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Prez Box

Every Living Room a Betting Window

www.johnkerry.com

By Jill Yesko | Posted 2/4/2004

Placing bets on the outcome of a presidential election is illegal in the United States, but that doesn't stop bookies in other countries from taking money from those who want to wager on this year's balloting. Wagering on the political processes is a popular pastime in Europe, Mexico, Central America, and Australia, where betters frequently play the odds on both their own countries' elections and international political happenings. Internet betting sites like BoDog.com, which is registered in Costa Rica, offered early odds, 3-to-1 in September 2003 that listed Massachusetts Sen. John Kerry as the second-best bet to win the Democratic presidential nomination. The site predicted at the time that Kerry "could have been seen as the favorite" but for dissension within his ranks. More recently, Kerry was boosted at Bodog as the favorite for the nomination, with odds of 1-to-2. Interestingly, the site also posted odds on New York Sen. Hillary Clinton, though she never declared any intention of running for office.

British wagering Web site Betfair.com, which allows users to bet on everything from cricket and snooker to the weekly high temperature at Dublin Airport, also lists Clinton as a potential horse in the race. Not surprisingly, her odds are bleak, at 64-to-1, though not as bleak as former Vice President Al Gore, who is listed at Betfair with odds of 549-to-1. The site lists Kerry as the top Democratic contender, with at 4-to-1, trailed by Howard Dean, at 15-to-1. The site gives the Republican Party 3-to-1 odds on keeping the White House.

Closer to home, the Iowa Electronic Markets (IEM), a part of the University of Iowa's Tippie School of Business, allows anyone to buy and sell "contracts" that predict U.S. election results. Trading accounts can be opened for anywhere from $5 to $500. The IEM, which has been in operation since 1988, functions legally with the permission of the federal Commodity Futures Trading Commission. As long as the IEM operates within certain guidelines, the CFTC has agreed not to take action against it. Technically, it's not gambling--the IEM is a not-for-profit endeavor, and its board members say that it's primarily an educational research tool that gives students an incentive for actively studying the link between economics and political events.

Forrest Nelson, professor of economics at the University of Iowa and a board member of the IEM, says the system is based on the assumption that the U.S. financial markets are the best predictor of presidential elections. In the last four presidential elections, Nelson says IEM's predictions have come within 1.5 percent of the actual vote.

According to IEM co-director Tom Rietz, the IEM prices foreshadowed the former governor of Vermont's falling popularity before the Iowa caucuses. He fell from a high of 74.9 cents on Dec. 13 to just 51 cents the night before the caucuses. By the end of the evening, his price was down to 35 cents.

As of press time, the IEM showed Kerry surging ahead of the other Democratic candidates. His stock was selling for 37 cents per share, compared to North Carolina Congressman John Edwards at 4.4 cents per share and Dean at a dismal 1.9 cents per share.

Though many politicians and activists find the practice of online betting distasteful, there are some who say that predicting futures is a more accurate form of predicting elections than polling.

IEM co-directors Rietz and Joyce Berg wrote in a January paper, "Prediction Markets as Decision Support Systems," that the IEM could be used by political parties to determine which candidates are most viable

"Prediction markets produce advance forecasts of election outcomes that outperform the natural alternative of polls," Berg and Rietz wrote. "Thus, using prediction markets to form early perceptions may reduce errors in inference, leading to more viable nominees."

The two professors specifically singled out Dean as one candidate the IEM predicts the odds are stacked against.

"At this point, the IEM shows that Dean is not a strong candidate to run against Bush," Berg announced on Jan. 16 in the IEM news release about the paper. "There are other Democratic candidates that are predicted to fare better against Bush."

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