A short history of presidential election wagering

In 2008, 90 percent of gamblers correctly forecast an Obama victory. They were also on the money with 48 of 50 states.

Gamblers’ success in this arena is nothing new. In presidential races beginning in 1896, the New York Times, Sun, and World provided daily betting quotes. The papers’ sources were bookies who had agents at every stump and whistle-stop to gather intel and quantify popular sentiment. Between 1884 and 1940, the bettors erred on just one of sixteen elections, Wilson’s 1916 upset of Hughes.

Ironically, polls sent gamblers to the sideline. “Prior to Gallup’s introduction in 1936, newspapers had little to report about the election horse race other than the betting markets,” [Kansas University economics professor Koleman Strumpf explains]. “When scientific polls came along, newspapers had something to report other than markets they were oftentimes uncomfortable with.”

The same discomfort led to states relegating such gamblers to outlaws. The Internet has given rise to new forums, however. As of this writing [10/25, 5:53 p.m.], betting at the three biggest prediction markets is as follows: Betfair has Obama with a 64 percent chance to win to Romney’s 36 percent; Intrade has the president at 58 percent; and the Iowa Electronic Markets have the president at 59 percent. Oddschecker shows bookmakers to be even more bullish on Obama.

Why are the polls and gamblers so far apart?

“The answer highlights one of the main differences between the polls and markets like Intrade,” Intrade’s exchange operations manager Carl Wolfenden told me. “The polls ask who you’re going to vote for — a question that requires an emotional response. Intrade asks who you think will win — a rational question that requires someone to look at the facts and real world events, such as polls, debates, speeches, gaffes, scandals and crises. One of these facts is the Electoral College, which isn’t accounted for in polls.”

Why the big lead for Obama?

“Our markets recognize that Romney probably needs to win Ohio to beat Obama,” Wolfenden says. “And so the price for Obama to be reelected has closely tracked his probability of winning Ohio. So while Romney may lead in the polls, and he may have flipped a number of other key states — such as Florida, Virginia, Colorado — to his side of the ledger, our markets appear to believe that without Ohio he can’t get it done.”