Can we stop paying attention to Intrade now?

Obviously this is not the blog for analysis of the U.S. Supreme Court’s healthcare decision today, but as we get further into election season, I thought it might be worth noting that it’s not a good day for frequently-cited prediction market InTrade, which as of two days ago was giving the individual mandate a 77 percent chance of being struck down.

Financial blogger Barry Ritholtz rounds up some more past examples of Intrade being spectacularly wrong on political predictions noting, "Futures markets are really a focus group unto themselves: When the group is something less representative of the target market, they get it wrong with alarming frequency. Indeed, the further the traders are as a group to the target decision makers/voters, the worse their track record." Given that the decision makers in this case were nine people deliberating in secret, it should have been a tip-off.

But even in the case of elections, the usefulness of Intrade is pretty questionable. As Slate‘s Daniel Gross noted in 2008 after Intrade’s not-so-impressive performance in the Clinton-Obama primary, "The price movement tends to respond to conventional wisdom and polling data; it doesn’t lead them."

Most of the people making bets on Intrade don’t have access to better information than anyone else. It’s not surprising that the betting market on Obama’s re-election  tracks pretty closely with his polling averages over the last year — falling to a low point last fall, rising steadily over the summer, falling again in May. One could read some significance into the fact that InTrade gives Enrique Pena Nieto an 87.5 percent chance of winning this weekend’s Mexican presidential election, or you could just take a look at the polls giving him a 17.4 percent lead. 

The wisdom of the crowds — or at least the wisdom of the crowds as filtered through Irish bookies — may not be all that wise.