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Betting on Political Races: My Penny-Ante Hobby May Soon Be Banned

by | Jun 17, 2024 | *Financial Awakenings, In The News, Investment, Money Psychology, Personal Notes, Weekly Column | 0 comments

Four years ago I confessed in a column that I was guilty of day trading. Except that, as a political junkie, I trade in election outcomes, not stocks. I have no interest in betting on anything else, including sports and equity markets. My speculative adventures have been in the world of political prediction markets, specifically with PredictIt.

The 2016 and 2020 elections were particularly thrilling, and I followed them like a financial day trader timing the stock market. I would check my bets almost daily, reveling in the adrenaline rush of watching my candidates rise and fall in the polls. When my candidates were winning, I was ecstatic, riding the high like any gambler hitting a streak. But when they started to lose, I was a ball of anxiety, torn between cashing out to cut my losses or doubling down in the hope of a turnaround. Much like any speculator, I had my fair share of highs and lows.

As you would expect with day trading, my long term results were not pretty. Since the 2016 elections I’ve lost around 45% of the money I bet. Fortunately, I haven’t gone as far as to risk my 401(k); the total sum of my investment in 2020 was $10. When it was obvious I could only continue if I ponied up more money, I toyed with risking another $50 but just couldn’t stomach it. I added another $10, bringing my total “investment” to $20.

Now, it seems my fun might be coming to an end, according to a May 25, 2024, article in Vox by Dylan Matthews, “People bet on sports. Why not on anything else?”. The Commodities Futures Trading Commission (CFTC), the federal agency that regulates financial products like derivatives, has voted 3-2 to propose a ban on “event contracts” on elections, sports, and even events like the Oscars. While this rule probably won’t take effect until after November, it spells bad news for anyone hoping to place bets on the 2026 midterms.

The rationale behind the ban on prediction markets is quite straightforward: the CFTC contends they provide valuable information about future events. While such predictive information might seem trivial in the case of the Oscars, the CFTC contends that, for something as significant as presidential elections, the disruptive potential of swinging votes is too high.

I wonder if the CFTC might make the same judgment about traditional polling. Most candidates would privately contend their campaigns clamor for all the help they can get in forecasting election results, whether from polling or betting markets.

I find the arguments in favor of prediction markets compelling and the opposition rather ridiculous. Sports betting is now legal in 38 states and D.C. It seems absurd that while betting on a Knicks-Pacers game is perfectly fine, wagering on a Senate race—which could encourage citizens to research and involve themselves politically—is not.

Six Democratic senators have argued that billionaires could unduly influence politics through large bets while also contributing to campaigns. However, billionaires already have significant influence through stock investments in politically sensitive industries. Britain’s long history with electoral betting, legal since 1961, has not resulted in the kind of manipulation feared by these US senators. Instead, those markets have done a decent job of predicting election winners without causing manipulation or chaos.

When the CFTC’s ban takes effect, my hobby of predicting political outcomes—and occasionally getting it right—will come to an end. Unless, perhaps, Congress passes legislation to make betting on democracy as commonplace as betting on the Super Bowl. Until then, I’ll have fond memories of my adrenaline-fueled rollercoaster rides in political prediction markets.

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