The Militant Libertarian

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Sunday, October 31, 2004

Marketing the Election

By LINDA SEEBACH
Oct 31, 2004, 02:27

If the up-and-down swings in the presidential polls have left you dizzy, maybe you should look at the political betting shops instead. They're volatile, too, but they tend to be more accurate than most polls.

People answering pollsters' questions have no particular reason to be truthful, even if they do know their own minds, while people who have real money on the line have good reason to make thoughtful and informed decisions about what is likely to happen.

Since 1988, the Tippie College of Business at the University of Iowa has operated the Iowa Electronic Market, which among other issues tracks the presidential race. As of Friday, contracts for a Bush win were trading about 6 cents above contracts for a Kerry win. The spread was wider for a while in September, but has consistently favored Bush since the end of August.

There's a separate contract for share of the popular vote, and it is saying that the vote is likely to be agonizingly close. But we knew that.

The Iowa market is tiny, though, because traders are limited to an investment of $500 under federal rules on commodities trading. It's a research tool, not a gambling venue. So a lot of the betting action has moved to an Irish site, tradesports.com, which does trade sports but will allow people to bet on pretty much anything they want to, including politics.

Two researchers, Justin Wolfers of the Wharton School of Business at the University of Pennsylvania and Eric Zitzewitz of the Stanford University Graduate School of Business, asked tradesports to create contracts that allowed people to bet on a combination of events - for instance, that Bush would win and that Osama bin Laden would be captured before Oct. 31. The difference between the price of those contracts and the one for a Bush win alone shows that the market believed that bin Laden's capture would lift Bush's re-election chances to 91 percent. At the time, the standard Bush contracts were trading at $66.60.

As of Friday, bettors at tradesports were estimating Bush's chances of winning at 51 percent, and his share of the popular vote at 51.5 percent.

Betting on elections is nothing new, as Paul Rhode and Koleman Strumpf, of the economics department at the University of North Carolina-Chapel Hill, have written. In fact, before scientific polling became common, newspapers followed the odds as they covered the election.

To read the rest, click this link: http://www.capitolhillblue.com/artman/publish/article_5617.shtml.

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