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James_Miller comments on Open Thread, Feb 8 - Feb 15, 2016 - Less Wrong
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On the betting market PredictIt you can by a contract for 38 cents that pays $1 if the Democratic party doesn't win the next U.S. presidential election. This seems like an amazingly good bet. (I have 1158 shares) Do others who follow U.S. politics agree that the chance of the Democrats not winning the election is well above 38%?
I think that it is worth mentioning that those are also the numbers extracted from Betfair, which has much higher volume, though is not available to Americans.
Is that bet actually available from small volume PredictIt? The bid-ask spread looks small, but are there hidden transaction costs? Why do the three "sell yes" numbers add up to more than $1?
The bet is available on PredictIT. The numbers don't always add to $1 (actually $2 on this market because of the independent) because of bid/ask spreads and because PredictIt's fees make it unprofitable to always push the market to this point.
The answer is not bid-ask spreads, as I said in my comment. The answer is probably substantial hidden fees. But your original post quoted 38% ignoring the fees. If you don't know the details of the bets, it's not surprising that you think that they are good opportunities.
The fee (I think) is you have to pay 10% of any profits you earn if you buy and then sell a contract. The bid-ask spreads change a lot.
I'd say the odds right now of either party winning are roughly 50-50.
I'd put the odds of a non-Democrat a bit higher, maybe 45%. Democrats are known to have a significant advantage in presidential elections due to the Blue Wall and higher turnout compared to midterms. On the other hand a party rarely wins 3 presidential terms in a row. Also, I think there's a fair chance of an economic downturn this year, which would I suspect would tend to benefit the Republicans as the party controlling the white house seems to get blamed for recessions.
So far as I can make out, "Blue Wall" is just a slightly colourful way of saying "there are some states that have a solid Democratic majority", and doesn't indicate any advantage except in so far as being more popular is an advantage. In the only US presidential election of the last century (I didn't look further back) in which the outcome didn't match the popular vote, the Democrats won the popular vote and the Republicans won the election. (Very narrowly in both cases.)
The Blue Wall is considered to be a recent development, so looking at history doesn't really tell you much. It's something that has built up gradually but only really been a significant advantage for Democrats for maybe 2 presidential cycles. Basically the Republicans have to win a lot more swing states than Democrats. In 2012 Obama won 4% more of the electoral votes than Mitt Romney, but won 61% more electoral votes.
If democrats were generically more popular it seems unlikely republicans would have large majorities in the House and Senate, control 31 state legislatures and 31 governorships, etc.