Wolfers says the wisdom of the Intrade crowd is most accurate when there's a lot of public information about a topic. But it wasn't percent right. Most of the traders on Intrade thought that weapons of mass destruction would be found in Iraq. And, of course, we know they haven't been. It's unclear if Intrade's shutdown is permanent. The company's announcement was vague about its future and it didn't respond to a request for comment.
Intrade, which is based in Ireland, has been embroiled in controversy for years. Last fall, American traders were cut off after the U. Commodities Futures Trading Commission sued the service for making false statements and violating options trading rules. The CFTC says it was not involved in this weekend's events and its litigation will continue.
Robin Hansen is an economics professor at George Mason University. He says what made Intrade unusual is that it focused on socially relevant topics like foreign affairs and politics, not just sports.
If we lose Intrade, we're losing a lot more than a place where a few people can have a little fun. We're losing a source of information, an independent, unusually reliable source of information on important public policy questions. And with Intrade gone, at least for now, there's nowhere for traders to bet on whether the site will ever return.
Profits and losses are calculated by tabulating the differences between where contracts are purchased against where they are either sold at any price set by the open market between 0 and or what price they finally expire at 0 or when the event itself is concluded. Utilizing this contract structure, the current price of a contract can be imputed as "the market's" global opinion of the probability that the specified event will occur.
Because events take place over a well-defined time span and have a well defined outcome, traders can trade both before and during an event. Intrade provided both real-money and play-money prediction market trading. While Intrade operated legally from the Republic of Ireland, it does not comment on the legality of trading for customers in other countries. In July , not having an official decision, Intrade sent a letter to the CFTC asking for clarification of the legal status of intrade.
Due to banking regulations that came into force in , American customers were prohibited from funding their accounts with credit or debit cards issued by a US bank.
The US presidential election was a bellwether media event for Intrade, garnering the company high levels of web traffic greater than 50 million monthly page views in October and November, source; Google Analytics and hundreds of media mentions related to the accuracy of the Intrade markets and the correct market predictions of the outcomes of all US state electoral contests except Florida and Virginia.
Shortly thereafter though not explicitly in direct response , Intrade announced it would no longer allow U. On March 10, , Intrade suspended all trading. In its announcement, the company stated that it was investigating potential financial irregularities.
Intrade allowed bets on a wide range of future outcomes: Intrade did however operate markets on sports-related events that did not involve athletic competition, such as bids to host an Olympics. Beginning in , Intrade offered a range of markets for political events, such as the outcomes of U.
While the vast majority of the thousands of markets listed have had easily verifiable outcomes, some have not, and disputes have arisen over the wording of some contracts.
In July, , TradeSports, closed now, but previously related to Intrade , conceded  that one of these contracts was problematic. The contract allowed speculation on whether North Korea would, by 31 July , successfully fire ballistic missiles that would land outside its airspace. On 5 July the North Korean government claimed a successful test launch that would have satisfied the prediction, a launch widely reported by world media.
Tradesports declared that the contract's conditions had not been met, because the US Department of Defense had not confirmed the action, and this confirmation was specifically required by the contract.
Other government sources had confirmed the claim, but these were not the sources referenced in the contract. Traders considered this to be in strict compliance with the stated rule but contrary to the intention of the market which was to predict the launch event, and not whether the US Defense Department would confirm it. Delaney died 50 meters from the summit. His body could not be recovered.