The Irish prediction market website Intrade aims to harness the power of crowds to foresee future events like election results, economic conditions, the probability of war or Oscar winners. It allows individuals to place bets that a certain event will or won’t happen, and, so the theory goes, the more bets being placed on a certain event, the more accurately that the current price will reflect the probability of that event’s taking place.
Looking at the above screenshot from Intrade’s page on the Iranian elections, we see that the market gives Ahmadinejad betwen a 40-50% chance of being re-elected. But the key thing about this “market” is that volume is extremely low, with only 54 betting incriments being placed on Ahmadinejad, and just 2 on Khatami (which puts him at between 37-66% to win). By contrast, markets covering American politics routinely draw tens of thousands of bets, thus are more accurate. So few bets on the Iranian election explains the wide range given for the two candidates’ chances and also means that these numbers should be taken with a bigger grain of salt than in higher volume markets.
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