Subject: Marketing the Election
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Date: Mon, 1 Nov 2004 08:49:33 -0500

From Capitol Hill Blue

Politics
Marketing
the Election
By LINDA SEEBACH
Oct 31, 2004, 02:27

If the up-and-down swings in the presidential polls have left you
dizzy, maybe you should look at the political betting shops instead.
They're volatile, too, but they tend to be more accurate than most
polls.

People answering pollsters' questions have no particular
reason to be truthful, even if they do know their own minds, while people
who have real money on the line have good reason to make thoughtful and
informed decisions about what is likely to happen.

Since 1988, the Tippie College of Business at the University of Iowa
has operated the Iowa Electronic Market, which among other issues tracks
the presidential race. As of Friday, contracts for a Bush win were trading
about 6 cents above contracts for a Kerry win. The spread was wider for a
while in September, but has consistently favored Bush since the end of
August.

There's a separate contract for share of the popular vote, and it is
saying that the vote is likely to be agonizingly close. But we knew that.

The Iowa market is tiny, though, because traders are limited to an
investment of $500 under federal rules on commodities trading. It's a
research tool, not a gambling venue. So a lot of the betting action has
moved to an Irish site, tradesports.com, which does trade sports but will
allow people to bet on pretty much anything they want to, including
politics.

Two researchers, Justin Wolfers of the Wharton School of Business at
the University of Pennsylvania and Eric Zitzewitz of the Stanford
University Graduate School of Business, asked tradesports to create
contracts that allowed people to bet on a combination of events - for
instance, that Bush would win and that Osama bin Laden would be captured
before Oct. 31. The difference between the price of those contracts and
the one for a Bush win alone shows that the market believed that bin
Laden's capture would lift Bush's re-election chances to 91 percent. At
the time, the standard Bush contracts were trading at $66.60.

As of Friday, bettors at tradesports were estimating Bush's chances of
winning at 51 percent, and his share of the popular vote at 51.5 percent.

Betting on elections is nothing new, as Paul Rhode and Koleman Strumpf,
of the economics department at the University of North Carolina-Chapel
Hill, have written. In fact, before scientific polling became common,
newspapers followed the odds as they covered the election.

The authors note that Andrew Carnegie, returning from a visit to
Scotland late in October 1904, was quoted in The New York Times: "From
what I see of the betting ... I do not think that Mr. Roosevelt will need
my vote. I am sure of his election ..."

Huge amounts were at stake in some election years. In 1916, the betting
volume in the New York City markets (converted to 2002 dollars) reached
$165 million dollars.

Concern that people would try to influence elections by manipulating
the markets eventually led to the end of the formal political market "and
once polling was invented, journalists forgot it ever existed," Wolfers
said Thursday.

But the evidence suggests that the markets are surprisingly resistant
to manipulation, he says. Traders who are "buying publicity," as he calls
it, trying to move prices artificially so market-watchers will think that
a candidate is gaining or losing support, can do so but only for a short
time.

Bush contracts on tradesports have apparently been the subject of
several such attacks. Don Luskin of the Web log poorandstupid.com wrote on
Oct. 16:

"Yesterday the price of the futures were sold down from about 55 to 10
with a single 10,000-lot order entered by a single trader ... Within
moments after the order was completed, the price recovered back to the
low-mid-50s."

Wolfers told me that the first time something like this happened, in
September, people in a tradesports forum were talking about how much money
they made. One wrote, "Is this part of the new Kerry attack
strategy - flood the markets? Let's take their money."

Though it's not publicly known who the trader might be, another forum
participant observed that it might be worthwhile for the Democrats if the
media began reporting that Bush and Kerry were close to a tie. At the
time, Bush contracts were around 62 to 64, and the price quickly recovered
to that level. "Sites like ours are more accurate than any poll possibly
could be," someone said.

Markets collectively have much more information than any of the
individuals in them, which is why market economies work better than
planned ones.

Markets also require participants, if they want to be successful, to
separate what they hope for from what is probably true, and to make
realistic judgments about what other people are likely to do. If you have
to "put your money where your mouth is," you may find out what you really
believe.

(Contact Linda Seebach of the Rocky Mountain News at
www.rockymountainnews.com.)

© Copyright 2004 Capitol Hill Blue

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