PredictWise Blog

Many people have money riding on the Supreme Court's verdict on the Affordable Care Act, which is expected Thursday, from health care executives to 24-year-olds hoping to stay on their parents' insurance a few more years. But none have a more direct financial interest in the decision than those who have gambled on the outcome on Intrade.com. The price on the site currently rests at a 75 percent chance that the court will overturn the individual mandate provision at the center of the case. When the court issues its decision, those who placed bets will find out if they won or lost-probably.

Situations like this test the strength of the online prediction markets in two ways. First, it can be tricky to define court decisions in a way that's precise enough to make it clear who won, particularly if the court takes a surgical approach to the law. Second, the crowd is less precise when it assesses the judgments of nine secretive people, compared to predicting the outcome of a popular election.

First, there's the difficulty in deciding what to bet on. The Affordable Healthcare Act consists of many different initiatives packed into one large law. At the core is the individual mandate requires that all Americans have healthcare or pay a tax. Several additional provisions stand out. The law requires insurers make insurance available to people with pre-existing conditions, expands Medicaid eligibility, sets up health insurance exchanges, and allows dependents to stay on their family's health insurance through their 26th birthday, to name a few. It would be interesting to see how the wonkiest gamblers predict the fate of any of these provisions. But it would be a nightmare to write a legal contract in a way that would make it clear who won and who lost under the almost infinite possibilities available to the court.

Click Here for the Full Text on Yahoo!'s The Signal

With the unrelenting focus on every aspect of the fight for the White House, it's easy to forget that the Senate is also up for grabs on Election Day. In fact, it could be the presidential election that determines the upper body's control: If the Republicans win a net total of three seats, the Senate will be divided 50-50. In that case, control will go to the party that wins the presidency. (If you need an eight-grade civics refresher, this is because one of the vice president's few official duties is to break a tie.)

Currently, the Democrats control 54 votes: 51 Democratic senators, two independent senators who caucus with them, and one vice-president. But the way the dice fell does not favor them: Democrats control 23 of the 33 Senate seats that are up this cycle, giving them much more territory to defend and many fewer opportunities to pick up seats. Of those 23 races, seven are open seats (i.e., the Democratic caucusing member is leaving the senate), while four of the 10 Republican seats are open.

The prediction markets are aware of this, of course, which is why the odds that Democrats will retain their majority currently rest at 41.5 percent. That's a major improvement for them since the beginning of the year, when their odds clocked in at 25 percent.

Click Here for the Full Text on Yahoo!'s The Signal

Ticket Pricing at Yankee Stadium

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The Yankees have a very odd pricing scheme at their stadium that belies sound economics. They charge a lot of money for their tickets and none of their tickets are worth as much as they sell them for on an individual game level.

If you go to Stubhub between 5,000 and 10,000 tickets are available to any upcoming game and they are almost all at lower prices than the season ticket price. When the Braves come to New York next Tuesday you can buy 2 tickets in Row 12 of Section 104 (great seats) for $141.85 includes all Stubhub charges; the partial season ticket price point in that section is $100 per ticket or $200 total. This was chosen at random, but almost all tickets on Stubhub, for almost all games, are less than retail price.

The amazing thing is that you can buy tickets to the Red Sox series in July, on a weekend, for just a few dollars over retail price. This is probably the most expensive game of the season, but there are currently 10,903 tickets available for the Sunday night game on July 29. Demand may be high, but so is supply. If you owned season tickets, it is not possible to unload Red Sox tickets to make up for the loss on Tuesday night games against the Braves; the same seats as above are selling for $278.25. But, there are 16 seats available in the 12th row of Section 104; I would expect that price to fall as game time approaches.

Following Stubhub on a regular basis, I am positive you could attend all 81 home games, in pretty much any section of the Stadium, for less money than it costs to buy season tickets. You would probably spend 20-50% more for about 10 games, but you would spend 50-80% less for many more games. Thus, the only rational reason to buy season tickets is to get access to post season tickets which are general worth much more on the open market than the retail value.

On this promise, they are able to sell the mid-30,000 range season of ticket plans, which translates into an attendance of about 40,000 people in a stadium that seats about 52,500. Their pricing scheme is not in the best long-term interest of their team, but may provide short-term benefits.

Short-term: they are selling their tickets for more than they are worth. That means that for every ticket that is sold, they get extra money. Most likely that extra money is more than the cost of eating a few thousand tickets per game and the money those people spend at the game.

Long-term: they are selling season tickets to scalpers more than fans, which diminishes their long-term fan loyalty. Also, it makes season tickets less valuable, because the fun of season tickets is sitting next to the same people each game.

