Intrade Manipulation and the Epistemic Rationality of the Pundits

Karl Rove on FOX, Election Night 2012.  Delusional, or crazy like a...

Intrade was still only in the high 60s for Obama until polls actually started closing on the American East Coast. Then it only went into the 70s. This, despite other prediction markets having much higher odds for him for many days before that, and of course the various statistics witches like Nate Silver, who was in the 80s two days before. Math whizzes can look at numbers if people decide this question is important enough to merit a more rigorous look, but for now I'll have to go on these facts for my argument:

a) Intrade users think it was manipulated.

b) For a campaign that wants to appear as if it will win, Intrade is a good candidate to manipulate because it's better represented in American media than other predictions markets.

c) There was a single buyer making many of the Romney purchases.

d) It was in the Romney campaign's interest to try to appear as if it had a chance going into the election, because no one gives money to a doomed loser.

The question does remain as to whether it was deliberate manipulation, or purchases by people (or one person) who genuinely believed Romney would win. There are lots of people who believed Romney would win, and if reports are to be believed, Romney himself was one of them. And of course prediction markets do fail when enough people with bad/non-updateable beliefs are investing in them. "Fail" in the sense of not converging on the actual outcome significantly prior to the event, of course. If you had money to put into this contract and you bet on Obama though, I bet you didn't think it failed you. If it was the result of deliberate manipulation, you should be thanking Romney campaign donors who redistributed their wealth into your pocket continually for several weeks so you could bet on Obama. The twenty-first century is an interesting place.

In all the post-election laughing/anger at delusional or propagandist pundits, it is interesting that even moderately well-informed news junkies saw it coming.  But not everyone:  the pre-election denial pieces were fascinating and sounded like a combination of hippies, religious fanatics and alternative medicine nutbars: Peggy Noonan's "All the vibrations are right" is my personal favorite.

But it's also worth pointing out that from one standpoint, Karl Rove's famous meltdown was rational - for next time around. And game theorists know that games are very different when there are more (or indefinite) rounds. Other GOP higher-ups will remember that this was the guy that just would not give up. He's invested. I bet those higher-ups don't care if Jon Stewart makes fun of Rove. So neither does Rove.  Neither do any of the other pundits.  Really, what would have been the benefits to a Dick Morris of calling it like it really was, even if he actually knew how it really was? (That said, Pundit Tracker is the best site ever.)

Of course, Rove may really have believed Romney was going to win, which makes him epistemically irrational. But this false belief may lead to future GOP campaign consulting gigs as described above, which makes him every bit as epistemically rational, regardless of whether the FOX meltdown was theater or not.