So, online betting is illegal in the United States. But if you visit www.intrade.com, an online gambling site based in Ireland, you can see who the rest of the world (and Americans taking their chances) are betting on in Tuesday's political horse race. And some of them stand to make some serious money. Intrade and other online futures markets allow users to buy and sell contracts that are linked to future political outcomes. If the outcome you buy into becomes reality, it's payday for you. If not, you lose the money you put down.
What makes these markets so interesting is that they seem to be an even better indication than polls of how events will occur. The idea is that when people have an economic incentive to be right, they are better able to put their own views and bias aside when predicting the outcome of an event. Today, as I write this, based on the shares changing hands at Intrade, betters put the likelihood of a 2009 recession at 86%, the likelihood of an Obama victory at 84.5%., and the likelihood of the Democratic nominee getting 370 or more electoral vote at 37%. There's also trading on the electoral outcome of each state. By the time I finish writing this, those numbers will have changed--which is another neat thing about the markets, the results are instantaneous, constantly changing.
Monday, Jusin Wolfers a professor at The Wharton School of Business and Public Policy at Penn and somtimes blogger for Freakonomics at the New York Times will be joining us. He'll be talking about how predictions markets reflect and maybe even influence political outcomes in this year's election. In the meantime, if you want to hedge your own bets, but don't want to break the law, sites like Intrade do allow play betting with fake money---you can buy some "Blue" North Carolina for $6.50 a share. If North Carolina votes Obama, those shares pay off at $10 each--fake dollars, of course.