Gaming the Prediction Markets for Romney

September 25th, 2013

In the past, many supporters of politicians have attempted to game prediction markets by purchasing shares for their desired candidate, in an effort to make victory seem more plausible. I discuss some of these stories in my article on FantasySCOTUS. But in the last presidential election, it seems one Romney supporter took this approach way too far.

One trader lost at least $4 million betting on former presidential candidate Mitt Romney through Intrade, possibly to make it appear he was faring better against President Barack Obama in the waning days and hours of the 2012 election than he was.

Rothschild and Sethi found that a single trader accounted for one-third of all bets made on Romney during the two week period of the study, which saw about 3.5 million contracts traded. The total election cycle had 7.6 million contracts traded.

The trader bet solely on Romney and constantly sold on Obama, losing about $4 million in the process.

Those actions effectively created what the study called a “firewall” that kept prices within a defined range and made the race seem closer than it really was.

This is remarkable. And failed, miserably.