Politics are Inevitably Fun
It was just a matter of time before the vortex of politics sucked me in. Since arriving in France, we've been through:
- An intense period of social security "reform" that resulted in weeks of protests and a long, stinky garbage strike
- The resignation of a sitting prime minister
- A European Union election that led to ...
- The dissolution of the French parliament followed by ...
- A snap parliamentary election that produced no governing majority, culminating in ...
- The appointment of a new prime minister from the coalition that won the fewest seats in the snap election
There was also a little sideshow vote on whether electric scooter services like Lime would be allowed to operate any longer on the streets (and by extension, the sidewalks) of Paris. A whopping 13% of voters turned out, 90% of whom voted to get rid of them. And it happened: one day, all the rental trotinettes were gone.
But what recently focused my mind on politics was the receipt of my overseas absentee ballot. As far as the US presidential election goes, my choice was never in question. In fact, I'm perpetually baffled that once the state primaries are over, there are actually people who remain undecided about who they will vote for. They must either pay way too much or way too little attention to the candidates and the issues, or even to their own minds and principles (if any).
But I'm not writing to bash the pathologically indecisive, nor either of the presidential candidates, nor the two major parties. This is about getting down to the nitty gritty of why people follow politics at all: entertainment and gambling.
Unless you work for a political campaign, there is really no compelling reason to pay attention to polls showing who is in the lead, who is moving up, who is moving down, who is doing well with soccer moms or suburban farmers. Maybe if you lived in one of those handful of districts in places like Arizona, Georgia, Florida, Pennsylvania, Ohio, Nevada, North Carolina or Florida (whew, long list this year), where a few votes could override the choices of massively populated states like California and Texas--sure, you might volunteer to work a phone bank or to paper the neighborhood in doorhangers if your candidate is lagging a bit behind. Or you might rationalize giving up entirely if they're way behind.
And I doubt seriously that anyone uses poll results to help them decide how they will cast their vote on election day. Except maybe those pathologically indecisive people. For all I know, they just give up and say "Why not? 51% of people can't be wrong!"
But mainly, following presidential elections is fun. It's fun to get all worked up about how idiotic half the country is (choose for yourself which half is which) and why some people can't make up their minds between two candidates with radically different agendas, styles, and visions for the future. It's fun to get reassurance that your preferred candidate could in fact win. It's fun to boast idly that you're going to move to (ahem) Canada if your candidate doesn't win, and to wonder how the fuck can they be trailing so badly this close to the election anyway? What are all these people, idiots?
Of course, nothing in the world is so fun that it can't be made more fun by gambling on it. It's true with sports, it's true with the Oscars and the Westminster Kennel Club dog show (contrary to rumor, those events are not in fact parodies of one another), and it's true with presidential elections.
The real fun in gambling on the outcome of events is that winning makes you feel like you knew more than other people about something out in the world, and that knowledge entitles you to take something of value away from someone else (including their dignity, if the wager specified that the loser perform some humiliating act in public). You were smarter, they were dumber, and that gave you power, however minuscule and fleeting. Fun!
Plus, unlike in actual gambling games such as poker or blackjack, winning doesn't require you to develop any skills particular to the contest. The goal is to have fun, and nothing is more boring than effort. You can wing it, you can play hunches, you can place bets on longshots just for the thrill of thinking about what could happen--probably the real reason so many people buy lottery tickets, rather than any misunderstanding of the reality that they will never win. And then you can aver that, given the huge potential payoff, it was still a reasonable bet.
True story: In the summer of 2001, I placed a $10 bet (legally, in person at a Vegas casino sports book) on the New England Patriots to win the Super Bowl that season. The oddsmakers gave them 75:1 odds. I didn't think the Patriots were underrated. They'd stunk for years. I only bought the ticket to rub those lousy odds in the face of my friend, who was lifelong, diehard Patriots fan. I even gave him the ticket to mount in a frame that read "In case of emergency, break glass." He was a good sport about it. When the Patriots won it all that season, he gave me back my $10 and took me to dinner, paid for from his $750 gains.
