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“Bet or be silent.”

— English saying, 17th century

Prediction markets are dead — long live prediction markets!

Betting on political elections dates back to at least 1503 since attempting to profit on papal successions in Rome was already considered “an old practice.” 

As detailed by the economists ​​Paul Rhode and Koleman Strumpf, political prediction markets have been attracting attention and courting controversy ever since. 

In the disputed papal conclave of 1549, for example, prediction markets were informed by the active participation of cardinals’ attendants, whose insider knowledge of the top candidates must have proven highly profitable — “many tens of thousands of crowns” were riding on the outcome.

(After much volatility and drama, bets on the early favorite, Cardinal Giovanni del Monte, paid out 4:1.)

The practice was not popular with everyone, however.

In 1591, Pope Gregory XIV banned wagering on papal elections — and he must have thought it was a serious problem because the punishment was set at excommunication.

I’m guessing his concern was that prediction markets could somehow alter the events they were attempting to predict.

I’m not sure how that would work — I don’t think anyone would change their vote based on betting odds being manipulated in one direction or the other.  

Instead, it seems much more likely that prediction markets would quickly bankrupt anyone who tried to manipulate them — a useful service to society!

But the vague fear that betting odds could be somehow self-fulling persists to this day.

In a recent letter to the CFTC, Senator Warren and seven of her lawmaker colleagues warned that political prediction markets “interfere with elections and further erode public trust in democracy.”

Their supportive reasoning, however, is not strong. 

The lawmakers argue that if political prediction markets were fully allowed, “voters will wonder if their vote mattered and whether the outcome of the election was influenced by big money bets.” 

In other words, Senator Warren and her colleagues think prediction markets risk exposing the truth about elections and politics: Your vote won’t influence this election and big money donations will.

But prediction markets can do much more than expose the obvious. 

Political betting “cultivates civic literacy,” according to Kevin Clarke, the political bettor who won the betting site PredictIt a stay of execution in Clarke vs. CFTC. 

Prediction markets provide “checks on how to interpret media,” he told the FT, “how to not just go by a soundbite [and] how to not allow a headline to take on a life of its own.”

These seem like important lessons to learn — especially in the age of AI — and prediction markets offer a monetary incentive to learn them.

In the same way that Bitcoin has incentivized millions of people to learn how monetary policy works, prediction markets can incentivize people to learn how the political system works.

Better-informed voters might reduce the risk of a disputed election being stolen. 

Also, political prediction markets are fun.

In the 19th century, betting on US elections became a “cherished ritual,” according to the economists Rhode and Strumpf: “A widely held value was that one should be prepared to ‘back one’s beliefs’ either with money or more creative dares” — like pushing the winner around in a wheelbarrow, or eating crow (literally).

They’re useful, too.

In an era before scientific polling, US newspapers were filled with the latest betting odds, presented as a barometer of what the electorate was thinking.

Despite being illegal in New York (the center of most US betting at the time), “modern scholarship finds that these early markets were remarkably accurate.”

Unfortunately, political betting markets had “largely disappeared” in the US by 1944.

That was probably because 1) political polling became more scientific after Gallup was founded in 1935 and 2) bettors had access to quicker and more frequent payouts after betting on horses was legalized in New York in 1939.

Betting on politics in the US has been mostly dormant in the decades since — but crypto is now helping to bring it back from the dead.

Polymarket is quickly becoming a household name, with its USDC-based betting markets routinely cited in media coverage of the current topsy-turvy presidential election.

Importantly, Polymarket is not limited by CFTC-imposed bet sizes (you can only bet $850 on the biggest alternative, PredictIt) and its acceptance of USDC makes it both cheaper to bet and available to most anyone with a digital wallet and a VPN.

And if Polymarket can’t take your bet, more decentralized alternatives probably will. 

Perhaps that will help political betting persist as a popular pastime this time around, even as politicians try to kill it again. 

I hope so, because if betting on politics is good — as I think it is — decentralized, limitless and censorship-resistant betting on politics is much, much better.

Long live prediction markets!

— Byron Gilliam

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