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Nominull comments on Arbitrage of prediction markets - Less Wrong
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I'd never really looked at Intrade before. It seems from a quick investigation that there's a fairly major problem for anyone who wants to arbitrage this particular market (the 2012 Republican Presidential Nominee market) which makes for a rather inefficient market.
I pointed out in another comment that unless you believe Ron Paul supporters are more prone to wishful thinking than others that the biases should cancel out. If you look at the prices currently it appears that everyone's supporters are prone to wishful thinking - the sum of all current market prices for all candidates is quite a bit over 100. It should be possible to arbitrage this by simply selling all the contracts. You get more than 100 coming in and never pay out more than 100.
Unfortunately it appears Intrade requires margin on the basis of your maximum possible loss and treats every bet in this market as independent! In other words if you sell against every candidate you have to meet a huge margin requirement even though you are not actually liable for more than a 100 payout in the worst case.
Am I missing something here or is this really the way Intrade works?
But what if the Constitution changed to allow co-presidents?
Not likely, but I thought I'd point out that I've been black-swanned on Intrade already. I bet on there being 50,000 swine flue cases by June 30, but then about a week before that deadline the CDC made a decision to stop updating its totals, pausing the count at a little under 50,000.
Even though the bet was written so that the CDC numbers were just being used as "best available", Intrade decided at that point that those numbers would define the bet. So even though all other counts settled on a number well above 50,000 by June 30, the CDC was considered official and I lost the bet.