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Legalizing Online Futures Betting
Did you have a strongly felt prediction about the 2012 elections that went against the conventional wisdom? Then you could have placed a bet at the Iowa Electronic Markets website (with real money); yet most people don't know the website exists. Indeed, it's only able to exist at all because of an exemption from U.S. laws that make other political betting websites illegal. The Irish-based online political betting site Intrade doesn't even accept American customers (you can't wire money to them from a U.S. based account), and their late CEO reportedly told John Stossel he was afraid of being arrested if he set foot in the U.S.
That's too bad, because I think that legalized Web-based betting on political outcomes could serve two valuable purposes in American politics: to provide forecasts of the relative merits of living under either of two candidates, and to force partisan blowhards to seriously consider whether they actually mean what they say. But in order to make this happen, in addition to the government lifting any legal restrictions on the ability of such sites to operate, I think a valuable additional feature would be the ability to place "if-bets", betting on particular events (the level of unemployment, for example) if a particular candidate were elected.
In September I happened to stop by the King County Republicans booth at the Puyallup Fair, and asked one volunteer, just for the sake of argument, what he thought was the best case against re-electing President Obama. (I'm a liberal, but I spend more time reading conservative blogs and opinion pieces than liberal ones, partly just to see what pieces I might agree with.) He said flatly that if President Obama were re-elected, unemployment could rise as high as 20 percent, and listed some other dire figures.
Well, I didn't consider that an "argument", but I asked him, "Would you be willing to bet on it?" -- not proposing that we actually wager, but asking him to think seriously about whether he would be willing to wager, if it were an option. In other words, if Obama is re-elected, and employment rises to 20 percent some time in the next four years (or perhaps if average employment over 4 years is above some designated threshold), then I pay my new Republican friend $100. If Obama is re-elected and no such thing happens, then the Republican pays me $100. If Obama is not re-elected, then the whole wager is void. After I spelled this out, the volunteer got a thoughtful look -- as if he were thinking, for perhaps the first time, whether he really believed what he had been saying. (Of course I've probably made similarly ill-thought-out predictions about politicians that I disliked, where the offer of a wager would have made me stop and think harder about what I actually believed.)
It would be easy for Intrade and similar companies to support these kinds of conditional "if-bets". Then their website could list data on, for example, what the bettors currently think are the odds of unemployment reaching 20% (or 15%, or 25%) if Obama were re-elected, or if Romney were elected. Ideally there would be a different betting market for each percentage point -- and you could aggregate all the market odds for those percentages into one simple graph, with a bell curve showing what the market thinks are the odds of employment hitting 10%, 11%, 12%, etc. under either Obama or Romney.
The first benefit of such a system would be obvious: to the extent that betting markets are an accurate predictor of political outcomes, this would be an easy way to see what conventional wisdom projected for unemployment, inflation, infant morality rates, or any other statistic that Intrade accepted bets on, if either candidate were elected. As long as either candidate had a realistic chance of winning, the people wagering on the "if-bets" would have to take them seriously. (If one candidate had virtually no chance of winning, then the "if-bets" conditional on that candidate's victory might not show anything useful, since everyone expects the bets will be declared void. So it wouldn't work for evaluating the merits of a long-shot candidate like Jill Stein - who might have some good ideas, but the "if-bet" betting markets wouldn't be able to tell us that.)
The second benefit would be that whenever anyone claimed projections that departed radically from the market odds, you could simply ask them, "Why not go to Intrade and bet on it?" If a person really believed that their dire predictions were more likely than the market seemed to think, then they could wager accordingly. Even if they don't think their prediction is likely to come true, as long as they think an event is more likely than the market seems to think, they should still believe that they could make money in the long run by betting accordingly. (For example, if you think there's only a 1-in-3 chance that Romney will win, but the market says 1-in-5, you should bet that Romney will win, at the 4-to-1 odds offered by the market. If you bet on lots of separate events where you think the probability of event occurring is 1/3 but the market says 1/5, then if you're right and the probabilities really are about 1/3, you'll lose 2 out of 3 times, but every 3rd time you'll make back 5 times the amount of your wager, and come out ahead. Assuming that you really are smarter than the market, of course.)
There could be rules and safeguards to prevent abuses of the system (rules that could be imposed by U.S. law, even if they're not enforced by overseas betting markets), such as not allowing individuals to bet more than $500. (This is already enforced by the Iowa Electronic Markets.) That's small enough to stop individual bettors from trying to manipulate the market through enormous wagers (although they might find ways to do that anyway). It's also small enough that it wouldn't be worth it for any one individual to try and influence a political outcome just to win a bet. You could try to enlist your friends to help you place a collective $10,000 bet on a single outcome, but the more people you rope into your coalition, the greater the chances of someone (a) turning you in for violating the betting laws, or (b) taking the $500 you lent them, and then refusing to pay it back if they win their portion of the wager.
