Barry Ritholtz is so sharp, but when it comes to event contracts or "prediction markets" like Intrade, he seems to have blinders on. Today he takes on Intrade's failure to accurately predict the Republican Veep nominee. Yep, up until yesterday it was all Romney. Then last night Pawlenty soared. And it wasn't until Sarah Palin was all but confirmed by the news media that her "stock" started to soar. True: Intrade didn't predict anything.
But if Intrade was so "wrong" and so consistently wrong, then why isn't Barry Ritholtz an avid participant in these markets. Seriously, he should be making a downright killing, cleaning up on these know-nothing traders.
The problem is that Intrade isn't "wrong" and it's not a prediction market, a point that Eddy at CrossingWallStreet has made several times. The site (and others like it) put a price on the information that's out there. Right now, the site is basically a gambling site, but theoretically this could be useful if it were more liquid and totally legal in the US.
Intrade is what it is. But it's not what it isn't: an oracle. For that, you'd probably need to consult a crystal ball. But the notion of putitng a price on information is an important function of markets, and these sites do that just fine, especially given the limitations. Again, if they didn't, Ritholtz and others would be fools not to be crushing on them.