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 The 28-year-old from Cambridge, Massachusetts, trades on
PredictIt, an online political stock market that allows users to
wager small amounts of money on "yes" or "no" predictions about
whether an event will occur. That includes who will win the U.S.
presidential election in November.
"This is probably one of the ways I restrain myself from being
active in the stock market," said Duhaime, a PhD student at
Massachusetts Institute of Technology Sloan School of Management,
who checks the site a few times a week for fun.
PredictIt, which was launched in 2014, now has more than 30,000
traders registered, up from 19,000 at the end of 2015, and has
received shout-outs from pundits and presidential campaign advisors
alike. Users must be U.S. residents and registered voters.
PredictIt says it is not like an online gambling site because it
mainly exists to supply its data to universities for academic
research, one of the main reasons the U.S. Commodity Futures Trading
Commission allows it to operate legally, according to a letter
issued by the regulator in 2014. It is jointly run by Victoria
University in Wellington, New Zealand, and a Washington-based
political consulting firm Aristotle International Inc.
 Unlike mainstream financial markets, bets are not big: The CFTC caps
each participant's position at $850 per market, and the average
deposit when people sign up is just $100.
The regulator hasn't been as friendly to such betting sites in the
past. In 2012, the CFTC filed a civil complaint against the now
defunct Intrade for violating a ban on off-exchange options trading.
The Ireland-based market also allowed people to wager money on “yes”
or “no” questions, but it wasn’t tied to an academic institution and
didn’t have a cap on the maximum amount that could be traded.
MARKET BEATS POLLING
Predictions markets like PredictIt and a similar venue run by the
University of Iowa have emerged as an alternative to polling for
election forecasters. PredictIt is bigger than the Iowa Electronic
Markets, which has only about 2,000 active traders with access to
its political markets.
"Polling is very expensive," said David Rothschild, an economist at
Microsoft Research who runs a predictions-market aggregator called
PredictWise, which draws heavily from PredictIt. "It's a slow
process. It's not very flexible."
Knowledge of polls does also feed into betting decisions on
PredictIt. "Predictions markets translate this and other information
into probability," said Rajiv Sethi, professor of economics at
Barnard College. "The basic intuition is that it's a 'wisdom of
crowds' effect."
For example, Trump’s chances of securing the Republican nomination
for the presidential election swung dramatically on the site over
the past three months as the primary season progressed. A Trump
share shot from 30 cents in early February when he lost to rival Ted
Cruz in the Iowa primary to 80 cents a month later when Trump
dominated on Super Tuesday. They then lost half their value by early
April as Cruz appeared to regain momentum with a big win in
Wisconsin. With Cruz and another rival, John Kasich, now out of the
race, Trump had risen to 94 cents by Monday.
For graphic showing Trump's ascendancy on PredictIt during primary
season, see http://tmsnrt.rs/1WmRq
For November's election, though, Trump is trailing on PredictIt with
40 cents against Clinton's 59 cents.
While PredictIt's precision has yet to be closely examined by
academics, other predictions markets such as the Iowa Electronic
Markets, have proven to be just as accurate as polls, experts who
have studied them said.
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PredictIt markets go beyond topics related to U.S. elections. Users
also put the probability of a North Korea hydrogen bomb test this
year at only 29 cents, and a British exit from the European Union by
2017 at just 30 cents.
The idea for PredictIt was first thought up in the mid-1990s by Lee
Evans, professor of economics at the University of Victoria.
It took until 2008, for the market, called "iPredict" in New
Zealand, to get up and running.
Early on, it focused primarily on New Zealand politics, and research
showed iPredict out-performed the majority of polls in predicting
the results in two of New Zealand's last three general elections.
However, new anti-money laundering laws in New Zealand put an end to
iPredict last year after the cost of verifying users' identities to
comply with the rules threatened to blow through iPredict's
shoe-string budget.
PRIMARY PARTY
PredictIt attracts everyone from campaign volunteers to political
junkies.
In mid-April, about 30 PredictIt traders gathered at a bar in New
York to watch the state's primary results roll in.
"I think it's a good source of collective wisdom," said Brian
Hegarty, who was at the event.
Hegarty, who worked for Kasich's campaign, reads political news, but
also relied on picking up information through his campaign
experience. That didn’t always translate to a bet in favor of
Kasich. He said he put money on Republican candidate Marco Rubio to
win the Minnesota caucus because he had overheard someone who was
working for the Florida senator express confidence about Rubio's
chances. It turned out to be one of the few states Rubio won before
dropping out in mid-March.
Duhaime, the MIT student, said he usually bets against candidates he
believes are likely to flame out.
"For me, Trump was one of those people," he said. "I shorted Trump
way back in July, and it hasn't been fun watching."
After Trump's win in Indiana in early May, Duhaime was down nearly
$1,000, about a third of the money he put into PredictIt.
"I still think it was a one in a hundred thing," Duhaime, who
doesn't identify as a Democrat but is a fan of President Barack
Obama, said of the Trump phenomenon. "Obviously I'm bummed, but I'm
sort of more concerned for other reasons."
(Reporting by Anjali Athavaley in New York and Charlotte Greenfield
in New Zealand; Editing by Martin Howell)
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