That's just one way among many that the betting markets are poor early predictors of outcomes.  

I've been following intrade pretty closely throughout this primary season, and my strong impression is that the intrade numbers are well behind the CW, not out in front.

I tried to set up an intrade account before the Iowa caucuses but hit some kind of administrative snag probably related to my IP address being in a different country than my credit card.  I was hot to take positions on both Obama and McCain both of whom were trading in the mid teens at the time.  I couldn't understand why they were so low.  Obama already had a definite lead in the Iowa polls and McCain was poling strongly in New Hampshire.  There was no way in the world that the price of either a McCain or an Obama future was not going to climb after the IA and NH contests.  Even if they placed second, those contests were bound to reveal them as standing among the top two contenders.  So did anyone who'd been paying attention think that either man had a mere 15% chance of winning his party's nomination?  And yet that's where those futures were valued.

As it happened, within a few days, both candidate's price had jumped to the high forties, more than tripple where it had stood previously.  I'm still bummed that I couldn't buy in early.

Just for my education, how exactly does one go about translating the correct judgement that, selling at 10 points, Ron Paul futures are overvalued into prediction market profits?  If you could take a position on 'Ron Paul NOT to be GOP nominee' it would be straightforward.  You'd buy at 90 and hold onto your futures until he was in fact NOT the nominee and the site would pay you off at 100.  But as far as I can tell, such negative positions are not available for trade.  The only other way I can see being able to profit from such irrational exuberance is to get in early early early before all the Paul fanatics have gotten on board and driven the price up to the ridiculous level of 10, and it seems to me that the only folks likely to be able to take advantage in this way are the intrade managers themselves.

I participated in a competition designed to mimic a presidential campaign stock market in 2004 and found it lacking.  The price changes always followed the day's news and because people some people are willing to bet on the long shots, it overstated their viability.  Ultimately, people who bet early on Kerry won.  But in no way did price changes predict outcomes in the early contests, rather, they followed them.  The whole idea that a market would better predict the outcome seems like another one of those free-market mythologists dreams.  

aeromonas-

In these markets (or many of them, including InTrade), you aren't buying out of a finite pool of shares like in the stock market.  You are literally making a bet with someone else for x number of dollars at certain odds - ie, a 9-1 against that Ron Paul will win the nomination.  If you are betting against the outcome, you "sell" shares - you put in $900, your buyer puts in $100 and get the shares.  Alternately, maybe you go in for 1000 shares at $0.9 each and the next day TNR publishes Dr. Paul's insane-o racist newsletter.  Now Issac thinks 5% overstating Paul's chances so you buy 1000 shares from him for $950.  Now you are even on shares and up $50 in 24 hrs.

Can you get nabbed for insider trading on political markets?

Well, to some extent these markets probably point out the limits of actual markets. Stock prices also tend to be more reactive than predictive. Several companies I've known up close and personal have been in obviously catastrophic positions of immanent failure, which anyone could have seen simply by visiting corporate HQ for an hour, but in every case the stock price collapsed to penny junk status only after bankruptcy announcements. Hope, overestimating longshots, and irrational attention to news events rather than underlying fundamentals would seem to be the common lot of all human markets.

However, a few months ago, Ron Paul probably did have a better chance of winning the Republican nomination than John McCain. Paul had money and a national constituency, neither of which McCain had at the time. Just because something has happened doesn't mean that it was likely that the thing would happen.

I know tons of folks who get to look at embargoed polls who go win money.