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Legalizing Online Futures Betting

samzenpus posted about 2 years ago | from the playing-the-odds dept.

The Almighty Buck 80

Bennett Haselton writes: "Online political futures betting is in a legal limbo in the United States. But with the lifting of legal sanctions, and with the addition of one simple new feature, online futures betting could not only provide more accurate forecasts of the merits of different candidates, but also provide a tool for quieting partisan blowhards who think the opposing party's candidate is going to drag the country to hell. Let the blowhards bet!" You'll find the rest of Bennett's story below.

Did you have a strongly felt prediction about the 2012 elections that went against the conventional wisdom? Then you could have placed a bet at the Iowa Electronic Markets website (with real money); yet most people don't know the website exists. Indeed, it's only able to exist at all because of an exemption from U.S. laws that make other political betting websites illegal. The Irish-based online political betting site Intrade doesn't even accept American customers (you can't wire money to them from a U.S. based account), and their late CEO reportedly told John Stossel he was afraid of being arrested if he set foot in the U.S.

That's too bad, because I think that legalized Web-based betting on political outcomes could serve two valuable purposes in American politics: to provide forecasts of the relative merits of living under either of two candidates, and to force partisan blowhards to seriously consider whether they actually mean what they say. But in order to make this happen, in addition to the government lifting any legal restrictions on the ability of such sites to operate, I think a valuable additional feature would be the ability to place "if-bets", betting on particular events (the level of unemployment, for example) if a particular candidate were elected.

In September I happened to stop by the King County Republicans booth at the Puyallup Fair, and asked one volunteer, just for the sake of argument, what he thought was the best case against re-electing President Obama. (I'm a liberal, but I spend more time reading conservative blogs and opinion pieces than liberal ones, partly just to see what pieces I might agree with.) He said flatly that if President Obama were re-elected, unemployment could rise as high as 20 percent, and listed some other dire figures.

Well, I didn't consider that an "argument", but I asked him, "Would you be willing to bet on it?" -- not proposing that we actually wager, but asking him to think seriously about whether he would be willing to wager, if it were an option. In other words, if Obama is re-elected, and employment rises to 20 percent some time in the next four years (or perhaps if average employment over 4 years is above some designated threshold), then I pay my new Republican friend $100. If Obama is re-elected and no such thing happens, then the Republican pays me $100. If Obama is not re-elected, then the whole wager is void. After I spelled this out, the volunteer got a thoughtful look -- as if he were thinking, for perhaps the first time, whether he really believed what he had been saying. (Of course I've probably made similarly ill-thought-out predictions about politicians that I disliked, where the offer of a wager would have made me stop and think harder about what I actually believed.)

It would be easy for Intrade and similar companies to support these kinds of conditional "if-bets". Then their website could list data on, for example, what the bettors currently think are the odds of unemployment reaching 20% (or 15%, or 25%) if Obama were re-elected, or if Romney were elected. Ideally there would be a different betting market for each percentage point -- and you could aggregate all the market odds for those percentages into one simple graph, with a bell curve showing what the market thinks are the odds of employment hitting 10%, 11%, 12%, etc. under either Obama or Romney.

The first benefit of such a system would be obvious: to the extent that betting markets are an accurate predictor of political outcomes, this would be an easy way to see what conventional wisdom projected for unemployment, inflation, infant morality rates, or any other statistic that Intrade accepted bets on, if either candidate were elected. As long as either candidate had a realistic chance of winning, the people wagering on the "if-bets" would have to take them seriously. (If one candidate had virtually no chance of winning, then the "if-bets" conditional on that candidate's victory might not show anything useful, since everyone expects the bets will be declared void. So it wouldn't work for evaluating the merits of a long-shot candidate like Jill Stein - who might have some good ideas, but the "if-bet" betting markets wouldn't be able to tell us that.)

The second benefit would be that whenever anyone claimed projections that departed radically from the market odds, you could simply ask them, "Why not go to Intrade and bet on it?" If a person really believed that their dire predictions were more likely than the market seemed to think, then they could wager accordingly. Even if they don't think their prediction is likely to come true, as long as they think an event is more likely than the market seems to think, they should still believe that they could make money in the long run by betting accordingly. (For example, if you think there's only a 1-in-3 chance that Romney will win, but the market says 1-in-5, you should bet that Romney will win, at the 4-to-1 odds offered by the market. If you bet on lots of separate events where you think the probability of event occurring is 1/3 but the market says 1/5, then if you're right and the probabilities really are about 1/3, you'll lose 2 out of 3 times, but every 3rd time you'll make back 5 times the amount of your wager, and come out ahead. Assuming that you really are smarter than the market, of course.)

There could be rules and safeguards to prevent abuses of the system (rules that could be imposed by U.S. law, even if they're not enforced by overseas betting markets), such as not allowing individuals to bet more than $500. (This is already enforced by the Iowa Electronic Markets.) That's small enough to stop individual bettors from trying to manipulate the market through enormous wagers (although they might find ways to do that anyway). It's also small enough that it wouldn't be worth it for any one individual to try and influence a political outcome just to win a bet. You could try to enlist your friends to help you place a collective $10,000 bet on a single outcome, but the more people you rope into your coalition, the greater the chances of someone (a) turning you in for violating the betting laws, or (b) taking the $500 you lent them, and then refusing to pay it back if they win their portion of the wager.

At the same time, the $500 limit is large enough that anyone who makes a bold claim about the future, could not plausibly claim that it's not worth their time to go over to Intrade and make a wager. (Well, billionaires could claim it's not worth their time. We could have a higher limit for higher-income individuals, but the problem is that for someone like Donald Trump, any betting limit large enough to get him to take the wager seriously, would also be large enough to allow him to manipulate the market. So we might just have to get by on ignoring Trump the old-fashioned way.)

