Place your bets: Why all political junkies should follow prediction markets

Kyle Hauptman

Let’s talk about the other kind of “money in politics.” Here are three reasons why even non-gamblers should follow political betting markets – and then I’ll touch on the various ways this wagering occurs.

They provide a fascinating snapshot of the political “marketplace”: Just as sports fans who don’t gamble are still interested in what “Vegas thinks,” many of us who follow politics get useful information from prediction markets.
- For example, when you hear that “Hillary is the favorite to win the Democratic nomination,” this actually a verifiable fact. Hillary is, in fact, the heavy favorite. In betting parlance, she is “odds-on” to win.
- Another nugget: Jeb Bush’s Dec. 16^th announcement that he was going to “actively explore” a presidential run. How much did that statement really change things? After all, he didn’t say that he was officially running, and there had already been months of talk about a possible Jeb candidacy. Well, here’s an interesting data point: With that announcement, Jeb Bush’s odds to win the GOP nomination improved from 5-to-1 to 7-to-2 on Betfair, a large UK betting exchange (this link illustrates the change in Jeb’s odds over time, across various exchanges.)
- Some fun facts from current betting markets (via the aggregator Predictwise):

Likelihood of winning the 2016 presidency:
- Hillary Clinton 45.9%
- Jeb Bush 13.9%
- Marco Rubio 6.7%
- Mitt Romney 5.6%
- Rand Paul 5.6%

Likelihood of GOP nomination:
- Jeb Bush 24.9%
- Marco Rubio 13.3%
- Mitt Romney 11.7%
- Scott Walker 11.3%
- Rand Paul 10.0%

Likelihood of Democratic nomination:
- Hillary Clinton 75.1%
- Elizabeth Warren 8.5%
- Joe Biden 3.4%

Markets are the only real-time feedback we have: Remember that first Obama-Romney debate? Early on in that skirmish there was an emerging consensus that Romney was doing well. But how much was it actually improving his chances of winning the election? It took days for polling to fully reflect the debate’s impact. But markets are open 24/7, and those of us watching saw Obama’s re-election odds dropping. Check out the graph below of the first 45 minutes of the debate (lifted from the since-closed futures site Intrade): Obama’s re-election odds fell from 71% to 67%. Nowhere else could you find quantifiable, real-time feedback. FYI, a graph of the entire 2012 election cycle is here.

Accuracy, via “the wisdom of the crowd”: Prediction markets are often the most accurate predictors of election results, outperforming both polls & pundits. In 2012 Intrade “predicted” the electoral outcome in 49 of 50 states. In 2008, Intrade was within 1 electoral vote (Nebraska’s rogue Congressional district) of the exact outcome. There’s plenty more data out there, but I’ll mention one more interesting case: last year’s Scottish independence vote. Markets were way ahead of the polling. As the NYT’s Upshot blog put it, the vote was “A Loss for Pollsters and a Win for Betting Markets.”

So, you ask, how do I bet? Below are the main avenues. Each has their own quirks, and I opened accounts with IEM and PredictIt in order to become more knowledgeable about them (and clearly not because I enjoy this sort of thing.)

PredictIt: Called the “online political stock market,” PredictIt.com is a non-profit real money prediction site. Launched in October 2014, they purposely avoided the legal issues that plagued Intrade. Cleared by US regulators, PredictIt is legal for US residents. Trading volume appears pretty light so far, with some odd-looking wagers. If their markets get sufficient liquidity, PredictIt could be the new Intrade. They’ve certainly got some intriguing markets available, such as on the outcome of this year’s Supreme Court’s gay-marriage case.

Iowa Electronic Market (IEM): Operated by the University of Iowa for educational purposes since 1988, IEM is a precursor to PredictIt. Maximum account size is $500, and one popular bet is predicting the % of the presidential vote each party gets.
Offshore betting sites: These are betting sites operating legally abroad yet closed to US residents (although one exception seems to be Bovada). Some of the better-known are Betfair, Paddy Power (which famously paid out Obama bettors two days before the 2012 election) and the Rupert Murdoch-owned SkyBet, which, like many of these sites, is a major soccer sponsor. Most of the wagers are in the form of traditional sports bets, as in “5-to-1 on Hillary.”