Great post by Justin Wolfers over at Freakonomics:
A naïve reading of polls suggests an Obama landslide; a sophisticated reading points to a dead heat. Prediction markets are somewhere in the middle, suggesting a two-in-three probability that our next president will be a Democrat. Yet it is the naïve reading of the polls … that dominates media headlines.
Wolfers has always been a prediction markets man, so:
Given Bob’s model, he should be willing to accept an even money bet: say a bottle of wine for a bottle of wine. Given the markets, I should be willing to bet my two bottles against his one. And so we compromised: I’ve bet three bottles that Obama will win against his two bottles on McCain.
Bob tells me I’ve got the upper hand in this bet… But he tells me he is willing to accept the bet for another reason: “If McCain wins, I could use that wine.”
The whole post is here.
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