HeadCount Blog

Can you Gamble on Elections? You Betchya

January 24, 2012 By Sam DArcangelo | Comments

What if I told you there was a way you could get rich off this upcoming election season. No, I’m not talking about selling “Anybody But Romney” T-Shirts at the Republican National Convention. I’m talking about gambling.  You can put your money where your mouth is by betting on candidates through a little known gambling system called a “political prediction market.”

So what is a political prediction market exactly? Well, its sort of a cross between a stock market and sports betting. People buy “shares” of a particular candidate and they either make or lose money depending on whether or not that candidate wins their election. The price of a candidates’ “share” is determined by the probability that they will win the election, and that probability is determined by the amount of “shares” people are buying. In an interesting twist, these probabilities are often more accurate than so-called scientific polls.

A Dublin-based prediction market known as InTrade accurately predicted the winner of all 50 states during the 2004 presidential election. InTrade also accurately predicted the winner of all Senate races in 2006, all but 2 of 50 states in the 2008 presidential election and all but 2 of the Senate races in 2010. Move over Gallup, there’s a new game in town.

So what are the odds on the Republican nomination right now? Well, as of 2 pm on Monday, January 23rd InTrade’s probabilities were as follows:

Mitt Romney – 66.7%
Newt Gingrich – 28.8%
Ron Paul – 3.3%
Rick Santorum – 1.1%

So if you put $6.67 down on Romney and he wins the  nomination, you’ll get $10 once he makes his acceptance speech. Make a 33 cent  bet on Ron Paul, and you could walk away with your own Alexander Hamilton if he pulls off the upset.

The system is sort of like the stock market in that it depends on there being another bettor willing to take the other side of that action, so the “odds” fluctuate almost by the minute. They also swing wildly with each primary. Days before voters went to the polls in South Carolina, Romney was over 90%, and Gingrich under 5%.

So who will actually take the White House in November? InTrade puts Obama at 55%. A competing site, BetFair, says Obama has a 60% chance at winning re-election. And the Iowa Electronic Markets, a non-profit marketplace set up for academic purposes by the University of Iowa, gives the Democrats a 59.4% chance of keeping the White House.

InTrade doesn’t limit its prediction markets to politics alone. In fact, it allows you to bet on just about anything, even the probability that NASA will announce the discovery of extraterrestrial life (17.7%, by the end of 2015, 5% by the end of this year) . If you happen to have any inside information on the search for E.T., now might be a good time to put your money down.

There’s also a 26.5% chance that the United States or Israel will bomb Iran by the end 2012, and a 57.3% chance that Meryl Streep will win the Oscar for Best Actress at this year’s Academy Awards. At least we can still sleep easy knowing that the odds of us going to war are lower than the odds of Ms. Streep winning another Oscar.

While betting on prediction markets might seem like relatively harmless fun, the U.S. government doesn’t quite agree. The for-profit political prediction markets are currently banned in the United States. That’s right – these things are illegal. But just like with online poker, bettors can circumvent American gambling laws with InTrade and other prediction markets that are based outside the country. And if gambling isn’t your thing, you can always check InTrade to get an idea of how well each candidate is doing this election season. After all, they are more accurate than most of the polls.

As interest in political prediction markets continues to rise, more people are calling for their legalization in the United States. On January 5, the Commodity Futures Trading Commission began a 90-day review of the rules surrounding these prediction markets, leading some to believe that they will soon be regulated in the United States. This is something you definitely want to keep on your radar as the presidential campaigns start to heat up. If things go well, you could win millions! And if that doesn’t work out, you can at least impress your friends by calling the winner long before election day.

 

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