Political Prediction Markets
Our discussions of prediction markets reminded me of something a political science professor spoke about in his class: the world of betting on political outcomes in online prediction markets. For the most part this is considered gambling and is banned in the United States, although this can be bypassed via a VPN and the Bloomberg article “PredictIt Owns the Market for 2020 Presidential Election Betting” states that the prediction market site PredictIt is gets around this restriction by being exempt for academic research. In essence, PredictIt and sites like it are largescale prediction markets taking bids from people around the globe. According to the article, PredictIt operates in a manner similar to a stock market: “Gamblers post offers to buy and sell “shares” in candidates at prices up to $1. If you wanted to bet that Massachusetts Senator Elizabeth Warren would be the Democrats’ 2020 nominee after her second debate on July 30, you could have bought a share the next day for 21¢. If she wins, you’ll get $1. If she loses, her stock goes to $0, and you lose your money.” This is a little unconventional as a market, but I still think that observations about prediction markets can still apply to this method of hosting one. On these kinds of markets, a large number of people will often “follow the crowd”, buying and selling based on an increase or decrease in price (both signs that people are more or less convinced that a candidate is going to win). The added dimension of a stock market-esque trading of bids means that people can exploit this system and make money off of people scrambling to follow the current trend or poll result. An enlightening quote from one trader interviewed in the article demonstrates the attitude towards probability and crowd mentality that can help someone in these kinds of markets: “When prices start moving, people will assume other people know something they don’t,” he says. “You have to figure out what you think the real probability is.”