Playing around with Political Betting Markets

I recently read an article published in The Atlantic about conspiracy theorists putting money behind their political beliefs on PredictIt, a political betting platform. Many of these conspiracy theorists are tremendously misinformed, so their bets present the opportunity for more mainstream believers to make money. Intrigued by the idea of trying my hand against conspiracy theorists and putting my reading-the-news-to-procrastinate habit to work, I signed up for PredictIt and put $10 down into various markets. Here’s how it went!


Outline

Exploring the available markets

I wanted to jump into PredictIt to bet against conspiracy theorists writing that Donald Trump would win the Presidency or the popular vote, but by the time I joined these markets had closed. The markets available were less frequented by conspiracy theorists: how many senators would vote to confirm various Cabinet members, which European prime minister would next leave office, or who would win primary and general elections in the United States in 2022.

The markets available offered two or more contracts. A market with two contracts reflects a binary choice: for example, between the Democratic Party and the Republican Party. A market with three or more contracts reflects a more complex choice: for example, between candidates to be mayor of New York.

Several types of market caught my eye. First, markets about things I recognized! These markets concerned Democratic and Republican candidates winning or losing primary and general elections. I bookmarked a few that I thought I’d be willing to put money down on - Kamala Harris filing to run for president by 2023, or who would be the GOP 2024 presidential nominee.

Second, markets about things I didn’t recognize or trust myself to hold an opinion on. There were many markets concerning Biden’s Cabinet appointees - not only who would be confirmed, but how many votes would be cast in their favor in the Senate. A few markets focused on European politics, which I am less familiar with due to reading primarily domestic newspapers.

Third, markets with hidden technicalities. These markets also fell into the above two categories, but as I spent more time exploring them I would realize that their odds or prices were contingent upon a technicality. For example, will Alexandria Ocasio-Cortez run in the 2022 Democratic primary in NY-14? This seems relatively straightforward. If you think AOC won’t run for Senate or the presidency, you probably think she’ll run for the House. Personally, I think AOC will remain in the House in this upcoming election cycle. I was thinking about putting money down in this market. But first, I read some of the comments below the market.

Comments under the AOC NY-14 2022 Dem primary market

Comments under the AOC NY-14 2022 Dem primary market

So: this market is not only about AOC running for the House. It is about whether she will run for the House in NY-14, which is not guaranteed. Do I know anything about redistricting and the assignment of numbers to districts? No, suddenly making this market very risky for me.

Similar technicalities affected most of the markets on whether Biden’s Cabinet picks would be confirmed by the Senate, since they were contingent upon confirmation happening by a set date, like March 1st, 2021. While I read the news regularly, I am not familiar with the schedule of confirmation hearings, closed-door meetings, and other relevant events on Capitol Hill. A lesson in humility!

Reading up on some “advanced” betting techniques

At this point, the easy money betting against conspiracy theorists was looking sparse. I Googled around for some more information on PredictIt, and I read several blog posts about negative risk. Their authors explain it well, so I reference you to them:

Understanding (tentatively) negative risk, I soon learned that everyone else who invests ten minutes or more into this game also understands negative risk. One website actively tracks negative risk using the PredictIt API. PredictIt takes a 10% cut of profits, so the only negative risk you’ll see available is below 1.1. That said, if you were to invest at a negative risk around 1.7 or higher, fluctuating prices might give you a chance at snagging something that sums to 1.1 or more.

Deciding to put money in

Now understanding that no free money was available, I was a bit disillusioned. Nonetheless, I read the news frequently and the idea of putting money where my mouth is was tremendously compelling! At the same time as I was considering entering this game, GameStop share prices were also skyrocketing. Lots of people were putting in money for reasons beyond making money. I paid in $10, which is PredictIt’s minimum pay-in, and I began to invest.

I started with a few contracts I thought were undervalued. The 2021 NYC mayor contract for Kathryn Garcia was available for one cent. That seemed low to me - she’s qualified, even though the primary field is crowded, and Andrew Yang seems overhyped. I purchased 181 Yes shares of her contract for $1.81. Mitt Romney and Joe Manchin contracts on whether they would vote to convict had their prices around ninety cents. I’m pretty sure they’ll both vote to convict - especially Joe - so I purchased a few Yes shares of their contracts. Unfortunately, $10 can only take you so far. Now it was time to wait.

Losing a few cents to react quickly to the news… only to realize I was much too slow

If you’ve been reading closely, you’ll have noticed that I did not bet on the contracts that I originally expressed confidence in: Kamala Harris filing to run for president by 2023, or the GOP 2024 presidential nominee. While I was confident in these markets, I didn’t feel their odds would change quickly. With only $10 to work with and more of a desire to have fun more than make money, I didn’t want to play the long game on those contracts.

One evening I read that Jim Jordan had announced he wouldn’t run for Ohio’s open Senate seat. I rushed to PredictIt - Jim’s odds seemed high at around five cents. I figured his odds would drop lower, so I sold my contracts in Mitt Romney and purchased Jim’s No shares at ninety-five cents.

A few minutes later, Jim’s No shares actually dropped in price to ninety-three cents. Confused, I started reading some of the comments in the Ohio market. It turns out some buyers were betting that Jim might reenter the race at a later date. Verbal commitments are not always binding. To do my due diligence, I checked the history of Jim’s contract prices.

Imagine there’s a pretty graph here showing Jim’s No share price rise to ninety-six cents a few hours before I bought into the market. I thought the data would be available on PredictIt, but it seems it’s not!

I was too slow to buy. Prices had changed in response to Jim’s announcement hours before. The market integrated that information much more quickly than I had anticipated. In hindsight, I’m not sure why I thought I had beat the market in responding to Jim’s announcement. I felt relief that my maximum exposure to PredictIt was limited to $10. This was another excellent lesson in humility.

Settling down on a few markets

Today, a couple of weeks later, I have an array of contracts that I’m more comfortable holding over the next few months. I’m betting that Andrew Yang is unlikely to win the 2021 NYC mayoral race, that Joe Biden is likely to be the 2024 Democratic Party presidential candidate, and that Kathryn Garcia is more likely than two cents’ worth of value to win the 2021 NYC mayoral race. I am nevertheless bracing for another lesson in humility :).

What do you think? Are you willing to bet on it?


Did you find a typo or broken link? Is there anything I can do to improve this post? Please let me know at njcorona@wharton.upenn.edu.

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