I recently discovered political markets. Predictit.com is a website that allows users to buy and sell shares in a given political event — occurring or not occurring — with the expectation of a payout. On PredictIt, if an event occurs, like Hillary Clinton winning in New York, “shareholders” get paid $1 per share. At the same time, there are the exact opposite shares — that the given event won’t occur. These function as probabilities of the payouts (and events) occurring. It’s like a stock market for politics.
In the meantime, shares trade between one cent and 99 cents, frequently oscillating in value. Users can sell out early to ensure a gain or wait for a payoff. PredictIt was at first just a project by Victoria University in New Zealand. Now it makes money by taking 10 percent off of any profit. Since there’s always both winners and losers, the system funds itself.
Users make actual investments with actual money. It is the prototypical “money where your mouth is" scenario. Thus, PredictIt and other political markets offer a unique alternative to polling. It is an insight into how “smart money” views the political landscape.
For instance, PredictIt users are still not quite sold on Donald Trump winning the Republican nomination — Trump has traded between 50 percent and 70 percent for three months. The market clearly sees a problem for Trump in the delegate math, a problem I outlined a few weeks ago. His odds have improved though after a dominant win in New York.
As of writing, shares of a brokered GOP convention, where Trump does not have enough delegates to clinch the nomination, are trading at exactly 50 cents. Because of this, the market sees a six percent chance of House Speaker Paul Ryan getting the nomination, even though he has publicly announced he would not accept it. Maybe the markets know something we (or Ryan) don’t.
It’s also fun to see fluctuations in the market. In February, shares for Marco Rubio winning the nomination went from 50 cents to 20 cents in a week. Rubio had just fluffed the debate in New Hampshire and then finished fifth in the state. I would’ve piled money into the Rubio campaign, so it is probably a good thing I only recently looked into PredictIt. Regardless, PredictIt allows us to see just how quickly and decisively consensus can shift.
But PredictIt is not just about American politics. Traders had long soured on Brazilian President Dilma Rousseff’s odds of staying in office through 2016 before legislators announced plans to impeach her. PredictIt can’t exactly replace polling or research, but it’s a pretty cool (and fun) look into public perceptions of where elections are headed around the world.
In case you are wondering, PredictIt sees the Republicans lead by Trump and John Kasich up against Clinton and Julian Castro, former mayor of San Antonio and current Secretary of Housing and Urban Development. Traders have Clinton at about 70 percent to win the White House. Seems like a pretty smart buy to me.
The Arena: Bulls and Bears