At the same time, the $500 limit is large enough that anyone who makes a bold claim about the future, could not plausibly claim that it's not worth their time to go over to Intrade and make a wager. (Well, billionaires could claim it's not worth their time. We could have a higher limit for higher-income individuals, but the problem is that for someone like Donald Trump, any betting limit large enough to get him to take the wager seriously, would also be large enough to allow him to manipulate the market. So we might just have to get by on ignoring Trump the old-fashioned way.)
However, even if Intrade implemented "if-bets", and even if futures betting were made unambiguously legal under U.S. law, we'd have to overcome a certain amount of cultural taboo against betting on politics, especially for members of certain professions. When Joe Scarborough called Nate Silver a "joke" for saying that Obama had a 75% chance of winning, Nate Silver gave exactly the right response: "Wanna bet?" (for charity). However, the New York Times Public Editor (an office that I've dealt with in the past) rebuked Nate Silver for offering the wager, although in a 600-word essay, the Public Editor wrote only one sentence saying why she thought it was a bad idea: because it "[gives] ammunition to the critics who want to paint Mr. Silver as a partisan who is trying to sway the outcome". This doesn't make much sense, since Nate Silver had already staked his reputation on the outcome, which was worth astronomically more to him than the $1,000 (so to the extent that he had any conflict of interest, it would have already been in place anyway). Still, for anyone in a profession that placed a high value on "perceived objectivity", they might be able to use that as an excuse for not placing a wager.
Even for the rest of us not in danger of finger-wagging from the Times Public Editor, I think there would be one big obstacle to using the markets to tell blowhards to "place your bets or shut up": people would come up with dumbass excuses not to do it. I can't even anticipate the kinds of excuses that people might make, because I think I just think too rationally (at least by my own definition), so I tend to anticipate semi-logical objections like, "I think Romney will win, so I don't want to support a system that says he will lose." To that I would say: If you think the market odds are wrong, you should place the bet anyway, and if you win, you'll be taking money from the people who bet that Romney would lose, not "supporting" them. And in fact by placing the bet, you will slightly increase the market-reported odds of Romney winning. So you'll be taking money from the people who bet against your guy, and shifting the reported odds in favor of a Romney victory, which ought to be a win-win. Even better, if you're sure he'll win, you'll have winnings afterward that you can donate to the Republican Party.
So while I don't think that's a valid objection, it at least has the form of a logical argument, which is what makes it possible to answer it. The excuses that I think people would actually give, would be along the lines of, "I don't do that." Well, if you want to support your candidate and you're confident in your predictions, why not? Or, "I think it's wrong to bet against the future of our country." Hey, if you place a bet that unemployment will go up under Obama, then that will be reported in the aggregate forecasts of what the market thinks will happen under the two candidates -- which will actually slightly increase the chance of a Romney win (which is presumably what you want), right? Besides, you realize that if you have life insurance on your spouse, you're "betting" every month that they will die? How much more ethical is that?
But for everyone else who wouldn't come up with excuses not to bet on the outcomes, I wonder, in what might be hopeful naivete, if the available of online political "if-betting" might bring our partisan extremes closer together. When my Republican counterpart and I were discussing the future of the nation under Obama or Romney, if we were forced to confront the possibility of betting on the result (not betting on who would win, but betting on what would happen if a particular candidate won), I think several things would have gone through my mind. First, I might realize that despite any stridently partisan statements I had made, I didn't really know with much confidence what would happen. Second, the humility of realizing that I would want to check the online prediction markets, because I think the rest of the world collectively has more wisdom on the matter than I do. And third, if the online prediction markets showed projected similar outcomes (for unemployment, for example) no matter who is elected, then we could calmly accept the fact that neither candidate is going to be able to perform miracles, but neither candidate is going to destroy the country either, so we can accept the fact that the country will probably do OK no matter who wins, and go have a beer.
Assuming, of course, the other guy felt the same way. I can get along fine with people who don't agree with me, but I don't think I'd get along with someone who didn't even want to seriously consider whether he really believed the things he was saying. However, if the various competing futures markets would implement "if-bets", and if the U.S. government would just give the OK to online futures betting generally, I'd be perfectly happy to take the guy's money.
I bet that'll never work.
http://www.intrade.com
I am not an economist, but I know there is a fundamental difference between futures markets and gambling. A futures market is for entities that want to buy a commodity anyway, and need a way to manage the risks of price fluctuations. Yes, one can speculate in the futures market, but that's not the reason a futures market exists.
