Economists at the University of Iowa started the original electronic election markets. Twelve years ago, Intrade entered and became a larger political gambling venue. These markets harken back to the pre-World War II era, when New York gamblers bet millions on the political future of Woodrow Wilson. Prediction markets can be briefly manipulated, and they suffer the same waves of erroneous group-think that can afflict any market, but their overall track record is pretty solid.
Economists Paul W. Rohde and Koleman S. Strumpf report that “in the 15 elections between 1884 and 1940, the mid-October betting favorite won 11 times (73 percent) and the underdog won only once.’’ Economists Justin Wolfers and Eric Zitzewitz find that in the presidential elections between 1988 and 2000, the average presidential vote share predicted by the Iowa markets thirty days out was less than two percentage points off, which is better than the final Gallup poll forecasts.
Both the Iowa markets and Intrade similarly depict America’s political future. After the brief Gingrich-mania that followed the earlier Perry bubble, both markets now give Mitt Romney a roughly 75 percent chance of winning the nomination. But his odds are worse in the general election as both markets give the Republican Party about a 45 percent chance of winning the presidency.
Both markets give the Republicans a greater than70 percent chance of taking the Senate, and the Iowa markets give the Republicans a roughly 75 percent chance of keeping the House. Intrade puts the odds of that event at around 69 percent. The Iowa market allows gambling on Republicans controlling both houses, and prices suggest a 60 percent chance of that event.
