The Betting on the Presidential Election Has Begun

Financial journalists love Wall Street aphorisms. I use them whenever I can.

“Don’t fight the Fed” has been handy this year. “The stock market climbs a wall of worry” is useful whenever investors are fretting.

Here’s one I’ve never been able to drop into an article — not yet, anyway: “It is an old axiom in the financial district that Wall Street betting odds are ‘never wrong.’”

But nearly a century ago, on Sept. 28, 1924, one of my anonymous predecessors at The New York Times (bylines were uncommon then) used it. That hallowed saying could be repurposed today, except for a formidable problem. It refers to the betting on elections that took place on Wall Street, which was commonplace back then — and covered extensively in The Times and other major newspapers, as an important source of information about national, state and local political contests.

Today, except for indirect and elaborate financial hedges on the policy implications of election outcomes, outright betting on elections is no longer a core part of American finance.

Legal battles are underway to change that, however. And in the meantime, three prediction markets — PredictIt, Kalshi and the Iowa Electronic Markets — continue to operate and generate compelling insights. With any of them, it’s possible to make bets on who will win the 2024 presidential election and on a host of other consequential matters.

Markets Versus Polls

I’ve used prediction markets for years, especially during election season, much as my predecessors presumably used the Wall Street election betting markets — not to place bets but to obtain information.

I don’t depend on these markets, and don’t buy the notion that they are superior to other means of obtaining information — or that they have the ability to reliably predict the future or change the world.

Even so, they are illuminating. Some studies have found prediction markets to compare favorably with polls, especially when you are weeks or months away from voting. And when an issue or an election is important, one can never have enough data.

Right now, for instance.

The latest New York Times/Siena College poll shows that for the 2024 election, President Biden is trailing former President Donald J. Trump in five of six swing states. Both PredictIt and the Iowa market indicate, however, that most people placing wagers on those sites believe that in the end Mr. Biden will win.

Which Question?

John Aristotle Phillips, who runs the PredictIt market on behalf of Victoria University of Wellington, a New Zealand institution, said in an interview that there were frequently major differences between the findings of the polls and the prediction markets. That’s entirely normal, he said. “Polls and prediction markets ask different questions.”

A poll asks who, right now, you would prefer as a candidate. But a functioning market that demands real money for a trade asks something else, he said, “not who you want to win but who you think will win.”

As a sports fan, I understand the difference.If you asked me which baseball team I wanted to win, I’d always pick the Mets. But over many decades, they have usually disappointed me. So if I had to put money down, I’d never bet on them.

What do I really think? It depends on which question you ask.

The State of Play

Kalshi, PredictIt and the Iowa market operate legally but function under specific limitations.

One general problem is that “no states allow betting on political events and, if it was allowed, it would be on a state-by-state basis,” said Cait DeBaun, vice president of the American Gaming Association, which represents the gambling industry. You can’t avoid enticements for betting on sports if you watch a game on television in most major markets, but you won’t see ads for bets on politics. They aren’t permitted.

But both PredictIt and the Iowa market offer overtly political wagers under academic exemptions granted by the Commodity Futures Trading Commission.

The Iowa market, which started in 1988, is the most purely academic of the three. It is devoted entirely to research and teaching, but is open to anyone who wants to place a wager.

PredictIt is operating under an academic exemption, too, but it has had to fight to retain it. The C.F.T.C. withdrew its permission in August 2022, and ordered the site to shut down, saying it had strayed from its academic mission. But PredictIt won a court injunction allowing it to continue operating, and it is suing the C.F.T.C., seeking permanent authority to run its market.

It has 19 contracts running now, but Mr. Phillips said he expected to offer “hundreds” soon. “We aren’t going anywhere,” he said. “We’re going to keep operating.”

Kalshi, the biggest of the three sites, is the most constrained at the moment in betting on politics. As a commercial derivatives market, it can accept trades amounting to scores of millions of dollars.

It already runs prediction markets on inflation, unemployment, oil prices, Federal Reserve policy, government shutdowns, the temperature in Austin, who will win an Oscar and President Biden’s approval rating. The consensus forecasts are often on the mark and extremely useful.

But what Kalshi has been unable to do is run a market predicting which political party will control Congress. The Commodity Futures Trading Commission has turned it down, saying that would violate prohibitions on election contracts implied by the Dodd-Frank Act of 2010. So Kalshi sued the C.F.T.C. this month.

In an interview, Tarek Mansour, a founder of Kalshi, said that he would ultimately like to start markets on presidential elections and on a range of other contests. “Betting on elections is as old as the United States,” he said, adding that if that betting isn’t done through a careful marketplace like his, it will happen elsewhere anyway.

Already, he pointed out, sophisticated and well-financed investors can hedge against the risks of election outcomes through bespoke derivative contracts arranged by investment banks. “Why limit these trades to the very rich?” he asked. “We want to make this kind of hedging available to the average investor.”

I said that I would call these “trades” bets.

He said, “I wouldn’t disagree.”

Betting on U.S. elections takes place abroad. Betfair in Britain runs a robust market. And unregulated offshore betting is conducted on Polymarket, which uses cryptocurrency and was fined $1.4 million by the C.F.T.C. for running afoul of its rules. Then there’s FTX, the failed cryptocurrency exchange that was headed by Sam Bankman-Fried, who was convicted this month on seven counts of fraud and conspiracy. It ran an unregulated, offshore prediction market in the 2020 election cycle.

“Driving these markets offshore doesn’t make sense to me,” Mr. Mansour said.

I’ll leave these legal matters to the courts and the regulatory agencies to decide.

But like my journalistic predecessors, I welcome the data trove that betting on elections provides. I’m hoping the entrepreneurs who run prediction markets will keep the information flowing, so we can really test the truth of the old saying, “Wall Street betting odds are never wrong.”