The Intrade predictions market trades contracts ranging in value from $0 to $10 for a number of political, economic, and cultural events. A contract that pays $10 if Democrats win control of the United States Senate in the next election, currently trading at $6.26, means that the market predicts the probability of a democratically controlled Senate after the next election is:
A) 6.26%.
B) 62.6%.
C) 0%.
D) 10%.

Question

Quizplus · Accepted Answer

The price of the contract represents the probability of the event occurring. In this case, the contract is trading at $6.26, which means the market predicts there is a 62.6% chance of Democrats winning control of the United States Senate in the next election.

The Intrade Predictions Market Trades Contracts Ranging in Value from $0