Bloomberg Government’s David Ellis has a line on something here:
“Turns out that crowds might not be so wise after all,” Ellis writes today.
The BGOV Barometer shows how subscribers at Intrade.com placed increasing wagers that the U.S. Supreme Court would declare unconstitutional a provision of the federal health law requiring Americans to purchase medical insurance. Bets against the so-called individual mandate surviving a court challenge rose to a record in the hours before the court announced its decision just after 10 a.m. Washington time yesterday.
Bettors on Intrade’s political futures market were willing to pay as much as $8.20 to collect $10 if a majority of the justices voted to overturn the mandate. That was up from $4.75 on March 25, before the start of Supreme Court arguments on the health-care law.
“The alleged wisdom of the crowds can just as easily be described as the delusion of the self-appointed cognoscenti,” said Gary Langer, president of Langer Research Associates in New York.
“In some cases, good data — produced by thoughtful and tested methods, rather than in the echo chamber of the Internet — can provide insight as to likely outcomes,” said Langer, who compiles the Bloomberg Consumer Comfort Index. “In others such as the individual judgment of nine learned men and women in black robes, not so much.”
Dublin-based Intrade is an Internet betting pool that offers users a chance to speculate on the outcomes of real-world developments that are presented in a yes-or-no format. Winners receive $10 per share at the close of the betting window, while losers receive zero. The site charges members a flat monthly fee of $4.99 per account to access the betting pool.
Intrade was established in 2001 and opened its site to political betting three year later. The site gained prominence in 2008 when it predicted Barack Obama would win 364 electoral votes, one short of his eventual total in the U.S. presidential race.
“This is not the first time the market has got it wrong,” Carl Wolfenden, Intrade’s exchange operations manager, said in an e-mail. “Barack Obama was trading at over 90 percent to win the 2008 New Hampshire primary before losing to Hillary Clinton. Mitt Romney was also trading well above 80 percent to win Colorado in this year’s Republican primaries before losing to Rick Santorum.”
Though markets such as Intrade may be flawed, they do provide insight into the political trends, according to Koleman Strumpf, professor of business economics at the University of Kansas School of Business.
“The market wasn’t literally wrong — while most participants said the mandate would be overturned, 30 percent said it would remain,” said Strumpf, who has studied prediction markets. “Obama’s re-election prospects rose following the court’s decisions, and that gives you a good indication of the political impact going forward.”
Intrade’s betting question was “The U.S. Supreme Court to rule individual mandate unconstitutional before midnight ET 31 Dec 2012.” In the ruling, Chief Justice John Roberts agreed with opponents who contended that the mandate exceeded congressional power to regulate interstate commerce, while finding the mandate could be upheld under Congress’s ability to impose taxes. That nuance led some on Intrade’s Website to ask whether refunds would be available to losing bettors.
“We will not be considering such appeals,” Wolfenden said.