Prediction market gets it wrong

Popular prediction market Intrade thought the US Supreme Court would nix Obamacare, but got it wrong.  Shares of “US Supreme Court to rule individual mandate unconstitutional” traded high right up to the decision, ending up between 70 and 80:

Interesting to see that spring swing, from rather low on up to high.

Barry Ritholz thinks this reveals a classic weakness of prediction markets, “[f]utures markets are really a focus group unto themselves”.

Further,

 When the group is something less representative of the target market, they get it wrong with alarming frequency. Indeed, the further the traders are as a group to the target decision makers/voters, the worse their track record.

(thanks to Steven Kaye)

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