Political Prediction Markets-Becker

Prediction markets are pervasive in finance, especially in modern derivative markets. Someone who is long on the S&P 500 Index is betting that average stock prices in the United States will be going up, while those who are short in this market are betting that they will go down. Price movements in these markets are a good measure of aggregate sentiment, where the aggregation process gives greater weight to those willing to risk larger sums. The aggregation in online political prediction markets, such as the Iowa Electronic Market (IEM), is more democratic because these markets usually place sharp limits on how much can be bet- the IEM limits bets to no more than $500. Yet as Posner indicates, this and other online political markets have been successful in predicting the outcomes of American elections-more successful than various polls. In the present election, the IEM odds in favor of the Democrats winning the presidency hovered around 60 per cent From May of 2007 to the end of August, but these odds have narrowed considerably since then to about 51-52 per cent for the Democrats to 48-49 per cent for the Republicans. Narrowing has also occurred in various polls. The IEM market is indicating that Senator Obama now has a small lead over Senator McCain. Since bets on political online markets are small, the motivation of bettors can hardly be the amounts they win or lose. Nor can the usual economic theories of risky choices be of much relevance since the risks to bettors' wealth are rather insignificant. These gambles are made because of utility derived from the gambling itself, not because of the amounts won or lost. This has the very important implication that the positions taken by bettors-for example, whether they bet that the Democratic rather than the Republican presidential candidate would win- is not necessarily determined by which one they expect to win. On the contrary, their betting behavior may be in good measure determined by whom they want to win rather than whom they expect to win. Studies of betting on sports events show a home team "bias" in the sense that the odds tend to be skewed in favor of home teams relative to the actual winning percentages of home teams. This may be because many local residents bet on their home team, such as Chicagoans betting on the Chicago Cubs, at odds where objectively they should be shifting their bets to visiting teams, and also because individuals in home cities are more likely to bet on games in their cities. This home team bias is likely to be even more pronounced in political betting markets like the IEM since bets are small. However, if biases of Democratic and Republican bettors are about equally strong, and if a non-negligible fraction of all bettors are making prediction bets, then aggregate betting would tend to give on the whole accurate predictions about who will win, although these predictions would be quite noisy. Predictions rather than hopes may be of relatively large importance in the IEM and other online political prediction markets because the main bettors have been academic economists and financial experts rather than the general public. This type of wishful betting presumably is quite different in betting on other types of events, such as the unemployment rate shown by data to be released on a certain date. I believe that online political prediction markets, and other online prediction markets as well, should be legal in the United States and elsewhere, even if the amounts bet were quite large. There is no important substantive difference between such online betting markets and the Chicago Mercantile Exchange and other exchanges that allow individuals and organizations to take positions on movements of stock indexes, housing price indexes, and prices of other derivatives. A distinction is sometimes made between political betting markets and derivative markets since participants in derivative markets may be hedging other risks that they face. Yet this distinction has little substance since if larger bets were allowed in online political markets, groups whose welfare depended greatly on political outcomes would make greater use of these markets. For example, if a Republican presidential win would mean greater spending on military weapons, companies in the arms business might hedge their risks by betting on Barack Obama. If large bets were allowed, some wealthy groups may bet a lot on their candidates in order to exert bandwagon influences on public opinion through their large bets affecting market odds. If so, these markets likely would become less reliable as predictors of outcomes, and hence would have less influence on opinions. To a large extent, therefore, these markets would be self correcting, although online political markets might place various other restrictions on bets, as is common in derivative and other exchanges.

Comments

[Anonymous]

MxgZPI Great site. Good info.

[Anonymous]

Hello. The aim of life is self-development. To realize one's nature perfectly - that is what each of us is here for.
I am from Togo and , too, and now am writing in English, please tell me right I wrote the following sentence: "This article gives an overview of what to look for in home air purifiers to help ease the suffering of anyone with asthma in your healthy home.Panasonic air purifiers come equipped with the latest technology."

Thanks :D. Erek.

[Anonymous]

Hello everyone. Reveal not every secret you have to a friend, for how can you tell but that friend may hereafter become an enemy. And bring not all mischief you are able to upon an enemy, for he may one day become your friend.
I am from Vatican and learning to write in English, give please true I wrote the following sentence: "Free standing vanities or cabinets made to look more like furniture add style to any bathroom, tying in with traditional or contemporary themes."

With best wishes ;), Furniture bathroom vanities.

[Anonymous]

شات الشلة

دردشة تعب قلبي

[Anonymous]

Hello. The man who is swimming against the stream knows the strength of it.
I am from Micronesia and also now'm speaking English, give true I wrote the following sentence: "Endless supply of sizzling hot leads."

Thank 8-) insurance lead in.

[Anonymous]

شات حبي

شات الحب

[Anonymous]

ÿ¥ÿßÿ™ ÿØŸÑÿπ

شات الود

[Anonymous]

tiffany jewellery
ed hardy

[Anonymous]

links of london
abercrombie and fitch

[Anonymous]

links of london

[Anonymous]

Stop Dreaming Start Action | Rusli Zainal Sang Visioner

[Anonymous]

very thanks for article!

[Anonymous]

ÿ¥ÿßÿ™
شات صوتى

[Anonymous]

Hello. It is a profitable thing, if one is wise, to seem foolish.
I am from Nepal and learning to write in English, please tell me right I wrote the following sentence: "Val called that she destroyed he was over singing to occur because she advocated about his lymph of cutting salt access towns."

THX :-(, Gel nails versus acrylic.

[Anonymous]

Thanks very much for the compilation!links london
tiffany jewellery

[Anonymous]

Provides the best tiffany jewellery, including Necklaces, Pendants, Bracelets, Earrings, Ringsat the lowest prices.Tiffany jewellery is the best online United Kingdom jewelry stores where you can buy the cheapest Tiffany & Co silver Our huge selection of
tiffany jewelry

[Anonymous]

good post,I think so!Abercrombie & Fitch on Sale, Hoodies, Jeans, T-Shirts, Pants, Polos abercrombie and fitch abercrombie and fitch cheap abercrombie fitch Abercrombie Men Tee abercrombie womens polos Abercrombie & Fitch Men, women, and children's clothing and accessories edhardylife a famous ed hardy store which sell directly ed hardy clothing, shoes, boots, swim suit and other cheap ed hardy ed hardy cheap Ed Hardy ed hardy clothing,Providing authentic Ed Hardy Clothing with competitive price and fast,secure delivery.The famous brand by Don Ed Hardy 's Vintage Ed Hardy

[Anonymous]

Pervert! Let's get out of here. There are so many perverts here.So what? You are such a bad person Who's gonna like you? Tiffany Jewelry Don't mind him. Don't mind him. He's just playing. Forget him. He saw me steal the diamond. Tiffany Jewelry You're dreaming! In your dreams. Wake up and smell the coffee.Where'd you get it!Good idea.Think it over.You can never tell about this sort of thing.Take a closer l Wake up and smell the coffee.Where'd you get it!Good idea.Think it over.You can never tell about this sort of thing.Take a closer look.When did I say that!You have to be on time. Don't be late. ook.When did I say that!You have to be on time. Don't be late.

[Anonymous]

Very nice site! cheap viagra

[Anonymous]

Very nice site!

[Anonymous]

بنت الكويت
شات بنت الكويت

[Anonymous]

Great. Now i can say thank you!

[Anonymous]

Very cute :-))))

[Anonymous]

Excellent site. It was pleasant to me.

[Anonymous]

Just love
tiffany
and
ugg boots,thanks!!