May 14, 2009 0
The InTrade prediction markets for cities vying to host the 2016 Olympics was pointed out on Hyde Park Urbanist yesterday and can be an interesting way to at least gauge the outside perspective of Chicago’s chances.
Looking at the data this morning, traders think Chicago’s chances are pretty good — trading at more than twice the price of the next closest city. Prediction markets are an interesting way to gauge one segment of public opinion because there is a monetary investment on an outcome that I suspect could dramatically change someone’s response to a question compared to other forms of surveying.
One thing that I keep in mind when looking at this data is that the geographical distribution of traders could be dramatically skewing the results. If most of the traders are Americans, a “hometown bias” towards investment could account for a not insignificant portion of the difference in trading price.
Investors in a given country tend to overweight their portfolios with stocks from that country. So for instance, although U.S. equities make up less than half of the global stock market, most U.S. investors’ portfolios are dominated by them.
The volume on these markets remains relatively low still also. My understanding of economics and market mechanisms is relatively limited, but I think it’s worth keeping in mind for people using InTrade markets to get a sense of Chicago’s Olympic chances.