How can we explain the Intrade investors' behavior? The numbers appear to confirm the hypothesis that this particular Intrade market reacts almost exclusively to the polls, specifically, the RealClearPolitics average of national polls. The RCP average is similar to what it was earlier this month--perhaps even showing a slightly closer race. This shouldn't imply that the Bain narratives will have no effect, however: Little polling has been done since the latest Bain attacks captured the headlines.
The power of the RCP average rests in the fact that it is widely read and very simple: It's just an average of the most recent national polls. RCP does nothing to account for the difference between registered voter and likely voter polls, though it does limit its use of daily tracking polls.
If the RCP hypothesis is correct, we can expect that big campaign stories will have minimal impact until they are reflected in the poll average--and poll averages necessarily lag behind events. Only a truly obvious shift in the campaign should be able to overcome this, such as a clear win in the debates or a massive scandal.
Meanwhile, the Intrade market on the Republican VP nominee has changed in the past two weeks. Rob Portman still has the lead at 29.1%, but Tim Pawlenty has made a comeback to 23.8%. Pawlenty's comeback appears to have been triggered in part by an item on The Drudge Report about Romney having already made his VP decision; the headline linked to a story about Pawlenty.
Minor players in the VP market have also shifted. Marco Rubio is down to 9.1%, while Bobby Jindal and Paul Ryan are up to 7.2% and 6.9%. Condoleezza Rice has jumped from almost nothing up to 6.0%. It's likely that Rubio's fall was the result of the gain by the latter three contenders, who may be viewed as sort of "risky" picks, like Rubio.
As with Pawlenty, the Rice gain was driven by an unsourced item in Drudge suggesting that Rice was a surprise frontrunner among the potential VPs. The Rice market went to 15% before the storm died down. The Intrade market remains skeptical about Rice because she has so many weaknesses: She is associated with the George W. Bush administration, especially its most unpopular policies (the war in Iraq, torture, etc.).
Chris Christie, who once had been one of the frontrunners on the Intrade VP market, has completely collapsed to 1.8%. In part, that may be due to the fact that others have been speculated about in the media more than Christie has of late. The most recent crash was probably also precipitated by yet another item in Drudge, which showed Christie in an angry altercation with a random passerby on the New Jersey boardwalk. Christie's chief weakness, particularly from a "Romney perspective" has always been his perceived volatility.
