The New York Times:
[…] Long before political prediction markets sprouted on the Internet, election bets — whether the stakes were money or embarrassing public spectacles — were a ubiquitous part of the American political scene. The practice, which began informally with petty stakes in pool halls in the late 19th century, was by 1900 a multimillion-dollar trade on Wall Street.
In the 1916 contest between Woodrow Wilson and Charles Evans Hughes, about $160 million (in current dollars) was wagered on Wall Street’s outdoor “curb exchange.” By contrast, the 2004 election saw less than $25 million in contracts change hands over the outcome on the Dublin-based InTrade.com market, the largest and most active for-profit market for odds on current American elections. […]
“Until the 1920s, New York would have been the center of gambling in the United States, what Las Vegas is today,” said Paul Rhode, a professor of economic history at the University of North Carolina, Chapel Hill. Technically, gambling on the result of an election was — and is — illegal, but the laws were not widely enforced, and newspapers routinely reported the names of prominent bettors and the Wall Street firms that held the stakes. […]
With the rise of polling in the 1930s and a decline in public approval of political gambling, election betting fell out of favor. The expansion of horse-track betting in 1939, giving people another arena in which to place their bets, also weakened interest in the markets.
Reporters, too, could get political forecasts from increasingly reputable polling agencies. While The New York Herald Tribune still reported on the betting as late as 1940, the odds were relegated to an occasional small paragraph on the financial page, and neither bettors nor stakeholders were named.
The online prediction markets that cropped up around 2000 were less a dot-com revolution than a road back to the earlier form of election coverage.
“In a few years, we may regard the second half of the 20th century as the aberration in which the press used polls rather than markets to track political races,” Justin Wolfers, a business professor at the University of Pennsylvania’s Wharton School, wrote in an e-mail message. “And in the 21st century, we may return to the habits of the early 20th century, reporting on political races through the lens of prediction markets rather than polls.”
Justin Wolfers is right that a new form of journalism may emerge (I call it “-prediction market journalism“-). However, my view is that it will be a minor —-most news media will still be reporting polls rather than prediction market odds.
[…] analysts —on that particular point (but not on a myriad of others), I break away from Justin Wolfers’ irrational exuberance and I side with Emile Servan-Schreiber of NewsFutures (my preferred play-money prediction […]