Probabilistic Peters

Recall that under New Zealand's MMP system, a party enters Parliament on winning a single electorate or on passing the 5% threshold on the popular vote.

So New Zealand First re-enters Parliament if they get more than 5%. Winston Peters is party leader and rather likely first on their party list. If they get 5%, they get around 6 MPs. So if Peters is in the top six on their list, he's in if NZ First gets 5%.

iPredict says NZ First is likely to get 5% of the vote: trading's hovered on or just under 5% for the last month.

But iPredict says Winston Peters has a 22% chance of re-entering Parliament.

Potential explanations:

1. The Vote Share market is wrong: thin, flat payoff curve
2. The Peters to Re-Enter market is wrong (unlikely: thicker, binary contract)
3. Peters likely to step down in favour of Michael Laws or someone else, declining to pursue re-election

Full disclosure: I'm 144 shares long on Peters to re-enter Parliament, but bought entirely on price swings that seemed odd; I paid an average of $0.0653 for those contracts. I'm also 90 shares short on Vote.2011.NZF, but again I was just running against what seemed to be high prices at $0.0518.

Because of the chances of #3, above, I'm pretty wary of viewing the two markets as a potential arbitrage play. Anybody else have insights here?