Economic studies have shown that point spreads, which shift with the actions of numerous bettors, are a reliable predictor of sports contests.More than two decades ago, Hanson began to wonder: Why couldn't the same mechanism work for other types of clashes, like contentious scientific debates?On a crisp Tuesday in September, primary election day in New York City, volunteers are handing out mayoral campaign flyers on the fringes of Zuccotti Park, and Laurence Lau sizes up the odds. "You can't — that's how you lose money." On a concrete table, a spreadsheet listing candidates and prices is open on a laptop and Lau explains how his computer model once turned raw data into positions on Intrade, a now-defunct site that billed itself as "the world's leading prediction market." "I like betting because it's the ultimate form of truth," Lau says."If someone says something to me and won't put money on it — forget about it."Our meeting place is famous due to its association with Occupy Wall Street, but Lau picked it because it was one his regular lunch spots when he worked inside the nearby World Financial Center.In theory, the traders' collective wisdom, reflected in the market's prices, would augur the ultimate electoral outcome.In 2008, for instance, it had come within one electoral vote of nailing Obama's margin of victory.Within months of the election, the company had collapsed beneath the weight of a U. government lawsuit and a crippling financial scandal. government accuses Intrade of flouting regulation and violating securities laws.
Intrade's system was designed to evoke sophisticated investment, not a casino or a horse track; it rewarded analytical calculation over partisanship and wishful thinking."That's what I think a lot of Wall Street is," Lau says."Have an edge and don't tell anyone about it." In his wagering, Lau gave similar weight to the teachings of Paul Tudor Jones — a Wall Street legend who was an early Intrade investor — and Billy Beane, the statistically minded baseball executive who was the hero of the book and movie Moneyball.His computer system owed something to Black-Scholes, a financial model for derivatives, and something to Nate Silver, the poll-crunching star of the 2012 election, then based at the New York Times.Though Lau's winnings were modest — "five figures," he says, money he was setting aside to pay for an MBA program — he thrived on the competition, and the stories, perhaps apocryphal, of traders who had hit big jackpots.