December 8, 2011 | Money Talks News
Forget fantasy football—try fantasy politics. Not only do people gamble on who will win the elections, they're more accurate than the pollsters.
Election outcomes are a popular betting arena, and one where it sounds easy to lose a lot of money, with so many candidates in the presidential race. But oddly enough, according to the University of Iowa, gamblers as a group are better than pollsters at predicting winners.
Follow this link to watch a video in which, Money Talks News founder Stacy Johnson talks with the director of the Iowa Electronic Markets, which was started in 1998 for research and education but trades real money. Check it out, and then read on for more about how it and other popular trading sites work.
As Joyce Berg mentioned in the video, the markets beat the polls 75 percent of the time. On another popular site, Intrade, the majority of gamblers correctly guessed the winner of every state in the 2004 presidential election, and only missed two in 2008. How come?
There are whole books about this subject, like The Wisdom of Crowds. But here are three simple reasons it make sense…
On Intrade, contracts are put out on yes-or-no propositions like “Barack Obama will win re-election in 2012.” Shares are priced somewhere between $0 and $10 depending on what the market believes is the likely outcome at the moment—prices will react to new events and information just like the stock market does.
When the outcome is determined, the market settles at $0 (if it didn’t happen) or $10 (if it did) and the money is paid out. You have to keep enough money in your account to cover potential losses. So if you buy 10 shares at $5 a share, you’re betting $50 on what at the time seems to have even odds. If you win, you’ll make a $50 profit.You can also profit (or cut losses) by selling shares before an outcome is determined as the share price and the odds shift. The minimum amount to start an account is $25. For the risk-averse, there’s a “play money” version of Intrade too.
On Iowa Electronic Markets, the account minimum is $5 and is capped at $500. Shares are priced between $0 and $1.
The Iowa Electronic Markets are. They got a “no-action letter” (PDF) back in 1993 from the Commodity Futures Trading Commission, which essentially means that agency won’t take action against this market as long as it’s maintained for academic purposes and the operators of the exchange don’t make a profit.
Sites like Intrade are more problematic. Intrade is based in Ireland, where this form of gambling is legal. According to the Justice Department, however, the Federal Wire Act prohibits U.S. citizens from gambling on the Internet. To read more about this potentially sticky wicket, check out this article from Slate.com. But if you’d rather be safe than sorry and really feel the need to bet real money, stick to the Iowa markets.
But whether you gamble or not, if you’re interested in the outcome of elections – and who isn’t–it’s good to know there’s a potentially more reliable indicator than the lmtest poll you saw on the evening news.