In contrast, I don't see a political "futures market" providing any more economic benefit than betting on sports teams or horse races. I don't think it will make political pundits any more accountable than sports betting makes sports commentators accountable.
The idea that "markets" have a magical ability to predict outcomes is nonsense. If the market really could reliably predict the future, there would be no reason to bet against its "wisdom," and therefore no payoff for betting along with it, either.
[Sir Garlon] is the marvellest knight that is now living, for he destroyeth many good knights, for he goeth invisible.
Always write your comment before reading the article. That way your mind will remain uncluttered.
Betting isn't like voting. It's not even close. I have had a couple friends who found themselves out of college with income and instead of spending it on a house, they engaged in serious sports betting. Very serious sports betting. And I spoke at length with one of them about it because it intrigued me. He seemed like an intelligent guy and he made modest money off this thing that required he used a lot of money and crunched a lot of numbers. The most important thing is that he never let his personal desires get in the way of his bets. He would often work his favorite teams out of his bets just to ensure that he wasn't subconsciously putting undue confidence on, say, the University of Texas (his alma mater).
Likewise these markets are not going to reflect the way people vote or feel but they are instead going to reflect their calculated confidence of a political win or a trend. To turn betting on for political topics will tell you absolutely nothing about reality. Instead it's going to tell you what people with $500 to flush down the toilet think the rest of their country thinks. I grew up under the poverty line (you know, the 47%) and I will tell you right now that this system you propose would only reflect what rich people who are loose with their funds think that other people are thinking. It will not give you future insight -- especially if you're talking about an election.
Five hundred dollars is still a lot of money to the majority of this country -- no matter how little it matters to Bennett Haselton. This futures market would merely be a world of insanely rich people doing stupid things with money (so, a lot like Wall Street). As for quieting the blowhards, what's $500 to Glenn Beck? Probably nothing at all. And even if you did allow them to put their life savings on the line behind what they are selling to the public, they're not stupid. They don't need an excuse to not have to do that. I'm not dumping my life savings into Oracle stock just because I write Java for my employer! Do you discredit my logic on Slashdot when I claim some large company is doing something very stupid but I don't turn around and short their stock with all my liquid assets behind it?
My work here is dung.
I've put some thought into predictions market, and getting around money handling and laws are only the first stages of problems you encounter. I think the big one is who makes the call? You'd have to have the reporting agency explicitly stated earlier and basically assert that their judgement is uncontestable. For elected offices that's not so hard, few people will say that, say, the president was incorrectly elected and they question the call made by everybody reporting on it. But just 2 months ago, large organizations were questioning the validity of the unemployment numbers produced by the department of labor. I guess the hard part is finding a reality all parties can agree too. The fact that I just wrote that makes me sad.
Science is better than faith not because it replaces a fickle, unreliable deity with a comprehensible penicillin, but be
but also provide a tool for quieting partisan blowhards who think the opposing party's candidate is going to drag the country to hell
Baaaahahahahahahahahhahahahaha
You must be new here. Seriously. That's never going to stop, in fact it's only going to get worse. The problem is that there is a market force (to stick with the theme) at work specifically driving these blowhards; the TV/radio talk show circuit. The louder and more partisan they are, the more the ratings go up. No web site prediction/gambling market will change that one bit, only the viewers will (if they manage to turn it off). If there was a bet/product on that site about the likelihood of partisan blowhards losing viewership any time soon, I would place a HUGE position against it.
FTFS:"Let the blowhards bet!"
Apparently, Slashdot already lets the blowhards appear on the front page.
Get your own blog Bennett, or just submit the link FFS.
Set your phasers on "funky"!
There's been an ongoing doctoral study in (at?) the University of Miami for about a decade now, it's a futures market where you can buy and sell futures of whether or not the hurricane will hit a particular region. I think it's still going on, but the idea was to see if the free market could accurately predict weather phenomenon among other things.
moox. for a new generation.
The wording of the bet states the criterion for deciding the result. You'd be betting on what the department of labor says, not "reality".
http://www.betfair.com
Political futures options, collateralized political obligations, political swaps / swap options. We need to give these Harvard MBAs *less* things to sell, not more, for Christ! These dumb products allow banks to pull the money truck up to the discount window and spend it creating "assets" that blow us all up later instead of investing in something that's real!
Let's also not forget to mention that creating these markets affects the underlying, in this case, the elections themselves. Consider as an example how the OTC markets for derivatives on Eurozone debt so obviously blew out the bond yields, creating hardship for millions -- or perhaps how securitizing wheat starved Somalians to death!