However, even if Intrade implemented "if-bets", and even if futures betting were made unambiguously legal under U.S. law, we'd have to overcome a certain amount of cultural taboo against betting on politics, especially for members of certain professions. When Joe Scarborough called Nate Silver a "joke" for saying that Obama had a 75% chance of winning, Nate Silver gave exactly the right response: "Wanna bet?" (for charity). However, the New York Times Public Editor (an office that I've dealt with in the past) rebuked Nate Silver for offering the wager, although in a 600-word essay, the Public Editor wrote only one sentence saying why she thought it was a bad idea: because it "[gives] ammunition to the critics who want to paint Mr. Silver as a partisan who is trying to sway the outcome". This doesn't make much sense, since Nate Silver had already staked his reputation on the outcome, which was worth astronomically more to him than the $1,000 (so to the extent that he had any conflict of interest, it would have already been in place anyway). Still, for anyone in a profession that placed a high value on "perceived objectivity", they might be able to use that as an excuse for not placing a wager.

Even for the rest of us not in danger of finger-wagging from the Times Public Editor, I think there would be one big obstacle to using the markets to tell blowhards to "place your bets or shut up": people would come up with dumbass excuses not to do it. I can't even anticipate the kinds of excuses that people might make, because I think I just think too rationally (at least by my own definition), so I tend to anticipate semi-logical objections like, "I think Romney will win, so I don't want to support a system that says he will lose." To that I would say: If you think the market odds are wrong, you should place the bet anyway, and if you win, you'll be taking money from the people who bet that Romney would lose, not "supporting" them. And in fact by placing the bet, you will slightly increase the market-reported odds of Romney winning. So you'll be taking money from the people who bet against your guy, and shifting the reported odds in favor of a Romney victory, which ought to be a win-win. Even better, if you're sure he'll win, you'll have winnings afterward that you can donate to the Republican Party.

So while I don't think that's a valid objection, it at least has the form of a logical argument, which is what makes it possible to answer it. The excuses that I think people would actually give, would be along the lines of, "I don't do that." Well, if you want to support your candidate and you're confident in your predictions, why not? Or, "I think it's wrong to bet against the future of our country." Hey, if you place a bet that unemployment will go up under Obama, then that will be reported in the aggregate forecasts of what the market thinks will happen under the two candidates -- which will actually slightly increase the chance of a Romney win (which is presumably what you want), right? Besides, you realize that if you have life insurance on your spouse, you're "betting" every month that they will die? How much more ethical is that?

But for everyone else who wouldn't come up with excuses not to bet on the outcomes, I wonder, in what might be hopeful naivete, if the available of online political "if-betting" might bring our partisan extremes closer together. When my Republican counterpart and I were discussing the future of the nation under Obama or Romney, if we were forced to confront the possibility of betting on the result (not betting on who would win, but betting on what would happen if a particular candidate won), I think several things would have gone through my mind. First, I might realize that despite any stridently partisan statements I had made, I didn't really know with much confidence what would happen. Second, the humility of realizing that I would want to check the online prediction markets, because I think the rest of the world collectively has more wisdom on the matter than I do. And third, if the online prediction markets showed projected similar outcomes (for unemployment, for example) no matter who is elected, then we could calmly accept the fact that neither candidate is going to be able to perform miracles, but neither candidate is going to destroy the country either, so we can accept the fact that the country will probably do OK no matter who wins, and go have a beer.

Assuming, of course, the other guy felt the same way. I can get along fine with people who don't agree with me, but I don't think I'd get along with someone who didn't even want to seriously consider whether he really believed the things he was saying. However, if the various competing futures markets would implement "if-bets", and if the U.S. government would just give the OK to online futures betting generally, I'd be perfectly happy to take the guy's money.

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Wager (3, Funny)

scarboni888 (1122993) | about 2 years ago | (#42028131)

I bet that'll never work.

Re:Wager (3, Insightful)

jhoegl (638955) | about 2 years ago | (#42028377)

Betting leads to fraud, fraud in voting will lead to dissolution of government.
As usual, forethought is lacking.

Re:Wager (0)

Anonymous Coward | about 2 years ago | (#42028683)

fraud in voting will lead to dissolution of government.

Tis a good thing that only VOTING fraud would do that then eh?

Re:Wager (1)

khallow (566160) | about 2 years ago | (#42174731)

I have a solution then. Make vote fraud extremely costly, so that merely having a bet on it isn't enough incentive to engage in it.

Re:Wager (1)

Anonymous Coward | about 2 years ago | (#42029513)

This year's election cycle had the Democratic Party buying up shares on InTrade as a PR move. In short, they realized that the amount of money needed to boost Obama's InTrade "stock" was actually fairly minimal as there was not that much stock issued to start with. With a relatively small investment, they boosted Obama's stock and were able to reap a PR coup in the process. In the future, I don't see this working particularly well as the Republican Party will in return start boosting up their candidates. In both cases, the PR value is worth far more than the stock purchased or the amount of money spent. Having people "bet" so that they have skin in the game only works when that skin is worth more (in some respects) than that gained by moving the stock one way or another to achieve an outside objective.

Re:Wager (0)

Anonymous Coward | about 2 years ago | (#42031297)

Don't worry. You'll be the funder of your own fraudulent elections anyways.

Captcha: generous

Re:Wager (1)

FunkSoulBrother (140893) | about 2 years ago | (#42051411)

Really? His 'stock' was hovering around $6-$7 on Intrade right up to the election, well past the point where Nate Silver and everyone else knew Obama was a lock barring something catastrophic. That means you could have made 30%+ returns on money in just a few weeks. If anything, Obama was undervalued at Intrade.

Not that I think this wouldn't be a brilliant strategy -- you are right, to buy up all of the Intrade shares for a candidate would probably be peanuts to an American political campaign, but I just don't think Obama's camp actually, you know, did it.

Re:Wager (1)

Bigby (659157) | about 2 years ago | (#42029789)

I would hedge that bet by betting you'll lose the original bet.

Already Exists (0)

Anonymous Coward | about 2 years ago | (#42028133)

http://www.intrade.com

Comment before reading (1)

FalseModesty (166253) | about 2 years ago | (#42028269)

Always write your comment before reading the article. That way your mind will remain uncluttered.

