As far as legality is concerned, in October 2014, Victoria University received a no-action letter from the U.S. Commodity Futures Trading Commission outlining how to maintain compliance with the law. PredictIt is only allowed to have 5,000 traders for each question, and each individual investment has a limit of $850.
PredictIt’s website says the purpose is to research whether prediction markets are a more reliable form of measuring a likelihood of an event. A 2008 study showed Iowa Electronic Markets, a prediction market based out of the University of Iowa’s Tippie College of Business, is closer to the election outcome than polls 74 percent of the time.
“So when Intrade was shut down, we thought how could we go about getting this, launching one of these [prediction markets] in the U.S. so that we have access to this information,” Travis told National Journal ahead of the debate. Aristotle’s website says its national voter file has more than 190 million records with attributes such as voting histories. When asked which campaigns use Aristotle’s software and data, Travis said they could not comment.
“We don’t see really polling as a competitor,” Travis said. “And we don’t think we’ll ever replace polling because it’s a very different set of information you’re providing.” While polls ask people what they want to happen or what they feel, prediction markets are filled with people actively going to place money on what is going to happen, which suppresses wishful thinking that may come through in traditional polls.
That was the case with Tom O’Brien. He’s a personal supporter of Sen. Rand Paul, but put his money behind Carly Fiorina, who had positive reception after the debate, and—somewhat reluctantly—in Jeb Bush. He also puts some stocks in Louisiana Gov. Bobby Jindal.
“I’m a realist,” he said when describing his rationale.
Fiorina supporters were emboldened. Maximilian Merrill, a lobbyist who supports the former CEO, put money behind her in the market, saying she was the next Ronald Reagan.
“I think tonight proved that I was right,” Merrill said. “I’ll bet you a dollar at least that Carly ... is at the very least the VP nomination” choice.
Ahead of the debate, Travis pointed me to Daniel Kaseff, a student at George Washington University who was sporting a t-shirt with the phrase “I support Deez Nuts 2016” and who Travis told me is one of PredictIt’s top traders.
“It lets me just take what I’m doing anyway as a hobby and translate that into making money,” he said. Kaseff, who also interned for Democratic Sen. Richard Blumenthal, sees himself as more of a short-term trader and said that Fiorina “had a lot of room to climb.” She had the most to gain from the debate, which made her a safe bet.
On the question of “Who would see the biggest bounce?” from the CNN debate, Fiorina’s stock rose throughout the evening. Before it started, Fiorina was at 35 cents, but shot up to 54 cents afterward.