On the flip side, gambling on events lets you flatter yourself that you are applying cold, calculating reason, rather than letting yourself get swayed by emotions, or worse, wishful thinking. Only a schmuck bets real money on their favorite team because you never know if it's from the heart or the head. And it's doubly disappointing if they lose--triply, if you bet against a friend who now gets to take you to dinner with what used to be "your money." I can attest to this after years of rooting for the University of California Golden Bears and the woefully pathetic former Oakland Raiders. When the postseasons rolled around, I could just relax and enjoy time away from thinking about even more football.
And this must be what makes gambling on US presidential elections so thrilling. Everybody who is interested enough to participate has some vested interested in the outcome (also true for people who aren't interested, who don't place bets, who don't bother to vote, aren't eligible to vote, or aren't even Americans). Elections have consequences, which means that not only do you get to be right about something if you win, you get to be right about something Big and Important, rather than about something trivial like who wins a sports championship. (This is true even for marquee events like the Super Bowl or the World Cup, which generate and distribute billions in revenues as a matter of course. Except to the team organizations, the fans and gamblers, whoever actually wins it all is beside the point). And since most election gamblers have a personal or professional preference in who gets elected, every bet carries some emotional peril. You can bet on your preferred candidate and never be sure if you are wagering with clear-eyed rationality, or you can bet on the other side and lose a little bit of your soul even before you count your winnings.
In the US, until recently it's generally been illegal almost everywhere to bet on almost anything, but especially on politics. An exception is made for academic markets used for educational purposes, where traders can buy contracts on specific political outcomes. If those terms seem a bit technical (or if you are uncomfortable thinking about markets as casinos), pretend I'm talking about "online books" where "gamblers" can "make bets" on "games."
The most prominent academic election market is the University of Iowa's Electronic Markets (IEM). IEM's exclusive purpose is research and teaching, with an emphasis on how the aggregate of buyers' and sellers' actions in markets can forecast events, and how the potential to earn real money incentivizes traders to develop a solid understanding of an issue based on the careful scrutiny of the highest quality information available. This is where the idea of the "wisdom of crowds" gains traction: implicitly, we can trust that markets produce true (or at least reasonably accurate) outcomes because the participants are properly incentivized to educate themselves about what they are betting on. IEM operates as a non-profit; unlike casinos or online books, it does not make money on trades.
Placing bets on IEM is fairly straightforward. For the vote share elections, you buy a contract with a price that reflects a guess about a candidate's share of the two party vote in the upcoming elections. For example, if the IEM had been in operation during the 1960 election between Nixon (R) and and John F. Kennedy (D), you might have been offered a Republican contract for sale for $0.505. The contract would pay out $1 times Nixon's share of the total vote for both him and Kennedy. Buying 100 shares of this contract would cost you $50.50. If Nixon got more than 50.5% of the vote, you would have made money on the contract. In fact, Nixon received 49.5% of the popular vote, which was 49.9% of the votes for both parties. The contract (actually, every vote share contract for the Republican, at every price) would have paid $49.90, resulting in a $0.60 loss (-1.2% of the contract value).
That's it. IEM also trades winner-take-all contracts, a straight-ahead bet on whether or not a candidate wins the majority of the popular vote. Regardless of the contract price, a winner-take-all contract pays $1 if the candidate wins, and $0 if the candidate loses. It's a pretty straight forward deal and this is where most of the IEM trading volume occurs. It's also the only market traders can expect to win or lose any real money. For example, on election day 2016 (Tuesday, November 8), 24,359 Democratic winner-take-all contracts were sold, at an average price of $0.33. Despite not becoming president, Hilary Clinton won the popular vote and contract holders cleared about $0.67, a 200% return on investment. By contrast, $13,933 were lost by contract holders who purchased the Republican candidate at about $0.75.
I first heard of IEM in 2004 when broad belief in the wisdom of crowds (and specifically in the "magic of the marketplace") was in full swing. Free and unfettered markets were de rigueur, among both (i.e., the only) major political parties in the US, but also in other places as varied as the UK and the People's Republic of China (perhaps more in rhetoric than in practice). At the time, in the midst of a very contentious presidential election (is there any other kind?) IEM's presidential markets were being touted as "better" than polls at predicting election outcomes: both the popular vote shares of the candidates, and the eventual winner in terms of who actually wins outright. While I've never traded on IEM (or any other political market), I nonetheless kept a watch on their prices along with the polls that year. They seemed fine: if I recall, as election day neared, the race became too close for anyone to call. By the end of October 2004, the outstanding IEM contracts on the Republican to win it all were selling for $0.52 and George W. Bush won with 51.2% of the two-party vote. Not bad. (Although that year, contracts were split into an "over/under" format, meaning a lot of the traders who bet on the Republican winner-take-all victory still did not beat the point spread.)