Another (0)

Anonymous Coward | about 2 years ago | (#42028417)

http://www.betfair.com

Difference between derivatives and gambling (4, Insightful)

SirGarlon (845873) | about 2 years ago | (#42028231)

I am not an economist, but I know there is a fundamental difference between futures markets and gambling. A futures market is for entities that want to buy a commodity anyway, and need a way to manage the risks of price fluctuations. Yes, one can speculate in the futures market, but that's not the reason a futures market exists.

In contrast, I don't see a political "futures market" providing any more economic benefit than betting on sports teams or horse races. I don't think it will make political pundits any more accountable than sports betting makes sports commentators accountable.

The idea that "markets" have a magical ability to predict outcomes is nonsense. If the market really could reliably predict the future, there would be no reason to bet against its "wisdom," and therefore no payoff for betting along with it, either.

Re:Difference between derivatives and gambling (1)

SirGarlon (845873) | about 2 years ago | (#42028275)

Oh, I should add that my remarks are a reason why I see no value in the political futures "market," not to be construed as reasons to prohibit such a market. If people want to waste their time and money, who am I to stand in their way?

Re:Difference between derivatives and gambling (1)

cayenne8 (626475) | about 2 years ago | (#42029253)

I would have readily bet that the stock market would take a plunge if Obama won....

I would have been a winner on that one...

Re:Difference between derivatives and gambling (1)

Anonymous Coward | about 2 years ago | (#42030367)

Financial sector uses guise of political butthurt to dump stocks...film at 11.

Re:Difference between derivatives and gambling (2)

alexander_686 (957440) | about 2 years ago | (#42030617)

You could have – so why didn’t you?

You could have bought options or futures on any of the major indexes. The general consensus was that Obama was going to win. Nate Silver calculated above 80% - about as close to a sure thing as one could get.

Or do we just have a little 20/20 hindsight cognitive basis going here?

Re:Difference between derivatives and gambling (2)

trout007 (975317) | about 2 years ago | (#42028373)

Actually it will be gambling if it's limited to $500. It would be a futures market without the limits. I'll explain.

Let's imagine you own a coal power plant. If you think an Obama victory will cost you lots of money you could bet on an Obama win. That way if Romney wins you expect your business to do well. If Obama wins your business will decline but you make up for it with your winnings.

Re:Difference between derivatives and gambling (1)

forand (530402) | about 2 years ago | (#42030065)

Such a simplistic view of how the US system of government operates is what has currently create such a polarize populous. Some business owners maybe be "absolutely certain" they know how things will go under which ever boogie man they decry being elected, but the reality is that the President of the US has only a limited ability to affect large scale change. This is especially true when you have a divided Congress. Giving such people a way to gamble on whomever wins an election will only lead to new forces coming into existence which will have a vested interest in the outcome of US elections, new forces which hold no loyalty to the populous but only to their pocket books. Remember the house always wins, always.

Re:Difference between derivatives and gambling (1)

WaywardGeek (1480513) | about 2 years ago | (#42030243)

Back in September, Intrade had Obama's odds at 80% chance of winning. With the possibility of an October surprise, I felt that betting on Romney at 4-to1 odds sounded pretty good. If I had, I could have doubled my money when Romney reached 40% chance a couple weeks later. It turns out a lot of other guys thought Romney at 20% was low, too, and there was a discussion about why. One of the best answers was from an investor who said he was hedging his bets by betting on Obama. If Obama wins, he will likely owe more in taxes. His feeling was that Obama's odds were overrated on Intrade because of guys like him.

Another interesting thing happened on Intrade the last week before the election. Someone made it perfectly clear that they intended to manipulate the market to lower Obama's odds, and increase Romney's. They did this by making massive sales of Obama stock over short periods, like a couple of minutes, causing the price to fall by 5-10%. In forcing down the price, the manipulator sold most of his stock at around 5% below what the market was willing to pay. He did this over and over, about twice an hour, for days, selling something like $2-$4 million of Obama stock, losing something like $200,000 through irrational trading behavior. Anyone with an account had an easy chance to make money over those days, because after every massive sell-off, the price would recover 90% of it's price within 15 minutes. Buying low and selling high was never so predictable.

Re:Difference between derivatives and gambling (1)

roman_mir (125474) | about 2 years ago | (#42029027)

Yes, what is described in this story is gambling.

Of-course there is nothing wrong with gambling beyond the fact that government wants to prevent you from doing it the way you feel like, because that creates competition to the legal establishments, which government gets to raid when it comes to the tax time.

Re:Difference between derivatives and gambling (1)

Princeofcups (150855) | about 2 years ago | (#42029205)

I am not an economist, but I know there is a fundamental difference between futures markets and gambling.

There's supposed to be a difference, or in other words, at one time there was a difference. These days the market is driven by speculation, i.e. gambling, and not to insure that you can sell your grain at a certain price.

Re:Difference between derivatives and gambling (0)

Anonymous Coward | about 2 years ago | (#42030423)

Commodity futures markets are definitely still driven by supply & demand. Many trillions of dollars are exchanged buying things like oil and grains. Speculators are barely a blip on the radar. Likewise for global currencies... the market is just unfathomably huge.

Speculators are really only visible in lower volume markets, e.g. mortgage backed securities or in the stock market. Despite the press, the stock market is nothing compared to commodity futures and currency trading.

Re:Difference between derivatives and gambling (0)

Anonymous Coward | about 2 years ago | (#42032529)

Speculators are barely a blip on the radar.

reaaaaaaaaaaaaaalyyy? Nearly 70%-80% of oil trades are speculation. What about gold? Yeah thats ALL demand there (people who need gold to make things).

These guys will do 10k in transactions (in under 2 seconds) to make a few hundred bucks. They do not even have to do much to get it. Just a few clicks of the mouse.

Commodities WERE driven by demand and supply. Until they put futures speculation into the mix. At that point it was just about who could buy enough to skim off the top. One of the most 'miserly' of people in stories out there Scrooge was a commodities speculator. Speculation is a HUGE part of the market. To pretend it does not exist is being foolhardy.

