It’s Tuesday, and another day for a new group of primary voters in America to cast their ballots in the 2016 presidential nominating contest. While polls and pundits alike have been struggling to predict outcomes this roller coaster ride of a campaign year, a 16 month-old website is proving to be more reliable — and accurate.
Built and operated by John Aristotle Phillips and his brother Dean Phillips who head a nonpartisan political technology company called Aristotle, PredictIt is an online political prediction “market” that allows people to buy shares in a given candidate’s chances in a given state.
This is PredictIt’s first presidential election season. In New Hampshire, there were over 770,000 trades of democratic shares prior to the vote. On March 8, Michigan had over two million trades.
The PredictIt “market” predicted both results accurately.
“This is, by far, the most interesting work I’ve done in years,” says John Aristotle Phillips, the man famous for submitting a plan for a nuclear bomb, as a term paper when he was a junior at Princeton in the ’70s, reports Ben Collins of The Daily Beast.
Since then, he’s been working on the stuff that has redefined how candidates campaign. He and his brother created one of the first computerized voting lists in the ’80s, for example, and his companies have worked with every White House since Ronald Reagan’s.
Their latest project combines their deep experience in the digital world, with their expertise in the political world, to create what is essentially a political stock market.
A POLITICAL STOCK MARKET
PredictIt turns every election, decision, or happenstance into a simple “yes” or “no” situation, writes Alex Bostic for The New Hampshire, where users then place bets for or against a situation and buy multiple “shares” against the dollar at a price the user and the market set, much like the New York Stock Exchange, but at a miniature scale.
In a short time, PredictIt has become the largest political trading system in America.
But to PredictIt, writes Jessica Contrera for the Washington Post, the business goal is not to make profits or secure fairness but simply to make a clear and accurate prediction model based around markets, and insider trading only makes that model more accurate.
“We’re actually currently not making money,” says Brandi Travis, Chief Marketing Officer at PredictIt and parent company Aristotle Inc., with a laugh. “There’s a 850 dollar limit per contract (per each singular “yes or no” bet). And we charge a fee of only 10 percent profit and 5 percent withdrawal but that’s to help pay for expenses, our main objective is to find out more (accurate) information. [PredictIt] is an educational, prediction market project.”
“We provide the technology,” says Phillips. “Once the data is collected, it’s anonymized, and then there are research agreements with almost two dozen U.S. universities and Oxford University.”
So what exactly are academics learning from watching these transactions?
As people have stopped using landlines and participation rates for polls have dropped, writes Sarah Zhang for Wired, prediction markets have, in their short history, acquired a reputation for being quite good at predicting political outcomes.
They also have the advantage of reacting in near real time — like to news as it breaks or a debate as it’s ongoing. “They give us time very, very granularly,” says David Rothschild, an economist at Microsoft Research in New York who’s partnered with PredictIt to get a look at its data. “The markets have really been ahead of the polling and ahead of the pundits.”
PUTTING YOUR MONEY WHERE YOUR MOUTH IS
To UNH finance professor Richard Kilbride, the market always knows best. “The market itself is a polling and voting machine,” said Kilbride.
“A funny thing happens when people try to figure out what is going to happen tomorrow or a week down the road, Phillips tells Paul Solman of the PBS NewsHour. And if I can put a little bit of money in the outcome that I’m expecting… It all of a sudden becomes a matter of pride, but it also becomes a matter of focus. You want to see how your investment’s doing.”
“These traders not only pay more attention to politics, but they also are more likely to vote,” Phillips tells Paul Solman of the PBS NewsHour. “Even though it’s only a $1 winner take-all-contract with an $850 limit, it still starts to cause you to think about things differently, and that’s the magic here. It may be that it is an engagement tool for the 20-year-olds.”
“There’s real promise in this community,” says Phillips. They’re up to 17,000 active traders every month.
HOW IT WORKS
Here’s how it works: Think Donald Trump is going to win the whole thing? He’s at 29 cents at press time writes Jessica Contrera for the Washington Post. Put 29 cents down today and you can win 71 more cents over the course of the election.
As Jessica Contrera writes for the Washington Post, PredictIt breaks the election cycle down into a near-endless list of yes-or-no questions: “Will Bernie Sanders win Hawaii?,” “Will Ted Cruz win the Republican nomination?,” and even far-fetched scenarios such as “Will Paul Ryan win the 2016 presidential race?”
Traders can buy “yes” or “no” shares on each question. As with the stock market, the price for shares is determined by the supply and demand as traders buy and sell them. As of last Wednesday afternoon, the hive mind of PredictIt traders seems to think that Ted Cruz has a 79 percent chance of winning next week’s Wisconsin primary: “Yes” shares wagering on his victory were going for 79 cents — a spike upward from 59 cents the previous night — which means that a “no” share wagering on his loss would cost 21 cents. The winner takes home $1.
They all would have done well to bet “yes” on Donald Trump last summer. Back then, the shares wagering that he would win the GOP nomination were going for a mere 12 cents. On Wednesday, they were at 61 cents (but falling again, after hitting 80 cents a month ago).
In the last few days before the March 8 primary, Sanders “shares” in Michigan went up, much past Clinton’s; the PredictIt market was making a very clear prediction that the polls and pundits did not see.
And the Michigan polling bundle made ripples in the election. Not only did Michigan light a fire under the Sanders campaign, it undermined the subsequent elections whose polls and pundits predicted Hillary Clinton to win. Up until Michigan, Clinton was winning 64 percent of the voted states, but she went on to only win 53 percent of the states that voted after. And most recently, Sanders has won 5 of the last 6 states.
FiveThirtyEight’s Nate Silver swears by these things. In 2012, right before President Obama was reelected and Silver correctly predicted the outcome of every single state, he wrote, “I am far from an efficient-market hypothesis purist, but markets are tough to beat in most circumstances.” Back in 2012, it was a website called InTrade, which has since been shut down. InTrade nailed the right winner of all but one state in Barack Obama’s reelection.
How will PredictIt do this go-round? More results will come in tonight.
It was another primary-night Tuesday at a K Street bar, and the booths were filled with nerds who couldn’t stop talking politics. So goes every night in Washington, but something was different here. The shadowy basement of PJ Clarke’s was brightened by screens — phones, iPads and laptops — in the hands of beer-sippers in rumpled button-downs. They were talking Trump and Cruz, approval ratings and Supreme Court picks — and how it all added up to sweet, sweet money. Read more at: washingtonpost.com