BEYOND THE OPINION POLLS

Ignore the surveys — a new tool is helping to predict elections

The aftermath of the 25 October election is as follows: happy faces in the group supporting Mauricio Macri, worried faces in the Victory Front (FpV) crowd, and egg on the faces of the pollsters who did an interesting job out of getting most of their forecasts wrong.

A more private consequence for many was an increase in calorie intake for the numerous Argentines who were collecting their winnings and paying off their debts, as a result of gambles they made on the outcome of the election.

“A dinner says that (Macri/Scioli) wins on 25 October” was a phrase repeated in many social circles over the last month.

A very Argentine tradition, it’s bad for those watching their weight but with great benefits in terms of amusement, friendships and socializing.

Whilst Argentines were settling their particular gambling debts, in the United States a more institutional commemoration was taking place. The “PredictIt” organization celebrated its first year in business. (http://www.predictit.org/)

This is the latest tool available for political practitioners. In its own words, PredictIt “is a new real money game that tests your knowledge of political and financial events by letting you make and trade predictions.” And this organization is not the brainchild of a Wall Street broker. It is a project of the Victoria University, in Wellington, New Zealand, which was “set up to research the potential value of prediction markets in understanding the future.”

For good measure, the people from PredictIt end their presentation with the enticing line: “Our job is to study the wisdom of the crowds, yours is to make you most educated prediction.”

The “game” is quite simple. Predictions about future events are formalized by buying shares in the outcome, either “Yes” or “No.” Each outcome has a probability of between one percent and 99 percent, with the sum of the two always naturally adding to 100 percent. And these percentages are then converted into US cents.

This is not a high-stakes betting game. The limits are quite low and the money element is a device to encourage players to play rather than being the object of the business. The highest possible single deal is currently US$850. In fact, its 37,000 members have traded a total of approximately US$10 million, which averages out to about U$S270 per individual.

The object of the exercise is orientated toward research, in as much as prediction markets like this one are attracting a lot of academic and practical interest. And, perhaps more importantly, what happens in the PredictIt markets can have an immediate impact on “real-life” politics.

Recently, staff of the US Republican Party presidential candidate Jeb Bush learned this at their own expense. They use PredictIt as one of the indicators about their candidate’s chances. And when the predictions market indicated that Marco Rubio was ahead of Bush in the Republican party race for the nomination, campaign donors started to shy away. And in US politics at the moment, it seems easier to recover from a temporary setback to your ranking in the game than from having your donors looking for the exit door.

Fans in Wall Street

According to Bloomberg, the case of Jeb Bush is not isolated. In their view, Wall Street donors (obviously, amongst the biggest contributors to campaigns) look more at information offered by the likes of PredictIt than at opinion polls. The view, held by many economists, is that betting markets are more accurate in predicting political events than opinion polls. Even if they have a lower number of participants.

Interestingly, this prediction market offers numerous themes and options on which to bet that go way beyond the US presidential race. Amongst the US topics open to prediction are if — after the 2016 elections — the party which wins will be unified in government and Congress. Which is possibly related to the primaries and their occasionally bitter quarrels.

Or you can bet on whether a law will be passed by Congress. On international matters, the market is open on issues like whether Venezuelan President Nicolás Maduro or Brazilian President Dilma Rousseff will last out their terms in office. You can even bet on the possibility of a woman becoming the next UN Secretary General.

But there appears to be no Scioli-Macri option on PredictIt. It’s left to you ,dear reader, to imagine the possible questions/options that could be offered around this issue — and the odds.

@andresfederman

CREDITS: BUENOS AIRES HERALD