Friday, May 09, 2008

ABC's 20/20 will be featuring Intrade on tonight's program

scheduled airing at 10:00pm ET:

In the fall, John McCain's presidential campaign was running out of money and pundits were saying he'd drop out of the race. His share price on Intrade plummeted to less than 5 cents. If McCain somehow got the nomination, those same McCain shares would be worth a dollar. As Bethan and Jonathan watched a Republican debate in September, they saw a "new confidence" in McCain, and an opportunity to make money.

"Everyone was unloading their shares of McCain on Intrade. But we saw something else in the debate," said Bethan.

They decided to bet that McCain would make a comeback, and of course they were right. Today the McCain shares they bought for around 5 cents are worth 19 times that. The value of Bethan and Jonathan's Intrade account has increased by about $250,000, mostly from betting on McCain.

Now Intrade is more than just a place where people win or lose money making bets. It turns out that the share prices on Intrade can be accurate predictors of the future. Intrade attracts a large and diverse crowd of bettors, and because each participant puts their money on the line, they may be more likely to make careful decisions.

As a result of the collective intelligence of more than 77,000 bettors on Intrade, the prices on the site may be a good way to predict the outcome of current events -- more accurate than some polls and pundits.

In 2004, the market odds on Intrade predicted the presidential vote of every state but Alaska. In 2006, the odds correctly indicated the outcome of every Senate race.

The Navy learned about this principle 40 years ago when the nuclear attack submarine Scorpion became lost somewhere in the North Atlantic. The search went on fruitlessly until a Navy man named John Craven assembled a large group of people, from deckhands to captains, and asked them many different questions that would help predict the location of the lost submarine. He didn't just ask them what they thought, he asked to them to bet on it.

"He took all those bets, and put 'em all together, and what he finished with was this kind of map of the ocean floor," Surowiecki said. "And on this map there was this one spot where his team said, 'This is where we think the submarine is most likely to be.' It wasn't anywhere near where the Navy had been looking … and they found it."

The submarine was just 220 yards away from where the bets said it would be.

John Delaney, the founder of Intrade, pointed out that his Web site's data, which predicts the likelihood of such things as earthquakes and bird flu outbreaks, still proves a very powerful predictive tool for a wide range of people.

"The Intrade market data is used by the Navy, it's used by the Federal Reserve, it's used by 50 or 100 universities," he said. "All of these people see a benefit to Intrade and a benefit to the Intrade market data, but still there's confusion as to how -- how your government would treat Intrade."

Bethan and Jonathan said they're pretty sure that what they're doing is legal, but the law is vague. They understand why prediction markets might have a negative connotation.

"It sounds dirty," Bethan said. "It's politics and money. … It's very taboo."

ABC News contacted the U.S. Department of Justice, but it did not provide a clear answer as to whether Intrade or its users are breaking the law.

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