Tuesday, June 14, 2022

PredictIt.com shows us the effects of demand and supply shifts.

Predict it allows traders to buy and sell futures contracts ("bet") on political outcomes.  Because the contracts pay off $1 if the event occurs, prices can be interpreted as probabilities.  If something increases the probability that an event will occur, demand for the contracts will increase which drives up the price.  

  • Here are the current prices of two contracts:
  • You can use the history of price movements to answer questions, like "what was the effect of the June 9, 2022 televised hearings on the Jan 6 Capitol riot?"  
    • In the graph below, on June 11, we see a very slight uptick in the probability of Buttigieg as the Democratic nominee, and slight downticks in the probabilities of Biden or Harris.  This segues nicely into a discussion of how quickly market prices reflect changes.  

    • We do not see a similar change in the probability of house House or Senate control

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