Speaking of a recession, here’s an interesting graph from Intrade, the prediction market for legal, political, economic events:
The chart shows the contract for a recession in the US economy in 2008. If there is a recession sometime this year, it will pay the holder $100. If there isn’t, it will pay $0. According to this, there is currently a 37% chance of a recession in 2008.
Interestingly enough, the chart seems to be the inverse of the stock market. Notice how in mid October 2007 it bottomed out just as the market was topping. And how earlier this year it topped at 75% while the market was trying to find its footing.
Two caveats though: one, this contract is fairly illiquid; two, while Intrade can be uncanny in predictions borne out of crowd knowledge, it isn’t perfect.
As an example, take the prediction from last year putting Hillary Clinton ahead of Barack Obama.
Intrade, is less of a pure “prediction” mechanism than a way to aggregate all available information in a process of price discovery.
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