Why do you think the entire market froze up in 2008? Because everyone freaked out when the liquidity dried up to cover both ends of the bet.

Re:Difference between derivatives and gambling (1)

alexander_686 (957440) | about 2 years ago | (#42030569)

Future exists because people want to hedge the risk and uncertainty of the future. Farmers want to know if they should plant wheat to corn for next year’s crop. Miller’s want to ensure a supply of wheat at a know price for next year. Everybody’s a winner. Sure there is some (well, a lot) market making / speculation, but it serves a fundamental economic purpose.

What’s the natural market here? Let’s say I think candidate’s economic policy is crazy and will cost me my job. What is the natural offsetting position? Who would want to hedge themselves against a booming economy?

Factor in that 2 conditions have to be met for the options to trigger. Factor in that most outcomes would have to be measured in years, not months. Factor in that the President’s policies are not the dominating force – external forces (World growth rates, Euro Crisis, Energy prices, etc.).

So it sound to me more like sports betting then option or futures trading. Granted there is some overlap between the 2. Want to place a bit on who will win next week’s game? There is action. This year’s super bowl? More action. Next year’s MLB – almost none – or at least not enough to give any price signal.

In your example you used Inflation as one benchmark. Well, I can do that now. Infant mortality – why would I want to take a bet on that?

Re:Difference between derivatives and gambling (1)

JesseMcDonald (536341) | about 2 years ago | (#42031057)

What's the natural market here? Let's say I think candidate's economic policy is crazy and will cost me my job. What is the natural offsetting position? Who would want to hedge themselves against a booming economy?

I see no particular reason why there can't be a trade where one side is a hedge, and the other side is a gamble. It's usefulness as a hedge is independent of the other party's motives. Also, it is in the nature of political policies to harm some and benefit others (to a lesser extent), and both sides have reason to hedge their bets—one against the harm, and the other against the absence of the benefit. Finally, there can be disagreement over the likely result of a given policy; two people in similar positions might want to hedge in opposite directions, depending on their own projections.

Re:Difference between derivatives and gambling (1)

khallow (566160) | about 2 years ago | (#42037251)

In contrast, I don't see a political "futures market" providing any more economic benefit than betting on sports teams or horse races. I don't think it will make political pundits any more accountable than sports betting makes sports commentators accountable.

To the contrary, the Intrade betting market warned me for many months that Obama was likely to win. That was economic value to me. There's not much use to taking big job or stock market-related risks, if things aren't going to improve for at least a couple of years.

Some Big Problems With This (5, Insightful)

eldavojohn (898314) | about 2 years ago | (#42028279)

Betting isn't like voting. It's not even close. I have had a couple friends who found themselves out of college with income and instead of spending it on a house, they engaged in serious sports betting. Very serious sports betting. And I spoke at length with one of them about it because it intrigued me. He seemed like an intelligent guy and he made modest money off this thing that required he used a lot of money and crunched a lot of numbers. The most important thing is that he never let his personal desires get in the way of his bets. He would often work his favorite teams out of his bets just to ensure that he wasn't subconsciously putting undue confidence on, say, the University of Texas (his alma mater).

Likewise these markets are not going to reflect the way people vote or feel but they are instead going to reflect their calculated confidence of a political win or a trend. To turn betting on for political topics will tell you absolutely nothing about reality. Instead it's going to tell you what people with $500 to flush down the toilet think the rest of their country thinks. I grew up under the poverty line (you know, the 47%) and I will tell you right now that this system you propose would only reflect what rich people who are loose with their funds think that other people are thinking. It will not give you future insight -- especially if you're talking about an election.

Five hundred dollars is still a lot of money to the majority of this country -- no matter how little it matters to Bennett Haselton. This futures market would merely be a world of insanely rich people doing stupid things with money (so, a lot like Wall Street). As for quieting the blowhards, what's $500 to Glenn Beck? Probably nothing at all. And even if you did allow them to put their life savings on the line behind what they are selling to the public, they're not stupid. They don't need an excuse to not have to do that. I'm not dumping my life savings into Oracle stock just because I write Java for my employer! Do you discredit my logic on Slashdot when I claim some large company is doing something very stupid but I don't turn around and short their stock with all my liquid assets behind it?

Re:Some Big Problems With This (1)

Vintermann (400722) | about 2 years ago | (#42028371)

Likewise these markets are not going to reflect the way people vote or feel but they are instead going to reflect their calculated confidence of a political win or a trend.

They didn't this time around. Nate Silver soundly beat intrade. Of course, that would be pretty funny if you were in the minority on Intrade who thought Nate Silver was realistic ;)

Re:Some Big Problems With This (0)

Anonymous Coward | about 2 years ago | (#42028747)

To turn betting on for political topics will tell you absolutely nothing about reality. Instead it's going to tell you what people with $500 to flush down the toilet think the rest of their country thinks.

Oddly, Nick Silver, the guy who predicted results of the presidential election more accurately than anyone else, claims that this is exactly what you need to know in order to predict election outcomes. I watched an interview he gave wherein he stated that the most telling question you can ask anyone is not for whom a person will cast a vote but who do they believe will win. He even went to so far as to explain that each person's perception of their own personal network and its state is a more reliable predictor of its behavior. He claimed that this question increased the likelihood of a correct prediction to 81%, as opposed to the 69% accuracy you could previously have anticipated from more conventional polling methods.

So while you may believe this type of opinion market is flawed, the current reigning champion disagrees.

(Once such a market matures, I would like to see a derivative market develop. One that makes a distinction between the horse in the race and his ass.)

Re:Some Big Problems With This (0)

Anonymous Coward | about 2 years ago | (#42028765)

So while you may believe this type of opinion market is flawed, the current reigning champion disagrees.

Correctly predicting one election gives you such a nice title these days!

