Gaddafi to no Longer be Leader of Libya by Year’s End Says Prediction Market

The online prediction market of intrade.com has Libya strongman Muammar Gaddafi (whose name, we might add, is spelled about a dozen different ways depending on the media outlet) no longer in charge by year’s end.  Some 75 percent of those betting on this market believe that Gaddafi’s days are numbered.  And while the official bet gives the Arab world’s longest serving dictator another 10 months, there is a chance he could fall from power within the next few weeks, if not days. 

Gaddafi has served as leader of Libya since a coup in 1969.  On Tuesday, following days of unrest and bloodshed, the flamboyant leader appeared defiant, speaking on national TV and delivering a rambling speech that lasted more than an hour.  Among the many highlights, Gaddafi insisted he would remain in Libya and die a martyr.  He also went on to suggest that the “young” protestors were mostly under the influence of drugs and that they would be systematically executed. 

Much of the Eastern portion of Libya is reportedly now under the control of civilians.  As of Wednesday, Gaddafi was struggling to maintain control of the Western part of the country, which includes its largest city, Tripoli.   Some 300 people have thus far died in the bloody uprising. 

Steven Gjerstad (Purdue) in his paper "Risk Aversion, Beliefs, and Prediction Market Equilibrium," has shown that prediction market prices are very close to the mean belief of market participants if the agents are risk averse and the distribution of beliefs is spread out (as with a normal distribution, for example). Justin Wolfers (Wharton) and Eric Zitzewitz (Dartmouth) have obtained similar results, and also include some analysis of prediction market data, in their paper "Interpreting Prediction Market Prices as Probabilities” In practice, the prices of binary prediction markets have proven to be closely related to actual frequencies of events in the real world.  (source:  Wikipedia)

Over the last few weeks, Bookmaker.com had offered odds on which Middle Eastern and/or Arab nation would experience uprisings after Egypt.  Initial odds had Libya somewhat of a long shot with 5/1 odds.  North America’s oldest established online gambling website had Israel with even shorter odds at 4/1.

Bookmaker.com has since ceased taking bets on this market while intrade.com continues to offer wagering on the next leader to fall by year’s end.

Some other potential casualties include Bahrain’s Prince Khalifa at 62 percent, Ali Abdullah Saleh of Yemen at 49 percent, Mahmoud Ahmadinejad of Iran at 16 percent and that country’s Supreme Leader at 15 percent. 

- Gilbert Horowitz, Gambling911.com