Betting on a Palin withdrawal
An online prediction market weighs in on whether VP candidate Sarah Palin will be dropped from the Republican ticket.
NEW YORK (Fortune) -- Now the Democrats aren't the only ones who can try to capitalize on the negative buzz growing around Alaska Gov. Sarah Palin, the prospective Republican VP candidate.
Intrade, an online prediction market based in Dublin, created a contract Tuesday morning on the likelihood that John McCain will drop Palin as his running mate. After opening at a probability of just 3%, the odds on Palin being cut from the ticket hovered around 14% yesterday. Predictions plateaued today at 10%, perhaps in response to yesterday's speeches by Fred Thompson and Joe Lieberman. Both praised the governor for her reformist qualities.
Intrade is a place for betting enthusiasts to turn a small profit on everything from the latest auction of works by controversial British artist Damien Hirst to Britney Spears' chances of landing in rehab. Contracts on a possible future event are bought and sold by users of the site, like a stock on the NYSE.
Chad Rigetti, Intrade's VP of Business Development, says traders on the site asked Intrade to create the newest market after stories about Palin, including her teenage daughter's pregnancy and her involvement in a group that did corporate fundraising for controversial Alaska Sen. Ted Stevens, flooded the news. The pool has been open for 24 hours, but has already attracted more than 4000 trades. Intrade estimates that about $42,000 has been traded on the Palin withdrawal contract.
Placing a Palin withdrawal at even 12% seems bullish; no presidential candidate has withdrawn his VP selection since Thomas Eagleton left Democratic candidate George McGovern's ticket in 1972.
Intrade has demonstrated some success in predicting political choices (forecasting the selection of Biden), but also volatility: Palin's chances of landing the nomination vacillated wildly in the hours before McCain announced the pick.
Rigetti points out that while some traders are putting Palin on the chopping block, they're still giving her 98% odds in a separate market for the VP nomination, which she is scheduled to accept Wednesday night. He thinks that many traders are playing both markets, which means they believe a withdrawal won't come until later in the election season.
Intrade monitors its traders' demographics, but it's too early to tell who's betting on a Palin pullout. Some of the naysayers could be Republicans: Rigetti says that, unlike polls, the election markets don't always represent political beliefs. "People have a real money incentive," he says. "They're betting with their head and not their heart." 
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