Re:Some Big Problems With This (1)

Alomex (148003) | about 2 years ago | (#42029443)

predicting one election

Except that he has correctly predicted three elections.

p.s. Among many other superpowers, Nate Silver has this amazing ability to bring out the numerical ignoramuses such as the AC above.

Re:Some Big Problems With This (1)

niado (1650369) | about 2 years ago | (#42029453)

So while you may believe this type of opinion market is flawed, the current reigning champion disagrees.

Correctly predicting one election gives you such a nice title these days!

Well, it's not that he just predicted one election successfully, he essentially predicted fifty, since evidently every single one of his state-level predictions was accurate [slashdot.org]

Re:Some Big Problems With This (0)

Anonymous Coward | about 2 years ago | (#42029649)

Actually, he predicted at least ninety-nine successfully, because he did the same thing in 2008 (getting it wrong with one state).

I say "at least" because I don't know what other elections he's predicted with his system, if any.

Re:Some Big Problems With This (1)

TubeSteak (669689) | about 2 years ago | (#42028937)

You forgot to name the biggest problem with this scheme: information

Can you imagine if people were making bets based on unskewed polls and information from the conservative mediabubble?

The betting market would bear no relation to reality and people would lose their shirts because they've been told day in and day out that [Candidate] is a sure thing.

I've also got some choice words for the rest of the news organizations as well.
It's to their benefit to portray a race as close, even if it isn't, just to keep people tuned in.

Re:Some Big Problems With This (0)

Anonymous Coward | about 2 years ago | (#42029507)

Under 3%? I usually consider that 'pretty close'. Some of the polls have a spread of +/-7%

Spending it on a house (0)

Anonymous Coward | about 2 years ago | (#42029115)

instead of spending it on a house, they engaged in serious sports betting

Take it from somebody who got crushed by the subprime mortgage crisis: a house is NOT an investment. Yes, I was young and stupid. No, I was NOT greedy -- I was naive. It was our first home (and will be our last), and the prices just kept going up and up. We thought (like many did) that if we didn't buy our home soon, we would never be able to afford one. They told us that you can't lose money on a home. They told us that it was the honest man's way of securing his future. So we put our entire life savings into it. We weren't flipping houses or trying to make a quick profit. We were honestly trying to prepare for our future, and paid dearly for trusting the conventional wisdom.

Today, our home is worth 1/3 of what we paid for it, and only half of what we still owe. That's right: 7 years later, we still owe twice as much as the house is actually worth. You might think that it takes an extrordinarily naive person to get themselves into a situation like that. But it doesn't. All it takes is a willingness to trust popular opinion. I learned the hard way to NEVER trust popular opinion, especially when it comes to money.

We kept our part of the deal. We haven't missed a mortgage payment. We are honest people. We still live in the house. But it has basically ruined our financial future. It is a ball and chain that we won't be freed from until we are too old to value that freedom. So please, DO NOT EVER suggest or even imply to a young person that a home is a proper investment. It is not. Take it from somebody who was raised to be suspicious of borrowing money for anything but a home -- the home is every bit as dangerous and speculative as betting on stocks, horses, or football.

Re:Spending it on a house (1)

SecurityGuy (217807) | about 2 years ago | (#42029377)

You might think that it takes an extrordinarily naive person to get themselves into a situation like that. But it doesn't. All it takes is a willingness to trust popular opinion.

Some might say that's a symptom of an at least moderately naive person. Popular opinion is all well and good, but you should really understand the reasoning behind popular opinion and judge it sound on your own before committing your life savings to it.

I truly don't mean to kick you while you're down. I'm sorry this happened to you. But still, I think it's worth saying that following the herd is not always a good idea.

Re:Spending it on a house (0)

Anonymous Coward | about 2 years ago | (#42029445)

In 2003, I bought a 5 bedroom house for $99k that was about to go into foreclosure. At the time at appraised for $125k. Today it's worth around $160k.
It's been a great investment.

Re:Spending it on a house (0)

Anonymous Coward | about 2 years ago | (#42029663)

Congratulations on getting lucky.

Re:Some Big Problems With This (1)

spetey (164477) | about 2 years ago | (#42029383)

Likewise these markets are not going to reflect the way people vote or feel but they are instead going to reflect their calculated confidence of a political win or a trend. To turn betting on for political topics will tell you absolutely nothing about reality. Instead it's going to tell you what people with $500 to flush down the toilet think the rest of their country thinks. I grew up under the poverty line (you know, the 47%) and I will tell you right now that this system you propose would only reflect what rich people who are loose with their funds think that other people are thinking. It will not give you future insight -- especially if you're talking about an election.

You acknowledge that people will have (financial) incentive to bet only the facts, not their biases, but then you suggest the rich will do stupid, non-fact-based things with their money. This might be, of course, but then that will drive the implied odds away from the actual odds, and you and other better-informed but poorer people can make a regular killing on small stakes. Such easy money will in theory attract many such small bettors, thus driving the implied odds more close to what's suggested by information available. In the long run, the people who bet based on evidence will win and those who do not will lose. This is the whole point of prediction markets: to provide financial incentive for estimating probabilities that reflect information (and not bias, etc).

Re:Some Big Problems With This (1)

jdavidb (449077) | about 2 years ago | (#42029941)

All of that may be true. I would still argue that people have the right to participate in such a system if they choose, and other people have the right to make whatever conclusions off of it that they think are warranted.

Re:Some Big Problems With This (0)

Anonymous Coward | about 2 years ago | (#42031385)

Can you imagine what the rich people will do when their bets go against them?

Now do you want the same in politics?

Re:Some Big Problems With This (0)

Anonymous Coward | about 2 years ago | (#42032347)

I will tell you right now that this system you propose would only reflect what rich people who are loose with their funds think that other people are thinking.

If it does that - and if those rich people are wrong - then anyone else could bet against them and take their money.

