Prediction Market Arbitrage Opportunities

Just about the clearest illustration you could ask for that prediction markets aren’t quite ready for prime time yet is this whopping divergence between the odds of an Obama victory that are available on Betfair versus Intrade.

In a proper “efficient” market, arbitrageurs would take advantage of that money-making opportunity and in doing so would end up closing the price divergence. But there simply isn’t enough money at stake to create the kind of deep liquid markets where that happens.