Editor's pick: Originally published Jan. 5.
Donald Trump currently boasts 35% support in the Republican contest nationally, according to a RealClearPolitics polling average. But since he threw his hat into the ring last summer, pundits and analysts have continuedtoinsist he has no chance of winning the GOP nomination, let alone the general election.
What about you? Would you bet on Trump to win? Outside of the Trump campaign and his boisterous supporters, there are those who are betting actual money on the prospect.
In the United States, betting on elections is generally prohibited by law (with a handful of exceptions), but in other parts of the world, like the United Kingdom, it's a booming business -- and an accurate one at that. These "prediction markets" are exchange-traded markets that essentially allow people to bet on the outcomes of events, including those tied to politics.
Intrade, an Ireland-based prediction market that was shuttered in 2013, correctly predicted the 2004, 2008 and 2012 elections. Microsoft Research economist David Rothschild found in a 2009 paper that when adjusted for bias (prices and probabilities don't always translate exactly, especially in uncontested -- or barely contested -- races), Intrade was more accurate than Nate Silver's vaunted FiveThirtyEightforecasts.
Bets made on U.K.-based Betfair, the world's largest Internet betting exchange, give Trump a 24% chance of landing the Republican nomination, behind Marco Rubio, with about a 34% chance, and Ted Cruz, at around 25%. (We converted the odds listed on each site to their implied probability using this calculator.)
Betfair saw over £19 million ($27.9 million) traded in both the 2004 and 2008 U.S. presidential cycles and £32.4 million in 2012, and it correctly called the outcomes of all three races, including getting all 50 states right in 2004. "The Betfair markets are real time polls. They reflect sentiment towards various candidates and political parties in real terms," said Barry Orr, public relations manager at Betfair.
PredictIt, another prediction market, has Trump and Cruz tied at 31% odds. Rubio trails at 28%.
PredictIt has approximately $3.5 million invested in its entire site across over 350 markets (questions). It is available to investors in the U.S., having received the go-ahead from the CFTC by way of a no-action letter issued in 2014 allowing it to receive individual bets of $850 per contract (the Iowa Electronic Markets run by the University of Iowa have a similar agreement). It has an 81% accuracy rate and most recently correctly predicted the Louisiana gubernatorial elections and Canada's prime minister elections.
Brandi Travis, the site's chief marketing officer, said that the Republican nominee market is the most-traded one and noted that Rubio lost the top spot just days ago. She also pointed out the rise in Trump's odds over time.
"It's still so early, but I think it says a lot that previously no one thought that Trump, even though he was leading in the polls, was going to do very well, but now...even the traders are starting to think that maybe there's a chance," she said.
Orr noted a similar change in the way Betfair wagerers have approached Trump. In February, bets on his landing the Republican nomination gave him a less than 1% chance, and his odds remained quite low through June. On the heels of the first Republican debate in August, he began to gain steam among bettors, and though his chances drifted in October, they bounced back and have remained stable since mid-November. Cruz is currently trading at his shortest price, and Rubio has been prominent in betting since the market opened.
Ireland-based PaddyPower lists Rubio and Cruz with about 33% odds at the Republican nomination and Trump with 31%. Britain's Ladbrokes has Rubio slightly ahead of Trump, with 35% and 33% odds, respectively, followed by Cruz at 27%. Canadian Bovada has Trump in the lead with 40% chances, trailed by Rubio at about 31% and Cruz at 26%.
If you're looking for a high-risk, high-reward bet, these election prediction markets have something for you, too.
Some of the biggest names in the race aren't really in the mix right now when it comes to betting who will win: Jeb Bush, who across most platforms runs a distant fourth. The former Florida governor led prediction markets for months early in the election cycle but has since lost ground. The same goes for Wisconsin Governor Scott Walker, another establishment candidate who early on appeared to have solid prospects.
According to the economist Rothschild, the markets anticipated the pair's decline.
"Rubio [surged] ahead of Bush and Walker quite early, before either of them completely collapsed in the polls," he said in a phone interview.
He added that the combined odds of a nomination among establishment candidates -- including Rubio, Walker and Bush as well as John Kasich and Chris Christie -- have declined steadily but still hold firm at about 50%. Non-establishment contenders like Trump and Cruz have seen their odds increase, but others in the camp whose poll standings have at times surged -- Carly Fiorina and Ben Carson -- "the markets never took seriously."
Why Do Prediction Markets Work Better Than Polls?
Prediction markets have an edge on polls because traders have the ability to aggregate information and idiosyncrasies polls don't account for, Rothschild explained. They are especially useful early in the game and in uncertain contests.
"Early on in the cycle and in races where there's not as much information, prediction markets do much better than polling. Late in the cycle, they're going to converge," said Rothschild, who has started his own project, PredictWise, to study prediction data in politics, sports, finance and entertainment.
With Election Day still 10 months away and the first primaries about 30 days out, prediction markets may be the best place to look for forecasts on how the 2016 presidential election will play out -- specifically the hotly-contested GOP race, where Trump appears to have turned the rules of politics upside down.
"During the entire cycle, the markets have said that basically Donald Trump is at no point the favorite but is certainly a possibility, and the longer he stays on, the higher that possibility is," Rothschild said.
On the Democratic Party's side, the consensus appears clear in the markets, in the media and in the polls: Hillary Clinton will get the nomination. The former secretary of state, who according a RealClearPolitics average of polls is leading fellow Dem contender Bernie Sanders by more than 20 percentage points, is looking like a practically sure bet in prediction markets.
Betfair has her with a more than 90% chance at the Democratic nomination, and PredictIt gives her 81% odds. Sanders trails at about 11% and 20%, respectively, and both have an O'Malley nod at a roughly 1% probability. Orr said Clinton's "main credible contender" on Betfair had been Vice President Joe Biden until he announced he would not be running last October.
Those betting on the final outcome of the U.S. presidential election appear to believe Clinton has the best chances at winning in November as well. Given how divided the GOP pool still appears to be, it makes sense.
Betfair has the former first lady with about a 56% probability of winning the entire election, and PredictIt lists her odds at 54%. PaddyPower, Ladbrokes and Bovada give her more than 50% probability of winding up in the White House as well.
As to who trails her, Betfair lists Rubio with a roughly 15% probability and Trump at about 10%, while PredictIt has Trump at 19%. Notably, PredictIt investors think Sanders has a better chance at the Oval Office than both Cruz and Rubio, giving the senator from Vermont 16% odds, compared to the U.S. senators' 12% each.
Trump falls second to Clinton on PaddyPower, Ladbrokes and Bovada, with Rubio, Cruz, Sanders and Bush, in different orders, filling out the top six.
Who Will Be VP?
Even if they don't get elected to the presidency, or even land their respective parties' nominations, prediction markets indicate a number of candidates have a solid chance at the VP slot.
On the GOP side, PredictIt gives South Carolina Governor Nikki Haley and Rubio best odds at the vice-presidential nomination, followed by Fiorina, Cruz and Kasich and even with Walker and Trump in the mix. Ladbrokes gives Rubio the best odds, followed by Kasich, Christie and Carson as well as Speaker of the House Paul Ryan.
As for the Dems, U.S. Senator from Virginia Tim Kaine and Housing and Urban Development Secretary Julian Castro seem to be the favorites, with PredictIt listing their odds at 25% and 22%, respectively, while Ladbrokes gives Castro the edge. Good news for O'Malley, who some believe is gunning for the vice-presidency: investors thing he has a shot at becoming second-in-command, too. PredictIt has him with a 10% chance, and Ladbrokes lists him as tied with Kaine at about 11%.