Judges of Reality (1)

wolfram74 (2623195) | about 2 years ago | (#42028281)

I've put some thought into predictions market, and getting around money handling and laws are only the first stages of problems you encounter. I think the big one is who makes the call? You'd have to have the reporting agency explicitly stated earlier and basically assert that their judgement is uncontestable. For elected offices that's not so hard, few people will say that, say, the president was incorrectly elected and they question the call made by everybody reporting on it. But just 2 months ago, large organizations were questioning the validity of the unemployment numbers produced by the department of labor. I guess the hard part is finding a reality all parties can agree too. The fact that I just wrote that makes me sad.

solved (2)

FalseModesty (166253) | about 2 years ago | (#42028339)

The wording of the bet states the criterion for deciding the result. You'd be betting on what the department of labor says, not "reality".

Re:Judges of Reality (1)

trout007 (975317) | about 2 years ago | (#42028415)

It's pretty easy. You tie it to official numbers. So you take the reported U-3. That way even those that think "they" are going to manipulate it can take that into account.

Right, um, no? (1)

jeffmeden (135043) | about 2 years ago | (#42028283)

but also provide a tool for quieting partisan blowhards who think the opposing party's candidate is going to drag the country to hell

Baaaahahahahahahahahhahahahaha

You must be new here. Seriously. That's never going to stop, in fact it's only going to get worse. The problem is that there is a market force (to stick with the theme) at work specifically driving these blowhards; the TV/radio talk show circuit. The louder and more partisan they are, the more the ratings go up. No web site prediction/gambling market will change that one bit, only the viewers will (if they manage to turn it off). If there was a bet/product on that site about the likelihood of partisan blowhards losing viewership any time soon, I would place a HUGE position against it.

Re:Right, um, no? (1)

MightyMartian (840721) | about 2 years ago | (#42028397)

It may not stop, but I think in the wake of the absolute ass-kicking the pundits faced at the hands of Nate Silver and other groups of statisticians, their coin has been pretty heavily devalued. This has been utter humiliation for the pundits.

The problem here isn't for the Rush Limbauhghs. They're audience is largely made up of paranoid hysterics, the types that are proof against any kind of logical, statistical analysis of anything. But for the slightly less foaming-at-the-mouth pundits who insisted that the math geeks had it all wrong, that you couldn't predict an election if national polls were too close, it's an utter repudiation of them. They well and truly had no bloody idea what they were talking about, that their intuition meant absolutely nothing.

Re:Right, um, no? (1)

jeffmeden (135043) | about 2 years ago | (#42028871)

It may not stop, but I think in the wake of the absolute ass-kicking the pundits faced at the hands of Nate Silver and other groups of statisticians, their coin has been pretty heavily devalued. This has been utter humiliation for the pundits.

The problem here isn't for the Rush Limbauhghs. They're audience is largely made up of paranoid hysterics, the types that are proof against any kind of logical, statistical analysis of anything. But for the slightly less foaming-at-the-mouth pundits who insisted that the math geeks had it all wrong, that you couldn't predict an election if national polls were too close, it's an utter repudiation of them. They well and truly had no bloody idea what they were talking about, that their intuition meant absolutely nothing.

In light of this exact circumstance, I would bet (on a futures market) that next election cycle there is simply a lot less hay made about polls and combo-polls and statistics and the like. You are right that they had their ass handed to them, the sad thing is there are plenty of other completely baseless things to talk about every election cycle; the way the last one ended will just push the loudmouths to ranting about something else instead. And to those that do remember, there will just be a half-sentence at the end of each article to the effect of "statisticians were highly accurate in predicting 1 of the last 57 presidential elections."

Way ahead of the curve (2)

srussia (884021) | about 2 years ago | (#42028301)

FTFS:"Let the blowhards bet!"

Apparently, Slashdot already lets the blowhards appear on the front page.

Get your own blog Bennett, or just submit the link FFS.

Betting on hurricanes (1)

Hadlock (143607) | about 2 years ago | (#42028319)

There's been an ongoing doctoral study in (at?) the University of Miami for about a decade now, it's a futures market where you can buy and sell futures of whether or not the hurricane will hit a particular region. I think it's still going on, but the idea was to see if the free market could accurately predict weather phenomenon among other things.

Why stop here? (1)

krisamico (452786) | about 2 years ago | (#42028451)

Political futures options, collateralized political obligations, political swaps / swap options. We need to give these Harvard MBAs *less* things to sell, not more, for Christ! These dumb products allow banks to pull the money truck up to the discount window and spend it creating "assets" that blow us all up later instead of investing in something that's real!

Let's also not forget to mention that creating these markets affects the underlying, in this case, the elections themselves. Consider as an example how the OTC markets for derivatives on Eurozone debt so obviously blew out the bond yields, creating hardship for millions -- or perhaps how securitizing wheat starved Somalians to death!

Stop thinking up crap to gamble on and do something productive that adds to the economy, or just go away!

Re:Why stop here? (1)

SecurityGuy (217807) | about 2 years ago | (#42029397)

Or perhaps we need to just stop bailing them out when they fail, and start jailing them when what they've done is simple fraud?

My experience (1)

bhlowe (1803290) | about 2 years ago | (#42028459)

Intrade requires two forms of ID to even register, one with a picture, which needs to be manually approved. Then there are restrictions to sending them money for trading. American credit cards, paypal, and electronic checks are not accepted. That left wire transfer and mailed cashiers checks. Regular checks would require 2-3 weeks to clear. There is essentially no easy way for an American to quickly get into the system to trade.

So the pool of traders is much smaller than it could be, which may increase the number of serious players, and reduce the "sports fan" style better who just wants to put money on his favorite candidate. So I think this helps the accuracy of the prediction market. But the imposed barriers to entry also limits the ability for individuals to trade on a single real time event-- a political blunder, an insider tip, etc.

People bet, nothing wrong with it (1)

roman_mir (125474) | about 2 years ago | (#42028481)

People need to bet, people do bet, there is nothing wrong with it. In fact if you are not willing to bet then you are not really making any sort of a prediction.

