Is the President a Bargain at Intrade?

The price for ten contracts at Intrade on Barack Obama winning the Presidential election has fallen some twelve dollars since September 29th, and fully seven dollars in the 24-hour period surrounding the first debate.  On the 29th, Obama’s ten contract price closed at about $79 but now is around $67.  Cautious fellow that I am I might not bite today, but I think the decline in Obama’s share price over the past week is not matched by any real change in the fundamentals of the election.

Nothing in Nate Silver’s forecast supports this pessimistic view.  His model characterizes the campaign as a relentless march to victory by the President with a winning margin of over one-hundred Electoral Votes.  Of course his model lags behind events like the debates since reliable polls take a few days to conduct.  It will be interesting to compare Intrade and Silver over the next few week as the polling results roll in.  Will the 538 model show a sudden drop in Obama’s chances of victory that was foreshadowed at intrade, or will Obama’s Intrade price more plausibly climb back up into the high seventies?

The rolling average of polls at RealClearPolitics shows the same general trend as Silver’s 538 model though not to so pronounced a degree as his estimates of the margin in the Electoral College.  Of course small variations in the popular vote produce large swings in the shares of the Electoral College. The “swing ratio” of the Electoral College is just under four, meaning an absolute increase of one percent in the popular vote predicts about a four-percent increase in Electoral Votes.

Intrade has some interesting features as a market.  Its volumes are so small that the campaigns can move the needle with a large purchase. Today’s volume is already 2-3 times that of a typical recent day. (Click on the chart to be taken to the Intrade charting page where you can customize your view.)