 2020 Presidential Election increasingly do not make sense. 

In particular, their movements over time do not make any sense.

Nate Silver’s model at 538, which puts Trump at 12.5% or so, does not take into account the possibility of anyone taking extraordinary measures to distort who is physically able to vote or to have their vote counted, or attempts to set aside the vote and appoint alternate electors or remain in office anyway, or anything like that. It is very reasonable to thus assign some probability to ‘Trump would lose an election with only a historically typical amount of shenanigans, but wins because of an ahistorically highly impactful level of shenanigans.’ You could also use different assumptions than Nate, and think the baseline situation is closer to even.

I even can imagine a world in which, right now, Donald Trump is currently 37% or so to win the Presidency – and I observe all the same things I’ve observed this year. In isolation, it’s possible. 

What I cannot explain, at all, is how this can be true if on June 20, three months ago, the market was 63-39, and now it’s 65-40, all but unchanged. Trump improved a bit, then got worse again, with Biden’s low being at 55. 

Note that on June 20, the 538 model had Trump at 22% to win (it began at 30% on June 1). The progression he offers makes sense and is consistent. The market’s doesn’t, and isn’t.

You cannot tell me that Trump’s situation is about as good as his situation at that time, at the start PredictIt’s longest quick lookback option.

Seriously, what the hell, market?

If you want to be super generous to Trump and assume that the market was correct because he has a fixed chance of winning ‘despite everything’ then we can put him at 38% on June 20, then put him at 29% to win now. That’s the hard upper bound, and I don’t think that’s reasonable – winning ‘despite everything’ gets harder as winning the regular way gets harder, so I think the ‘be afraid of shenanigans’ case caps out around 25%.

This is why I seriously considered betting on Trump months ago. The theory was, if things went well for him, I’d have a good bet. If things went poorly for him, I could cover my bets at little cost. One of my weaknesses as a gambler was always a reluctance to pull that trigger.

Many secondary markets are even more absurd than the primary one.

Biden is still 8-9% to drop out by 11/1 on 10/18. They thought he was 12% to drop out by 11/1 three months ago. If you can explain how those two agree with each other, please do so in the comments. You may wish to note “Challenge Accepted.” 

Time and again, I take what in retrospect was a very good bet when compared to doing nothing, but a very bad bet compared to waiting for an even better one. And it’s predictable.

It’s tough advice to follow, even when you know it is right, not to fire until you see the whites of their eyes.

In this case, if you really want to maximize your true expected value, my guess is that you should wait at least another week, and my gut tells me wait until two days before the election – you might get the best price of all on election day itself, but that’s definitely risky. 

Note that if you have the patience for it, some of the multi-way markets offer better prices than the main one by buying up all the “No” sides, and also allow you to get down additional funds. You can only bet $850/market, but there are at least five more or less clean variations of markets for who wins (including the female VP option, electoral college margin, popular vote margin, and party win), and if you’re willing to settle for close approximations like betting on Pennsylvania you can get a bunch more. Usually your prices on secondaries are a little worse then the primary price on Biden if they’re two-way, better if they’re multi-way. Thus, you can get down something like $10,000 at PredictIt if you want to and can take the odds hit, and you can use friends to further multiply that, but if you do that then you’ll be stuck with far too much funding there and nothing to do with it for a while, and facing expensive withdrawal fees. If you have a legal other way to bet, and can handle betting on that side the election, do take advantage of it.

If you want to stay side neutral, all the arbitrage opportunities not involving third party candidates that were there last time are still there. If anything, they’re bigger and over a smaller period of time.

I also think it is wise, as others have suggested, to top off your supplies in case the supply chain suffers a disruption after the election. The chances of this seem much smaller than they did in June (again, market is nuts) but the cost/benefit analysis on such actions is overwhelmingly positive. Make sure that if you can’t resupply for a few weeks, nothing terrible happens, have a rough idea what you’ll do if things start to get scary (in terms of a disputed election, not in terms of the wrong person wins), and expect to disregard all that most of the time.

This is not the first election with rather dumb prices that refused to update on time passing and the situation becoming lopsided. In 2008, McCain stayed close to 50% most of the way, despite an obviously degenerating position. Thank you, InTrade. In 2012, Romney was clearly priced too high given the stable nature of the polls and the way the electoral college stood. 

There are times when the market is nuts. This is one of those times. There are various forces contributing to that, but it is not purely a matter of people being size limited, as there are places for non-Americans to get down large amounts. 

Watching the election odds on November 3-4 will be interesting. Often when things transition from pre-game wagers to live betting during the game, the frame for deciding odds shifts, or you find out that the real odds you were starting from were somewhat different from what was offered for wagering. Other times, things are more consistent. Either way, the deltas for events when they happen are always interesting, and the stock market’s movements also will tell the story (the market itself will be closed, so you want to watch the ESZ0 Index contract and others like it). 

Or, of course, if you’d be sitting there terrified, do your best not to do that, and counterprogram something else and hope it’s over when you wake up. If you need someone’s permission to do that, I’m giving it to you, along with permission to not watch the second debate if it happens. You’re welcome.

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