Rishon Rishon

Election Odds

A very interesting column on election betting, by Donald Luskin (via John Ray):

Here’s the record. From 1884 to 1940 — the heyday of organized election betting — there were thirteen elections. In nine of them, the betting markets strongly favored one candidate by setting the odds at a 60 percent-or-greater probability a month before the election. The favorite won in nine out of ten elections. Also, there were three very close elections, and the betting odds correctly put all three near 50/50. For the remaining election, in 1908, regulatory issues kept the betting markets from functioning until just before Election Day — but the odds did call the winner correctly.

The old Wall Street betting market dried up after 1940 with the advent of stricter anti-gambling regulations and the arrival on the scene of the first public-opinion polls — the same kind we still use today. But thanks to the Internet, election betting is back, and it’s better than ever.

Right now the election betting market makes George W. Bush the favorite to win re-election, with a probability of about 62 percent. This is above the threshold at which — a month out from the election — betting markets have only been wrong once in 116 years.

Today the dominant election betting market is Tradesports.com, a website based in Dublin, Ireland, where you can bet on all manner of sporting, political, and current events. Presidential bets at Tradesports.com take the form of online futures contracts. After the election, the Bush futures will settle at a value of either 100 if he wins or zero if he loses. So the price today is always in-between zero and 100, and indicates the betting market’s estimate of Bush’s probability of winning.

The Bush futures at Tradesports.com trade several thousand contracts a day. They are deep and liquid markets, but small — trading represents a dollar value that is far less than that traded in typical futures markets. Yet similar political futures contracts, traded in even smaller size on the Iowa Electronic Market, a website operated by the business school of the University of Iowa, have correctly predicted every presidential popular-vote winner since 1988. (If you want to track the Bush futures, and a dozen other futures contracts on the election and current events, I’ve set up a feed on my website where they are all together in one convenient place.)

I'll be keeping a eye on Donald's feed.