Stop thinking up crap to gamble on and do something productive that adds to the economy, or just go away!
So the pool of traders is much smaller than it could be, which may increase the number of serious players, and reduce the "sports fan" style better who just wants to put money on his favorite candidate. So I think this helps the accuracy of the prediction market. But the imposed barriers to entry also limits the ability for individuals to trade on a single real time event-- a political blunder, an insider tip, etc.
"You see, Your Honor, I only bet this politician that he won't reduce the taxes on my company. I lost."
this exists for horse trading - oddsfutures.com
The fact that a candidate may be doing well in a speculative futures market is no guarantee that he won't drag the country to hell when he wins. America has been heading towards disaster for 30 years under 5 different victorious presidents, and not one of them has done anything to stem the tide of corruption. No matter who won, the country was going to continue its descent into authoritarian plutocracy, and yes I'd bet on that.
Give me Classic Slashdot or give me death!
The Commodity Futures Trading Commission regulates all futures trading in the US, and does so quite aggressively. However, they can't sink their claws into Bitcoin: Try http://betsofbitco.in/ for a US-friendly idea futures site.
If Kang wins the presidency instead of Kodos, that will tend be symptomatic of really bad voting by a tragically uninformed citizenry, and probably correlate with a bunch of other races too. If people are stupid enough to vote for Kang (holy crap, we're not really that stupid, are we?!) then they're probably also voting Kang's party into power in the House and Senate too. So Kang, an evil moron of a president, is probably going to have a Congress of evil morons putting bills on his desk, which he'll sign and thereby destroy the country.
Kang will be a bad president. That's a fact. Sure, I'll gamble on that (him being a bad president), because it's no gamble at all. But I've got an out: it's only probable (and no, I can't estimate it) that all the other races, whose outcome are going to either enable Kang's evil or not, will go that way.
If Kang is elected and the really horrible shit doesn't happen, it's because plenty of people from Kodos' party got into the House to block him. So while Kang has bad policies, but I have my excuse for why inflation didn't hit 15%. That doesn't mean the Kang/Kodos issue doesn't matter and that the stakes weren't just as high as a 15% inflation rate risk, though. So my incorrectly-labeled "alarmist hyperbole" was actually reasonable argument. I may have lost the presidency debate but obviously I won the bigger picture by winning some races for Kodos' party. Or maybe even Kang and his own people decided to be less evil and moronic, thanks to my words of warning that inflation is about to go up to 15%.
I was right, even though the facts suggest I was wrong, and I would have technically lost my bet. ;-) Indeed, this is likely to happen, so I won't place the bet to begin with.
As copyright owner of this comment, I authorize everyone to defeat any technological measure which limits access to it.
Thankfully, after the mortgage security collapse, the next target was going to be health and life insurance (think of me shorting your grandpa). But Obamacare drove a coffin nail into that plan. So give them something to trade that was already being bought and sold under the table anyway. At least now we'll be able to see the movements of the big players on the stock ticker.
Have gnu, will travel.
A "future" in commodity trading is a legal contract between two parties that says "I am obligated to buy X amount of {commodity} at price Y on date Z." Many people speculate with futures, but they are most often used by suppliers and manufacturers to establish some financial stability from price fluctuations in a volatile commodity market.
Unless you're looking to buy a politician as a personal slave at some point in the future and want to protect yourself from price fluctuations, you are completely off-base and need to do a little more reading before you make yourself look like an even bigger idiot.
instead of spending it on a house, they engaged in serious sports betting
Take it from somebody who got crushed by the subprime mortgage crisis: a house is NOT an investment. Yes, I was young and stupid. No, I was NOT greedy -- I was naive. It was our first home (and will be our last), and the prices just kept going up and up. We thought (like many did) that if we didn't buy our home soon, we would never be able to afford one. They told us that you can't lose money on a home. They told us that it was the honest man's way of securing his future. So we put our entire life savings into it. We weren't flipping houses or trying to make a quick profit. We were honestly trying to prepare for our future, and paid dearly for trusting the conventional wisdom.
Today, our home is worth 1/3 of what we paid for it, and only half of what we still owe. That's right: 7 years later, we still owe twice as much as the house is actually worth. You might think that it takes an extrordinarily naive person to get themselves into a situation like that. But it doesn't. All it takes is a willingness to trust popular opinion. I learned the hard way to NEVER trust popular opinion, especially when it comes to money.