Samuel Clemens said: " Whenever you find that you are on the side of the majority, it is time to reform." I bet on everything I believe in, my bets don't necessarily go against any specific people, but they go against the majority. So when I say that the fiat currencies are all collapsing (as all fiat currencies do), I make a bet by not holding currencies and instead holding other things, metals, commodities, some stocks in sectors that I think benefit from inflation.

Of-course intrade makes sense if you want to bet against specific people. Maybe there should be a distributed betting system, decentralised, the question of-course is: who is going to hold the money in escrow while the bets are playing out? How to ensure safety and anonymity?

Those are technical questions, they can be resolved.

Legalising corruption? (1)

Hentes (2461350) | about 2 years ago | (#42028505)

"You see, Your Honor, I only bet this politician that he won't reduce the taxes on my company. I lost."

another already exists... (1)

andyjb (1625561) | about 2 years ago | (#42028733)

this exists for horse trading - oddsfutures.com

Market forces and Hell. (2)

Hatta (162192) | about 2 years ago | (#42028861)

The fact that a candidate may be doing well in a speculative futures market is no guarantee that he won't drag the country to hell when he wins. America has been heading towards disaster for 30 years under 5 different victorious presidents, and not one of them has done anything to stem the tide of corruption. No matter who won, the country was going to continue its descent into authoritarian plutocracy, and yes I'd bet on that.

Re:Market forces and Hell. (1)

cfulton (543949) | about 2 years ago | (#42030019)

Wow, So, when does it turn out that you are wrong. I mean a 30 year slide is a pretty long slide. If another 100 years pass and we haven't "gone to hell" will it turn out that you were wrong? I think you are like the end of the world people. The end is always just a day away. Luckily that tomorrow has not yet come.

Re:Market forces and Hell. (1)

Hatta (162192) | about 2 years ago | (#42031159)

We have gone to hell, haven't you been paying attention? We blew a trillion dollars on wars no one needed. We jail more of our citizens than any other country in the world. Social mobility is lower than it's been since WWII, and among the lowest of developed nations. Nearly every regulatory agency has been captured by industry. Our education system, our health care system, are the most expensive in the developed world and provide pitiful outcomes for that expense.

Just because you lead a blessed life, and choose not to pay attention to the world around you, doesn't mean the country is doing well.

An Intrade-like site for US Customers (2)

Teppy (105859) | about 2 years ago | (#42028971)

The Commodity Futures Trading Commission regulates all futures trading in the US, and does so quite aggressively. However, they can't sink their claws into Bitcoin: Try http://betsofbitco.in/ [betsofbitco.in] for a US-friendly idea futures site.

Re:An Intrade-like site for US Customers (0)

Anonymous Coward | about 2 years ago | (#42030055)

Seems to have accurately predicted the US Presidential election:

http://betsofbitco.in/item?id=5 [betsofbitco.in]

There's always a way to weasel out (1)

Sloppy (14984) | about 2 years ago | (#42028975)

If Kang wins the presidency instead of Kodos, that will tend be symptomatic of really bad voting by a tragically uninformed citizenry, and probably correlate with a bunch of other races too. If people are stupid enough to vote for Kang (holy crap, we're not really that stupid, are we?!) then they're probably also voting Kang's party into power in the House and Senate too. So Kang, an evil moron of a president, is probably going to have a Congress of evil morons putting bills on his desk, which he'll sign and thereby destroy the country.

Kang will be a bad president. That's a fact. Sure, I'll gamble on that (him being a bad president), because it's no gamble at all. But I've got an out: it's only probable (and no, I can't estimate it) that all the other races, whose outcome are going to either enable Kang's evil or not, will go that way.

If Kang is elected and the really horrible shit doesn't happen, it's because plenty of people from Kodos' party got into the House to block him. So while Kang has bad policies, but I have my excuse for why inflation didn't hit 15%. That doesn't mean the Kang/Kodos issue doesn't matter and that the stakes weren't just as high as a 15% inflation rate risk, though. So my incorrectly-labeled "alarmist hyperbole" was actually reasonable argument. I may have lost the presidency debate but obviously I won the bigger picture by winning some races for Kodos' party. Or maybe even Kang and his own people decided to be less evil and moronic, thanks to my words of warning that inflation is about to go up to 15%.

I was right, even though the facts suggest I was wrong, and I would have technically lost my bet. ;-) Indeed, this is likely to happen, so I won't place the bet to begin with.

works for winners too (1)

Sloppy (14984) | about 2 years ago | (#42029467)

BTW, this works for winning, too. Kodos is the 0% inflation candidate, over pro-inflation Kang. But if Kodos is elected and inflation doesn't fall, it's because of those Kangist obstructionists in the House. That doesn't mean I was wrong in my assertion that he was the anti-inflation presidential candidate; just that it's something I couldn't reliably bet on, due to concerns over external forces and events.

I can blame externalities for any failed prediction, and blame my lack of betting on fears of those potential externalities. If we were talking about a huge series of small bets, where over the long haul, my tendencies toward political enlightenment would be proven to my profit, sure. But you're talking about a bet on a presidential race. I'm a mere mortal gambler, not a casino; I can't take a long view or exploit a statistical edge using volume. A single $500 bet every four years (approximately dozen bets over the course of a typical adult life) is far too small a sample to demostrate anything. By the time my amazingly awesome perfect political views are confirmed, I have been dead for centuries.

Securitization ... (1)

PPH (736903) | about 2 years ago | (#42029045)

... of the US political process is now complete. Once this passes into law, the suite of financial products needed to buy and sell campaigns and candidates is complete.

Thankfully, after the mortgage security collapse, the next target was going to be health and life insurance (think of me shorting your grandpa). But Obamacare drove a coffin nail into that plan. So give them something to trade that was already being bought and sold under the table anyway. At least now we'll be able to see the movements of the big players on the stock ticker.

