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Last Updated: Friday, 5 November, 2004, 00:00 GMT
Bush for president? You bet!
By James Arnold
BBC News business reporter

Tradesports.com

The polls were off-beam, the pundits were caught napping, the press didn't cover itself in glory - did anyone confidently predict the result of the US election?

The gambling community, perhaps. A glance at the returns of some of the world's biggest betting exchanges shows that President George W Bush remained a clear favourite with punters right down to the wire.

On the Iowa Electronic Markets (IEM), run by the University of Iowa as a forum for experimental online betting, participants gave Mr Bush a 51.2% chance of re-election on the eve of the poll - a score that tallied precisely with his eventual share of the popular vote, at the last count.

Indeed, electronic gambling is proving so uncanny a predictor of everything from oil prices to football results, that experts reckon it could be harnessed for more wholesome purposes than making money.

Contracts expand

Of course, any betting shop will take a wager on a big political event. The crucial difference of the IEM, as well as commercial operations such as Dublin-based Tradesports.com, is that they offer what amount to futures contracts, similar to those traded on stock exchanges.

TRADESPORTS.COM CURRENT ODDS
Dow Jones index over 10,000 by end-2004:
67%
Democrats win 2008 presidential election:
53%
London hosts 2012 Olympics:
12.5%
Osama bin Laden captured by end-2004:
10%
Tradesports, for example, lists more than 100 contracts in three areas: sports, financial markets and current events.

All work on the same principle as the IEM: a dollar contract on, say, the chances of Hillary Clinton becoming president in 2008 is worth either $1 or $0 on its date of expiry; how much you pay for that contract depends on your assessment of its likelihood. If you think it almost certain, you might pay 95 cents; just under an even chance, perhaps 45 cents.

With some 30,000 traders dealing in thousands of dollars-worth of contracts at a time, the overall result is a keen measure of probability, says John Delaney, the chief executive of Tradesports.

"In opinion polls, people tend to say who they'd like to win," he says.

"But when you have maybe up to a million dollars in your account, who you'd like to win is irrelevant - it's who is going to win that counts."

Rich pickings

With their money at stake, the punters on Tradesports and the IEM seemed far more inclined towards Mr Bush: at no point since the beginning of the campaign did John Kerry gain a lead in their tally - unlike in opinion polls, where he was ahead in summer, and then again just before the vote.

And overall, the backers of these exchanges say they get most things right. Tradesports boasts that it correctly predicted every result in the primary elections, for example. The IEM is said to beat opinion polls in accuracy three-quarters of the time.

Critics are not quite convinced, pointing out that the IEM was off the mark in the 2000 presidential election and the 2002 congressional poll.

A market that predicts things all the time is bound to be right from time to time, say sceptics.

"The old joke on Wall Street is that 'the stock market has predicted ten of the past four recessions,'" notes Barry Ritholz, a financial pundit.

Informed choice

Nonetheless, the general feeling is that electronic betting can be put to some use.

Bush re-election prices
The IEM's founders, Joyce Berg and Tom Rietz, last year argued that the market could be adopted by political parties and other opinion-reliant organisations to help make better decisions.

A proper use of IEM data ahead of the 1996 election, for example, would have told the Republican party that Colin Powell was a far more viable nominee than their final choice, the hapless Bob Dole.

Last year, the Pentagon's Defense Advanced Research Projects Agency (Darpa) was revealed to be working on a betting-type system to predict terrorist attacks.

A media hoo-ha - Democrat Senator Tom Daschle called it "a federally-sponsored casino in death" - persuaded Darpa to drop the project, but the agency remains committed to the principle of such advanced predictive technologies.

What's George up to?

It's the punditocracy that is taking online betting particularly seriously.

So keenly watched are the prices on Tradesports and the IEM among opinion-formers, that there are constant rumours about the markets being manipulated: in the latest - and wildest - such conspiracy theory, Kerry-supporting billionaire George Soros is said to be behind a sharp drop in George Bush's Tradesports price.

It's based on a theory of reflexivity put forward by Mr Soros himself: just as world events influence financial markets, so financial markets can influence the world.

Of course, the Soros manipulation rumour is the purest eyewash, but reflexivity may have something in it: online betting exchanges are already changing the face of politics.


MARKET DATA - 11:36 UK

FTSE 100
5429.64up
23.70 0.44%
Dax
5733.05up
19.54 0.34%
Cac 40
3784.02up
14.48 0.38%
Dow Jones
10403.79up
78.53 0.76%
Nasdaq
2273.57up
35.31 1.58%
S&P 500
1115.71up
11.22 1.02%
BBC Global 30
5707.15up
20.65 0.36%
Data delayed by at least 15 minutes


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