Financial journalists love Wall Street proverbs and sayings. I use it whenever I can.
The phrase “don’t fight the Fed” has been useful this year. The phrase “the stock market is climbing the wall of anxiety” is useful when investors are feeling anxious.
And here’s one I’ve never been able to fit into an article — not yet, anyway: “It’s an old City axiom that Wall Street betting odds are ‘never wrong.’”
But nearly a century ago, on September 28, 1924, one of my anonymous predecessors at The New York Times used it (bylines were uncommon at the time). This sacred saying could be reused today, except for a huge problem. He points to election betting on Wall Street, which was popular at the time — and widely covered in the Times and other major newspapers, as an important source of information about national and local political contests.
Today, with the exception of indirect and detailed financial hedging regarding the political consequences of election results, explicit betting on elections is no longer an essential part of American finances.
But legal battles are underway to change that. Meanwhile, three prediction markets — PredictIt, Kalshi, and Iowa Electronic Markets — continue to operate and generate compelling insights. With them, it is possible to bet on who will win the 2024 presidential election and on a host of other related matters.
Markets vs. polls
I’ve used prediction markets for years, especially during election season, just as my predecessors would have used election betting markets on Wall Street — not to bet but to gain information.
I do not rely on these markets, nor do I buy into the idea that they are superior to other means of obtaining information, or that they have the ability to reliably predict the future or change the world.
However, it is luminous. Some studies have found that prediction markets compare favorably with opinion polls, especially when you are weeks or months away from a vote. When an issue or election is important, one can never have enough data.
Right now, for example.
The latest New York Times poll conducted in collaboration with Siena College shows that for the 2024 election, President Biden is trailing former President Donald J. Trump in five of the six swing states. However, both PredictIt and the Iowa market indicate that most people betting on those sites believe Mr. Biden will win in the end.
John Aristotle Phillips, who runs the PredictIt market on behalf of Victoria University of Wellington, a New Zealand institution, said in an interview that there were often significant discrepancies between the results of opinion polls and prediction markets. He said this is completely normal. “Polls and prediction markets ask different questions.”
The poll asks who you now prefer as a candidate. But a working market that requires real money to trade asks something else, he said, “not who you are Wants To win but who are you He thinks “He will win.”
As a sports fan, I understand the difference. If you ask me which baseball team I’m on? required To win, I would always Choose Mets. But over many decades, these things have often disappointed me. So, if I had to save money, I would never Bet on them.
What do I really think? It depends on the question you ask.
Kalshi, PredictIt, and the Iowa Marketplace all operate legally but operate within certain restrictions.
One general problem is that “no state allows betting on political events, and if it is allowed, it will be on a state-by-state basis,” said Kate DeBaun, vice president of the American Gaming Association, which represents the gambling industry. . You can’t avoid the temptations to bet on sports if you’re watching a game on TV in most major markets, but you won’t see ads for betting on politics. They are not allowed.
But both Predict It and the Iowa Market make overt political bets under academic exemptions granted by the Commodity Futures Trading Commission.
The Iowa market, which began in 1988, is the most purely academic of the three. It is entirely dedicated to research and teaching, but is open to anyone who wants to bet.
PredictIt also operates under an academic exemption, but has had to fight to keep it. The CFTC withdrew its permission in August 2022 and ordered the site shut down, saying it deviated from its academic mission. But PredictIt has won an injunction allowing it to continue operating, and is suing the CFTC, seeking permanent authority to manage its market.
It has 19 ongoing contracts now, but Mr Phillips said he expected to be offering “hundreds” soon. “We’re not going anywhere,” he said. “We will keep working.”
Calcci, the largest of the three sites, is currently the most restrictive in betting on politics. As a derivatives market, it can accept trades worth tens of millions of dollars.
It already runs predictive markets on inflation, unemployment, oil prices, Federal Reserve policy, government shutdowns, the temperature in Austin, who will win an Oscar, and President Biden’s approval rating. Agreed forecasts are often correct and very useful.
But what Kalci could not do was manage the market to predict which political party would control Congress. The Commodity Futures Trading Commission rejected it, saying that would violate the ban on election contracts under the 2010 Dodd-Frank Act. So Calci filed a lawsuit against the CFTC this month.
In an interview, Tarek Mansour, founder of Kalshi, said he would eventually like to start markets in presidential elections and in a host of other contests. “Betting on elections is as old as the United States,” he said, adding that if such betting does not happen in a market as cautious as his, it will happen elsewhere anyway.
He noted that sophisticated and well-funded investors are already capable of this Hedging against election outcome risks through customized derivative contracts regulated by investment banks. “Why are these deals limited to the rich?” Asked. “We want to make this type of hedging available to the average investor.”
I said I would call these bets “trades.”
He said: I don’t disagree.
Betting on the US elections is done abroad. In Britain Betfair operates a strong market. The unregulated offshore betting is being conducted on Polymarket, which uses the cryptocurrency and was fined $1.4 million by the Commodity Futures Trading Commission (CFTC) for violating its rules. Then there’s FTX, the failed cryptocurrency exchange headed by Sam Bankman-Fried, who was convicted this month on seven counts of fraud and conspiracy. It ran an unregulated outside forecast market in the 2020 election cycle.
“Leading these markets abroad makes no sense to me,” Mr. Mansour said.
I will leave these legal matters to the courts and regulatory bodies to decide.
But like my journalistic predecessors, I welcome the trove of data that election betting provides. I hope that the entrepreneurs who run prediction markets will keep the information flowing, so that we can test the truth of the old saying, “Wall Street betting odds are never wrong.”
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