If the Yankees get rid of Stubhub, as they are threatening, it would be devastating for their bottom line, unless they dramatically lower their retail price. Scalpers would not be as willing to buy up the tickets if they are not able to get any money, even at a loss, for regular games. Fans have already dictated that they are not going to pay retail. Season ticket holders that remain will be less likely to resell their tickets for those games that they cannot attend, because it would not be worth the added hassle of selling on a less easy resell market. Thus, I would expect a dramatic drop in season tickets compounded with even more tickets being unused.

Randy Levine, if you read this column, I have a few suggestions. And, I am willing to work for nothing except for a few overpriced tickets and World Series ring if the Yankees go all the way.

Prediction market-based forecasts place the likelihood of a strike on Iran's nuclear facilities in 2012 by the United States or Israel at 33 percent. This likelihood of conflict in Iran is down in the last three months, which we expect to see as the number of days left in the year dwindles and the expiration of the contract approaches. The number should trend toward zero every day there is no airstrike and no new development in the conflict. The main jump in the odds appeared in early March, coinciding with information that Iran had increased itsproduction of higher-grade enriched uranium. Those odds came down quickly as stalled talks with Iran resumed within days.

In addition to contemporary events, there's a historical precedent here that could inform the odds. In 1981, when Saddam Hussein was building a nuclear facility that Israel thought could help Iraq create nuclear weapons, Israel bombed the reactor. It is still unclear whether Iraq was actually trying to develop nuclear weapons and, if it was, whether the attack slowed it down. Similar questions arise with regard to Iran, where there is disagreement over what it is attempting and to what degree an attack would deter it if it is pursuing a weapon.

In Syria, meanwhile, the brutal massacre of more than 100 Syrian civilians last week has led to a 10-point jump in the odds of regime change, which now stands at 43 percent. President Bashar Assad has been leading a violent crackdown of his people since the uprising began in the spring of 2011.

Click Here for the Full Text on Yahoo!'s The Signal

Hockey and Conditional Probability

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Update 5/27 at 2 PM ET: With the Devils capturing the Eastern Confernece on Friday the markets bore out my assumptions. The Kings were 53.1 percent likely to win against the Eastern Confernece champion when it was 25 percent likely to the Rangers and 75 percent likely to be the Devils. Now that the opponent is 100 percent likely to the Devils they are 58.9 percent likely to win the Stanley Cup. Had the Rangers prevailed they would have fallen to about 42 percent likely to win ...

Game 6 of the Eastern Conference finals is tonight, Friday May 25, between the New Jersey Devils and the New York Rangers. The Devils lead the best of seven series 3 game to 2 and are in a strong position to play the Los Angeles Kings for the Stanley Cup. Currently, the likelihood of winning the Stanley Cup is the Los Angeles Kings 53.1 percent, Devils 31.7 percent, and Ranger 15.2 percent.

The Kings are most likely to win the Cup because they have one less round to win. They are already in the finals with 100 percent where the Devils and Rangers face uncertainty in regard to their place in the finals.

The Devils need to win one of the next two games to get into the finals. They are approximately 75 percent likely to achieve that. Thus, the Rangers, who need to win both of the next two games, are 25 percent likely to make the finals. I am assuming the teams are about 50 percent likely to win any individual game and the game are independent (i.e., a loss tonight does not make it more likely the Rangers win Game 7). In reality, the Devils are slightly more than 50 percent to win tonight and the Rangers would be slightly more than 50 percent to win game 7, if necessary.

Based on the current odds, if the Devils are 75 percent to make it to the finals, then they are just 42 percent to beat the Kings when they get there. They are 31.7 percent to win the finals, with a 75 percent likelihood of playing in the finals, thus, 31.7 / 0.75 = 42 percent.

If the Rangers are 25 percent to make it to the finals, then they are 61 percent to beat the Kings when they get there. They are 15.2 percent to win the finals, with just 25 percent likelihood of playing in the finals, thus, 15.2 / 0.25 = 61 percent.

If the markets are perfectly efficient, a Devils win tonight should push the Kings up to 57 or 58 percent from their current 53, as they would have a 100 percent likelihood of facing the Devils. If the Rangers win tonight the Kings should drop to about 47 or 48 percent as they will be a little more than 50 percent to face the Rangers in the finals. If the markets are extremely efficient, you can see them move in real-time as the game progresses.

In the interest of full disclosure my ancestral home is New Jersey and I am proud Devils fan.

David Rothschild is an economist with MSR-NYC. He has a Ph.D. in applied economics from the Wharton School of Business at the University of Pennsylvania. Follow him on Twitter @DavMicRot.