We kept our part of the deal. We haven't missed a mortgage payment. We are honest people. We still live in the house. But it has basically ruined our financial future. It is a ball and chain that we won't be freed from until we are too old to value that freedom. So please, DO NOT EVER suggest or even imply to a young person that a home is a proper investment. It is not. Take it from somebody who was raised to be suspicious of borrowing money for anything but a home -- the home is every bit as dangerous and speculative as betting on stocks, horses, or football.
Seriously, why was that term not even used once in this article?
BTW, this works for winning, too. Kodos is the 0% inflation candidate, over pro-inflation Kang. But if Kodos is elected and inflation doesn't fall, it's because of those Kangist obstructionists in the House. That doesn't mean I was wrong in my assertion that he was the anti-inflation presidential candidate; just that it's something I couldn't reliably bet on, due to concerns over external forces and events.
I can blame externalities for any failed prediction, and blame my lack of betting on fears of those potential externalities. If we were talking about a huge series of small bets, where over the long haul, my tendencies toward political enlightenment would be proven to my profit, sure. But you're talking about a bet on a presidential race. I'm a mere mortal gambler, not a casino; I can't take a long view or exploit a statistical edge using volume. A single $500 bet every four years (approximately dozen bets over the course of a typical adult life) is far too small a sample to demostrate anything. By the time my amazingly awesome perfect political views are confirmed, I have been dead for centuries.
As copyright owner of this comment, I authorize everyone to defeat any technological measure which limits access to it.
why can't we have sports betting or even some thing like pro line that is run by the lotto?
"but also provide a tool for quieting partisan blowhards who think the opposing party's candidate is going to drag the country to hell"
My bet: I'll go three to two that the writer of this submission is a partisan blowhard who thought the opposing party's candidate was going to drag the country to hell.
Even more than usual. I'm not sure I *want* a lively betting pool on whether or not electing Romney will bring on the zombie apocalypse.
On top of that, 47% or so of people won't have the money to partake. Maybe Joss Whedon can afford to take a bet like that, but I sure can't. I like the general idea of using money to provoke people into really thinking about things, but on the other hand, I know that $100 to some people is something thrown away on a whim, whereas for other people that might be a week's grocery bill. This will inevitably skew the results.
If you really want to see what will happen, give everyone $1 to bet "for free", and then let them trade. Good luck trying to implement that reliably, but if you could, I think it would go a lot further towards the ideal that you are describing, rather than the skewed farce that would result from people having very different resources to toss into the ring for the sake of the argument.
But that is the fundamental flaw : betting markets are not an accurate predictor of any kind of outcome. The prices in a betting market are set and moved by the bookmaker according to the bets placed; the odds move according to what the bookie stands to win or lose based on the current bets. Sure, the bookie makes an educated guess when setting the intial price, but after that, the price is entirely driven by bets received.
Imagine that there were such betting at the last election. If Rove dropped hundreds of millions to back Romney, what do you think that would do the betting price? The odds would be "predicting" a Romney landslide, but it would be no more a predictor of reality than all those blowhard pundits.
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My next sig will be ready soon, but subscribers can beat the rush
You shouldn't let people bet on things that are strongly affected by murdering one person such as election results or who wins american idol. Or if you allow this then the max bet needs to be well under the cost for a cheap hit.
Ask the Christians.
God damn, let the state lotto start doing horse and sports betting, if you don't want the private sector to be in it. It works well in most Asian countries.
New Economic Perspectives
The more sure you are about something the more you are willing to bet.
One of the reasons markets are more accurate than pundits is that some of them have inside information of sorts.
The reason intrade is useful for predictions is that the people who bet there do very careful research. For example when betting on American Idol vote-offs they look carefully at the data at dialidol.com. The people who don't look carefully quickly learn not to bet on intrade as they lose too much money. They also used to be able to look at download quantites on itunes for the previous week's singers songs. There is data out there that is tricky to find and the people who find it sometimes jump on intrade and make a bet. Instead of trusting someone to integrate all the data, it's easier to let the people betting at intrade do it for you. Also some of those people are friends and they chat about the data and how they interpreted it and argue about what it all means. The smarter people make the most money and keep at it, and they are the ones with their bigger bets that set the market price accurately.
There were hundreds of poll results but making heads or tails of it and including the electoral college of each state and figuring out which polls are biased and so on is a lot of work. Easier to just check intrade - let the experts (not pundits) make the bets.
If democrats tried to fool intrade by betting on Obama, then why did Obama's price go down so much after the first debate?
Maybe manipulating intrade isn't that easy in a big market like presidential win?
Guys at ICBIT run it already for a year or so. It's not gambling though, it's a more serious futures trading stuff.
I fail to see how investing in a SuperPac is any different from betting. They place their bet of millions and if they win, they get a foil who will get them billions