I'll confess, I spent a good chunk of the 2012 campaign clicking on Intrade.com several times a day to see where the House, Senate and presidential races stood. All those traders betting on the eventual outcome, I figured, could provide a more accurate synopsis of the race than reading endless blog posts and tweets.
And, as it turns out, Intrade didn't do too badly — its markets accurately forecast 49 of the 50 states that President Obama would carry in November. True, that wasn't as good as Nate Silver's 50-for-50 romp, but hey, it was close enough. (Plus, Silver only ran his forecasting model once per day; Intrade's prediction markets were getting updated once every few minutes. Far preferable from a junkie perspective!)
But here's some bad news for Intrade fans: The site may not be quite as popular when the 2014 and 2016 U.S. elections roll around. On Monday, Intrade announced that it would bar all Americans from participating in its prediction markets after the U.S. Commodity Futures Trading Commission filed a lawsuit against the site.
The CFTC's lawsuit was fairly straightforward. Intrade, which is based in Ireland, wasn't merely allowing participants to bet on the outcomes of events like elections or wars or the Oscars. The site was also allowing its U.S. customers to bet on the future price of things like gold or oil between 2007 and 2012, the lawsuit said. If that's true, it would mean Americans were essentially able to buy and sell commodity options on Intrade away from regulated exchanges. According to the CFTC, that's against the law.
So what happens if Americans can't bet on Intrade? Will it still be a reliable source for predictions of U.S. elections? There are a couple of possibilities here:
1) This won't make much difference to Intrade's political forecasts. As Robert Wilbin has pointed out, it has always been difficult for people in the United States to participate on Intrade. For legal reasons, Americans had to use bank transfers to place bets, which are slow and can cost $20 a pop. (Bettors overseas, by contrast, could simply sign up with their credit cards.) So it's quite possible that Intrade's election markets have long been dominated by foreigners anyway. The 2014 and 2016 elections will be no different.
Another way to see this is to look at Betfair, a separate prediction market based in the United Kingdom that has been closed to Americans for a while. Betfair's 2012 predictions were pretty close to Intrade's—if anything, its markets gave Obama an even better chance of winning. It seems that foreigners with money on the line can do a half-decent job of forecasting U.S. elections. (Although, much like Intrade, Betfair also predicted that Romney would take Florida.)
2) Some other site will become the new Intrade. Intrade isn't the only prediction market around, especially when it comes to U.S. politics. The Iowa Electronic Markets also allowed people to predict the popular vote in the 2012 presidential race — the IEM's aggregate prediction of Obama winning 50.9 percent of the popular vote was pretty close to the eventual results. Or perhaps a brand-new prediction market will spring up that doesn't run afoul of U.S. financial rules.
Alternatively, Intrade and the U.S. government might well resolve their differences. Either way, it's unlikely that prediction markets will be vanishing anytime soon. Which means there will still be plenty of sites to refresh every five seconds or so once 2016 rolls around.