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Trading in politics? Don't sell it short

June 27, 2008|JOEL STEIN

I'm up $178.60 on this election. Sure, $100 of that is because I bet my mom that Barack Obama would beat Hillary Clinton, and $50 was because I bet her that John Edwards would drop out before Super Tuesday. And although some would say it's wrong for a son to take advantage of his mom's gambling problem, I think I was showing tough love by taunting her deeply held feminist hopes and dreams in a way that Atlantic City never could.

The other $28.60? It was made at the websites InTrade and Iowa Electronics Markets. I could not possibly have taken money off my mom on these sites because they'd require her to understand bids, calls and how to log into a website.

The sites work like the stock market, only people buy and sell candidates' electability, along with other important world events, like the winner of "American Idol." The candidates' chances are valued on a scale of 0 to 100, with 100 meaning electoral victory. Right now on InTrade, for example, Obama-to-win is the favorite, trading at 64, compared with John McCain at 32.

These "prediction markets" are plenty accurate. The day before the 2004 presidential election, the InTrade market correctly predicted the winner in each state; in 2006, it got all the Senate races right. It seems that when large groups of people gamble with their own money, they're incredibly smart, though that disputes everything I've ever witnessed at a blackjack table.

I started day-trading in politics a month ago. When my $500 check cleared with Iowa, I found my choices there were limited to whether the Democrats or Republicans would win the White House. And when I tried to buy a few hundred dollars of some sweet high-gas-price, high-unemployment Democratic action, only $20 in trading would go through because there were so few people on the site that there weren't enough sellers. There's a reason Bugsy Siegel didn't build in Iowa City.

InTrade, though, has lots of action. You can bet on whether Osama bin Laden will be "captured/neutralized" by the end of the year (selling at 13, which means the investors give it a 13% chance of happening). Or you could put money on Jerry Yang resigning as CEO of Yahoo by the end of September (30% chance), the gay marriage ban passing in California (50%) or who will be the host of "Meet the Press" (keep your day job, Chris Matthews). But the real money at InTrade is being put on the presidential election. Bethan Lilja, the CEO of in Boston, early on put some serious money on McCain to win the Republican nomination. She wound up with a 19 times return on her cash, netting nearly $250,000.

I dropped $500 into my InTrade account and quickly learned that lots of things I thought would be exciting to bet on had been determined by the market long ago. There's a 94.9% chance that the Democrats will control the House, and a 93.6% chance they'll run the Senate. If I wanted to make kind of money, I was going to have to take some big risks.

I put $200 on Clinton to be Obama's running mate (16%), thinking that was pretty smart compared with Virginia Sen. Jim Webb's chances (19%).I figured there would be some media chatter saying Clinton was the logical choice, which would spike her numbers, at which point I would cash in.

This has not worked out well for me. But I'm sticking to it, investing in Clinton every time her chances drop. If she gets tapped, I'll make thousands. Those thousands won't be so much from InTrade as from the lame Monica Lewinsky jokes I'll fax to Jay Leno.

Unlike Wall Street, these markets don't close much: I can trade almost all the time -- at night, on weekends and holidays and while I'm pretending to listen to my dad on the phone. It's like owning a fantasy baseball team: I no longer care about what's best for the country, as long as I have money on it. I have no idea if Gov. Charlie Crist of Florida would make a great GOP vice president, but I do know it would make me $800.

So far, I've offset my Clinton-as-running-mate losses with bets on Obama to win and on Florida going for him (up to 38, from the 28 I bought it at). I was, I believe, about to make a ton off Al Franken winning the Senate race in Minnesota, but then I decided that journalistic integrity demanded that I sell that prediction this week, at a loss, because I was assigned to write about him. For those who ever doubt my seriousness as a journalist, I don't have the 15 cents that would say otherwise.

Of all the things I've ever gambled on (when you grow up with my mom and belong to a religion that doesn't have a hell, you gamble on which Hanukkah candle will burn out last), politics is the most fun. Because the goal of all bets isn't to win money but to make you feel smart. This need is so great that people develop theories about slot machines.

And I now believe that I am at least $28.60 smarter than the average person. And more important, $150 smarter than my mom.


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