I love Intrade. For example, I have stopped paying that much attention to political polls. When something happens, I click over to Intrade to see what the markets have to say about Romeny’s prospects of getting the nod (currently trading at about 23) or Obama’s continuing plunge from grace (his share price has gone from a July high of about 38 to about 13 today). I was recently explaining these markets to my mother-in-law who asked, “So it is just gambling, right?” Well, sort of, I replied. However, there are also reasons that investors would want to buy shares in, say, a Clinton victory as a way of hedging against political risk. I explained that politics might be like the weather — a random event that can create real costs for a business — and buying rights to payment in the event of bad weather allows you to get rid of some risk. I felt that I had made the whole thing sound very hip, serious, and respectable at the same time.
Then today I noticed that Intrade has been selling a contract on whether or not the next publicized study of adult talkativeness will find that women are at least 10% more talkative than men. As you can see, there was a bit of initial price fluctuation, with the market pushing the price of female chatter up to about 85, but things have since settled down to the current price of about 75.
I have to confess that I am a bit stumped on how one would use this as a hedging device. What exactly is the risk that one is trying to avoid here? It turns out that the market was suggested by Robin Hanson, of Oxford’s Future of Humanity Institute and George Mason University. This fact doesn’t help me see any real financial use for this contract, but it does show the power of the market to satisfy even the demand of academics for markets in odd things.