These markets are chiefly an Internet phenomenon, leveraging the ability of a large number of participants to quickly and cheaply place wagers on the outcome of upcoming elections. The first such market, the Iowa Political Stock Market, was founded in 1988 and involved a few hundred traders playing for modest stakes. More recent incarnations, most prominently Intrade and Betfair, have thousands of traders making millions of dollars in wagers. There is strong evidence that prices in these markets provide accurate forecasts of election outcomes.
The prominence of Internet election markets often obscures the long history of such markets. While it is often claimed that election markets are a recent phenomenon, we have previously documented that wagering on presidential elections has occurred in the United States for over a century.2 In this chapter we demonstrate that such markets are even older and that betting on elections has occurred for hundreds of years in many Western countries.
The twentieth century is distinguished less by the creation of betting markets than by their absence in the middle of the century. This chapter discusses the historical evolution of the legality and microstructure of political betting markets in several countries. The structure, operation, and public prominence of these markets reflect the prevailing culture and electoral institutions.
Betting focused on the most important political outcomes of the time: the choice of government officials in Italian city-states during the sixteenth and seventeenth centuries, papal selection in sixteenth-century Italy, the timing and winning party of parliamentary elections in eighteenth- and nineteenth-century Britain, the outcomes of local and national elections in nineteenth-century Canada, and presidential and congressional winners in the nineteenth- and early-twentieth-century United States.
There were also markets on other political events, such as the outcome of no-confidence the long history of political betting markets 561 votes, the tenure of leaders and their successors, or the outcome of foreign/military ventures.3 While there were important differences across countries, several similarities emerge. First, pivotal elections energized these markets. Not only would important contests lead to greater betting activity (such as the 1916 U.S. election or the 1948 Italian race), they could even lead the markets to reemerge from extended dormancies (as with the 1964 contest in Britain).
Alternatively, there was far less betting in periods of political apathy or one-party rule (such as in the 1930s and 1940s when the Fianna Fáil party dominated the government of the Irish Free State and the Republic of Ireland). Second, while newspapers were often uncomfortable reporting on domestic markets, they were less averse to printing stories on political markets abroad. This likely reflects the moral uncertainty surrounding election betting.
Third, there was a general parallel between Britain and the United States in terms of a rapidly changing but generally unfavorable legal environment, and in both countries public election betting virtually disappeared around the start of World War II. The conclusion draws additional parallels and suggests how further research can build on the histories presented here.
It is important to note a potential limitation. Largely due to language issues our analysis is centered on Anglophone countries. (It might also be useful to point out that our analysis is restricted also to countries that have real elections (i.e., unlike the sham elections in communist/totalitarian countries).
This might not be significant problem since political betting markets require at a minimum some form of popular vote and typically an independent media source to report the resulting prices. In the pre-twentieth-century period we focus on, these conditions were primarily found in the English-speaking world. Still we return to this issue in the conclusion.