Thusly convinced, it became my habit in later election years to casually refer friends and acquaintances to the IEM market prices whenever they seemed to be fixating on polls showing their preferred candidate's doom or (less commonly) when they seemed overconfident in the bright future that would follow from their preferred candidate's imminent breeze to victory. That's just the kind of friend I am.
But it was only in 2024 when, following the anxiety/glee spiral of one of the presidential debates, that someone asked me, "but how accurate is it?"
And I had to admit that I didn't really know. Partly because I hadn't bothered to keep track of IEM's performance over the several elections since 2004 (including 2016, in which before election day both the vote share and winner-take-all contracts were forecasting a win for the Democratic candidate). But mainly because, on reflection, I didn't understand anymore what was meant by "accuracy." In the usual sense, it would mean how close IEM prices were to the actual result compared to the alternatives (polls). By this measure, there is some question. IEM's last published working paper on the subject is from 2010, and analyzes the results through the 2004 elections. They also include a published paper and a nifty little graphic showing that in 2008 they came closer to the bulls-eye of both the Republican and Democratic vote shares than outlets such as Gallup, Zogby, or the major television networks. But the consensus is that markets generally beat polls, for the incentivizing reasons outlined by IEM, but also because traditional random-sample polling has become highly unstable in recent years. Not many people are willing to answer a random caller to their phone anymore.
Fair enough. But from a gambler's perspective, you don't want to the overall market to be accurate--in fact, you only profit from its inaccuracy at the time you make your bet, and only to the extent that you have an accurate sense that a contract is undervalued (or if you are shorting an outcome, if it's overvalued; but IEM does not allow short sales, so we'll ignore that for now). A book where all the information is good and well disseminated (boo!) is a lousy place to make money (yay!).
From that perspective, it's pretty simple to go back and look at the value of IEM traders' positions at any given time, and compare their payouts based on the purchase price the outcome of the election. Which is exactly what I did (because for me, the next best thing to winning a bet is convincing myself that I am right in a more profound sense of understanding some little obscure aspect of the world in an analytical, social scientific way; for full disclosure it has so far been a very uncommon sensation, and usually very short-lived).
Going back to 2008 election (the earliest year for which IEM data are publicly available), for each calendar day I started with the dollar values of all the vote share contracts, which when divided by the number of units purchased gives the average contract price--that is, the share of the two-party popular vote for either the Republican or democratic candidate. Then I multiplied the units by the actual two-party vote share in that election to get the payout value of each day's contracts, and subtracted the dollar values to get the net payout. Net payouts and dollar values are summed for the entire calendar month in order to represent the rate of return. A net negative rate of return means that for the month overall, the candidate's vote shares were overvalued and contract holders lost money; a net positive rate of return means that the candidate's vote shares were undervalued and contract holders made money (in both scenarios, I can't account for contract holders' profits and losses on purchased contracts that were then traded before election day, all of which would be settled by the election outcome in any case).
I only looked at contracts from August of an election year through election day in November. This roughly falls within the 100-day forecasting horizon used by the 2008 IEM publication , but it's also when when most of the trading volume occurs.
This makes some sense. The Democratic presidential candidate has won every popular election since 1992, with the exception of 2004 (which makes the lack of IEM vote share data for that election particularly unfortunate).
Republican vote shares were systematically undervalued, but generally by smaller amounts (between 1% in September and 7% in August). Again, this partly reflects the 2016 election, for which Trump contracts were undervalued in every month, by as much as 16% in October; excluding 2016, Republican contracts were very accurately priced, with the exception of August when they were undervalued by 3%.
So what does any of this mean? First, and most importantly, any thinking person will agree that doing all this data collection arithmetic, and typing is fun by every meaningful definition of the word.WEREWOLVES ADJUSTMENT FACTORS (WAF)
| PARTY | AUG | SEP | OCT | NOV |
|---|---|---|---|---|
| DEM | -9.1% | -9.2% | -8.5% | -0.4% |
| REP | +6.5% | +0.6% | +4.2% | +1.6% |
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