The failure of that article to mention Betfair makes it hard for me to take it seriously.
If the Economist thinks the explanation is that Intrade is thinly traded, it should think it volatile. It is true that a small wager moves the market, but it consistently returns to 5-10 points below the bookies. Similarly, the prediction market Betfair is in exactly the same legal situation as the Intrade, has matched the same amount of money ($30 million) and has about the same amount of open interest, but consistently tracks the bookies. The question is not why do prediction markets diverge from the bookies, but why Intrade consistently diverges from everyone else.
The failure of that article to mention Betfair makes it hard for me to take it seriously.
If the Economist thinks the explanation is that Intrade is thinly traded, it should think it volatile. It is true that a small wager moves the market, but it consistently returns to 5-10 points below the bookies. Similarly, the prediction market Betfair is in exactly the same legal situation as the Intrade, has matched the same amount of money ($30 million) and has about the same amount of open interest, but consistently tracks the bookies. The question is not why do prediction markets diverge from the bookies, but why Intrade consistently diverges from everyone else.