Re:Securitization ... (0)

Anonymous Coward | about 2 years ago | (#42043437)

Apparently you already could short someone's grandpa...

http://www.thisamericanlife.org/radio-archives/episode/477/getting-away-with-it

Submitter Doesn't Understand What Futures Are (1)

Revotron (1115029) | about 2 years ago | (#42029097)

A "future" in commodity trading is a legal contract between two parties that says "I am obligated to buy X amount of {commodity} at price Y on date Z." Many people speculate with futures, but they are most often used by suppliers and manufacturers to establish some financial stability from price fluctuations in a volatile commodity market.

Unless you're looking to buy a politician as a personal slave at some point in the future and want to protect yourself from price fluctuations, you are completely off-base and need to do a little more reading before you make yourself look like an even bigger idiot.

Re:Submitter Doesn't Understand What Futures Are (1)

Bieeanda (961632) | about 2 years ago | (#42030839)

This is unfortunately typical of Haselton's meanderings. God knows why they keep giving him a soapbox here.

TL;DR = Put your money where your mouth is. (1)

JoshDM (741866) | about 2 years ago | (#42029121)

Seriously, why was that term not even used once in this article?

Re:TL;DR = Put your money where your mouth is. (0)

Anonymous Coward | about 2 years ago | (#42029261)

Because that would make for an incredibly short submission and we wouldn't think the author was nearly as smart as he wants us to think. It wouldn't give the author time to sit there and spew his incompetent verbal diarrhea all over the Slashdot home page.

This submission reads like Lucky's monologue from Waiting for Godot.

why can't we have sports betting or even some thin (1)

Joe_Dragon (2206452) | about 2 years ago | (#42029717)

why can't we have sports betting or even some thing like pro line that is run by the lotto?

Re:why can't we have sports betting or even some t (1)

ub3r n3u7r4l1st (1388939) | about 2 years ago | (#42031219)

Ask the Christians.

God damn, let the state lotto start doing horse and sports betting, if you don't want the private sector to be in it. It works well in most Asian countries.

Obvious odds to give: (1)

Hartree (191324) | about 2 years ago | (#42029905)

"but also provide a tool for quieting partisan blowhards who think the opposing party's candidate is going to drag the country to hell"

My bet: I'll go three to two that the writer of this submission is a partisan blowhard who thought the opposing party's candidate was going to drag the country to hell.

Moral hazard (0)

Anonymous Coward | about 2 years ago | (#42029925)

Even more than usual. I'm not sure I *want* a lively betting pool on whether or not electing Romney will bring on the zombie apocalypse.

On top of that, 47% or so of people won't have the money to partake. Maybe Joss Whedon can afford to take a bet like that [youtube.com] , but I sure can't. I like the general idea of using money to provoke people into really thinking about things, but on the other hand, I know that $100 to some people is something thrown away on a whim, whereas for other people that might be a week's grocery bill. This will inevitably skew the results.

If you really want to see what will happen, give everyone $1 to bet "for free", and then let them trade. Good luck trying to implement that reliably, but if you could, I think it would go a lot further towards the ideal that you are describing, rather than the skewed farce that would result from people having very different resources to toss into the ring for the sake of the argument.

Fundamentally flawed (2)

Vainglorious Coward (267452) | about 2 years ago | (#42030125)

...to the extent that betting markets are an accurate predictor of political outcomes

But that is the fundamental flaw : betting markets are not an accurate predictor of any kind of outcome. The prices in a betting market are set and moved by the bookmaker according to the bets placed; the odds move according to what the bookie stands to win or lose based on the current bets. Sure, the bookie makes an educated guess when setting the intial price, but after that, the price is entirely driven by bets received.

Imagine that there were such betting at the last election. If Rove dropped hundreds of millions to back Romney, what do you think that would do the betting price? The odds would be "predicting" a Romney landslide, but it would be no more a predictor of reality than all those blowhard pundits.

.

Re:Fundamentally flawed (1)

SleazyRidr (1563649) | about 2 years ago | (#42031121)

It's like croudsourcing. If "everyone" thinks Romney will win then his price goes up. Then people see that Obama's price has fallen people decide to buy in at that price. If Rove did drop hundreds of millions on Romney, then all the Obama supporters would have ended up with the money, so over a few generations people who are better at picking the president would get richer, while the people who back their party against the wishes of the greater population would lose money.

don't bet on things affected by murder (1)

gr7 (933549) | about 2 years ago | (#42031151)

You shouldn't let people bet on things that are strongly affected by murdering one person such as election results or who wins american idol. Or if you allow this then the max bet needs to be well under the cost for a cheap hit.

Limiting bet sizes hurts accuracy of the market (1)

gr7 (933549) | about 2 years ago | (#42031275)

The more sure you are about something the more you are willing to bet.

One of the reasons markets are more accurate than pundits is that some of them have inside information of sorts.

The reason intrade is useful for predictions is that the people who bet there do very careful research. For example when betting on American Idol vote-offs they look carefully at the data at dialidol.com. The people who don't look carefully quickly learn not to bet on intrade as they lose too much money. They also used to be able to look at download quantites on itunes for the previous week's singers songs. There is data out there that is tricky to find and the people who find it sometimes jump on intrade and make a bet. Instead of trusting someone to integrate all the data, it's easier to let the people betting at intrade do it for you. Also some of those people are friends and they chat about the data and how they interpreted it and argue about what it all means. The smarter people make the most money and keep at it, and they are the ones with their bigger bets that set the market price accurately.

There were hundreds of poll results but making heads or tails of it and including the electoral college of each state and figuring out which polls are biased and so on is a lot of work. Easier to just check intrade - let the experts (not pundits) make the bets.

If democrats tried to fool intrade by betting on Obama, then why did Obama's price go down so much after the first debate?

Maybe manipulating intrade isn't that easy in a big market like presidential win?

Bitcoin futures market is already emerging (0)

Anonymous Coward | about 2 years ago | (#42032719)

Guys at ICBIT [icbit.se] run it already for a year or so. It's not gambling though, it's a more serious futures trading stuff.

Thats what a super pac is (0)

Anonymous Coward | about 2 years ago | (#42034247)

I fail to see how investing in a SuperPac is any different from betting. They place their bet of millions and if they win, they get a foil who will get them billions

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