Deficit Denialism: Frederic Bastiat Actually Favored Expansionary Fiscal Policy in Recessions Edition
Hoisted from the Archives: How I Learned to Stop Neoclassicizing and Love the Liquidity Trap: Peccavi Nimis et Mea Maxima Culpa Department

Gingrich on Intrade: John Quiggin's Expectations About What Average Opinion Expects Average Opinion to Be...

John Quiggin:

My adventures on Intrade — Crooked Timber: For those who don’t follow the economics and politics literature obsessively, Intrade is a market in bets on various kinds of predictions, set up to follow the conventions of a share market. As I’ve discussed quite a few times in the past, the efficient financial markets hypothesis in its strong forms, implies that markets like this should give a better (more precisely, at least as good a) prediction of things like election outcomes than could be obtained from studying polls, pundit predictions and so on…..

[M]y trackside tip….

Newt Gingrich: I bought my shares early this week, and am already ahead to the tune of $15.00. My reasoning is as follows. Even if he survives the harassment scandal (which looks less likely now than when I entered the market), Herman Cain isn’t a viable candidate. Perry and the other conservative candidates are already toast. So, Romney is the obvious favorite and is indeed odds-on to win. But, as Eugene Robinson just pointed out, Romney isn’t as inevitable as centrist pundits think – on the contrary he’s quite “evitable”. There’s a large pool of conservative Repubs who would rather vote for (just about) anyone else. Once Cain is out of the picture, Gingrich is the last choice…. [I]f things turn up for Obama, or if the (entirely accurate) perception that Romney is the emptiest of empty suits, a haircut masquerading as a man, starts to take hold in the mainstream media narrative, that calculus might change. At that point, the conservative narrative might recast this election as a replay of 1964, a necessary defeat on the way to a greater victory.  There’s plenty of “ifs” in there, but I still think Gingrich was badly underpriced when I bought at 5.0 per cent, and still underpriced at 7.5 per cent…

This seems to me to be wrong and right. Gingrich's chances of winning the nomination are much less than 7.5%--for one thing, he does not have a primary operation, he merely has a book tour. But the chances that at some point in the next six months Gingrich's odds on intrade will go to 15% are quite high.

Going long Gingrich at 7.5% and selling at 10% is, in my view, a positive EV strategy. But going long Gingrich at 7.5% and holding the contract to maturity is a negative EV strategy.

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