During the Renaissance, Roman bookmakers took bets on who would be the next Pope, until Gregory XIV banned the practice under penalty of excommunication.
This century sportsbooks used political betting as a fun PR tool. Offering odds on an election or referendum was a way for sportsbooks to get mentioned in news pieces by journalists who wanted to pad their election content with a fun paragraph about the betting markets.
That has now changed and political betting is a serious part of the gambling and political landscapes. The 2014 Scottish independence referendum smashed all records for political betting, with one individual betting $1.3m USD on the outcome. A year later the UK general election broke all records again and a year later the UK’s referendum on leaving the EU (Brexit) broke all records again.
The 2016 US presidential election was the biggest non-sports betting event of all time. The 2020 US presidential election was the biggest betting event of all time!
In the last UK general election candidates quoted odds on their own campaign materials and past US presidential campaigns have tried to influence the odds to help shape public perception of their candidate’s chances!
During the 2012 US presidential elections, hundreds of websites reported the figures from the Intrade prediction market. Intrade correctly gave Barack Obama a bigger probability of winning than polls did.
Intrade was a small pool of liquidity making it easy to manipulate, so the Mitt Romney campaign placed bets on Romney to improve his odds in order to make it look like he was gaining momentum after a successful debate.
Political bettors can study the landscape, crunch the numbers, come to an informed prediction that they can argue about with their peers and hopefully gain the satisfaction of being proven right. Alternatively, bettors can go with their emotions and back their own favorite candidate in order to make rooting for him/her more exciting.
This can also be said about sports betting but political betting gives people who are not interested in sports, like many intellectuals and political junkies, something to bet on.
Unlike casino and sports betting, political betting allows you to influence the outcome of the event you are betting on! By voting, donating, campaigning or even by betting so much you affect the odds and therefore the public perception of the state of the race. In fact, political betting may be the only motivation many people have to vote at all!
Political betting markets provide a very accurate predictor of the eventual outcome of an election, much more so than opinion polls. Political betting markets concern themselves with the eventual final outcome whereas opinion polls only provide a snapshot of the state of the race at the moment the poll is taken which is not at the moment of voting.
There are many technicalities of how opinion polls should be carried out which are not always followed. Human error and bias can also skew the results.
Prediction markets react to new information much faster than polls can. When it was reported that 2012 Republican senate candidate for Missouri, Todd Aikin, had said the “victims of legitimate rape seldom become pregnant” his betting odds instantly took a hit, a week later opinion polls caught up.
In the case of John Mccain and Mitt Romney’s Vice Presidential running mates the betting markets reflected the selections before the announcements were made. This suggests insider trading which makes the market’s predictive power even better.
One now famous political bet happened when it was assumed John McCain would announce his running mate at an event in Dayton, Ohio. A punter studied private charter flights and saw one from Anchorage Alaska that fit the bill. He accordingly bet on outsider Sarah Pailin and won big.
Odds makers and the wisdom of the crowd are much better at predicting the results of elections than they are at sporting events because luck is less of a factor. However betting on the favorite is not always easy money as surprises, such as gaffs or scandals, can happen between when you make your bet and election day.
Prediction markets offer the same gambling dynamics as sportsbooks although some of them have trading features not present in sportsbooks. News media prefers to refer to prediction markets because they use terminology that sounds better such as “prediction” instead of “bet” and %’s rather than odds. Also, prediction markets are legal in some places where sportsbooks are not.
In 2016, I worked on my first client to help write a white paper for a crypto and blockchain project they were building, and started delving deeper into blockchain and distributed ledger technology.