Union Pub on Capitol Hill wasn’t hosting a normal debate-watching party. Inside and on the patio, yes, onlookers drank their beers or gin and tonics, and watched the 11-candidate GOP field duke it out on-screen. But among the more than 500 attendees, many were also there to make a profit.
On the market, participants could buy “shares” on questions. There were stocks for which candidate would see the biggest postdebate bounce, and there are stocks for who will be the GOP nominee, with real money on the line. The prediction-market website PredictIt sponsored the event.
The way the market works is there is a binary question for each candidate that a trader could buy. For example, someone could buy shares that, yes, Jeb Bush will be the nominee or shares that, no, Bush will not be the nominee. There are also broader political questions, such as “will the government shut down on Oct. 1?” or “Will Greece exit the Eurozone in 2015?”
Brandi Travis, chief marketing officer for Aristotle International Inc., the technology company that helps run PredictIt with Victoria University of Wellington, said markets are often more accurate than polling. Her company got interested in prediction markets after the success of Intrade, the Ireland-based prediction market that correctly predicted 49 of the 50 state outcomes in the 2012 presidential race.
As far as legality is concerned, in October 2014, Victoria University received a no-action letter from the U.S. Commodity Futures Trading Commission outlining how to maintain compliance with the law. PredictIt is only allowed to have 5,000 traders for each question, and each individual investment has a limit of $850.
PredictIt’s website says the purpose is to research whether prediction markets are a more reliable form of measuring a likelihood of an event. A 2008 study showed Iowa Electronic Markets, a prediction market based out of the University of Iowa’s Tippie College of Business, is closer to the election outcome than polls 74 percent of the time.
“So when Intrade was shut down, we thought how could we go about getting this, launching one of these [prediction markets] in the U.S. so that we have access to this information,” Travis told National Journal ahead of the debate. Aristotle’s website says its national voter file has more than 190 million records with attributes such as voting histories. When asked which campaigns use Aristotle’s software and data, Travis said they could not comment.
“We don’t see really polling as a competitor,” Travis said. “And we don’t think we’ll ever replace polling because it’s a very different set of information you’re providing.” While polls ask people what they want to happen or what they feel, prediction markets are filled with people actively going to place money on what is going to happen, which suppresses wishful thinking that may come through in traditional polls.
That was the case with Tom O’Brien. He’s a personal supporter of Sen. Rand Paul, but put his money behind Carly Fiorina, who had positive reception after the debate, and—somewhat reluctantly—in Jeb Bush. He also puts some stocks in Louisiana Gov. Bobby Jindal.
“I’m a realist,” he said when describing his rationale.
Fiorina supporters were emboldened. Maximilian Merrill, a lobbyist who supports the former CEO, put money behind her in the market, saying she was the next Ronald Reagan.
“I think tonight proved that I was right,” Merrill said. “I’ll bet you a dollar at least that Carly … is at the very least the VP nomination” choice.
Ahead of the debate, Travis pointed me to Daniel Kaseff, a student at George Washington University who was sporting a t-shirt with the phrase “I support Deez Nuts 2016” and who Travis told me is one of PredictIt’s top traders.
“It lets me just take what I’m doing anyway as a hobby and translate that into making money,” he said. Kaseff, who also interned for Democratic Sen. Richard Blumenthal, sees himself as more of a short-term trader and said that Fiorina “had a lot of room to climb.” She had the most to gain from the debate, which made her a safe bet.
On the question of “Who would see the biggest bounce?” from the CNN debate, Fiorina’s stock rose throughout the evening. Before it started, Fiorina was at 35 cents, but shot up to 54 cents afterward.
But some of her competitors didn’t necessarily take a nosedive. On the separate question of who will be the GOP nominee, Bush was still in the lead and only dropped by two cents throughout the night, followed by Sen. Marco Rubio, who saw his stock increase five cents after the debate.
Many in the bar were not involved in trading and some were just looking for a place to watch the debate, but for those who were trading, this debate seemed to offer the same excitement that traders get on the stock market floor during an initial public offering.
“When I was in junior high, I liked getting stocks as a Christmas present and I found what I enjoyed doing was playing penny stocks,” said Robert Sinners, vice chairman for membership for the D.C. Young Republicans. “I budget like 25 bucks every two weeks or so. I’ve made some and I’ve lost some.”
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