Tuesday, July 13, 2004

Hedging the Election the Old Fashioned Way: Gambling

There are only two ways to watch a contest – either you’re fully vested in having one of the two (or multiple competitors) win, or you are indifferent. Some prefer indifference, others cannot enjoy a game unless they are emotionally invested. In either case, there is an age old tradition that enables anyone to be able to transform an event that they would not otherwise care about into one which they can watch with enjoyment: gambling. For those who need to be indifferent, simply bet on the team that you are rooting against. Likewise, if you are completely indifferent between two teams, you will quickly become both emotionally and monetarily invested in one simply by placing a wager.

I like to hedge my emotional favorite with a wager when I am motivated primarily by hate, so that I am indifferent to the outcome; thus, if I am rooting for the Marlins because I hate the Yankees, and have no particular affinity for the Marlins, I might hedge by betting the Yankees. Only then can I safely watch the game. But if I am motivated to root affirmatively for a team I love, I prefer not to hedge my emotions by betting on the opponent. (There is a classic episode of Cheers where Sam bets against the Celtics, and is discovered for his betrayal – you don’t bet against a team you love because it is not good form to be happy when your fellow die-hard fans are low).

Which brings me to the presidential election. I am trying to determine exactly how much I would have to bet on John Kerry to remain indifferent to the outcome. I like Bush, but I don’t love him, or to put it another way, the degree of hate I feel for Kerry exceeds the love I feel for Bush, which means that I am looking for the emotional hedge – a bet on Kerry. I fear that, should Kerry lose, in four years time I will be making the same calculation with Hillary, and in that event I am pretty sure that I will need a large second mortgage to place my bet. That contingency, of course, limits the amount of my “indifference” bet – a Kerry win has the silver lining of delaying any Hillary candidacy until 2012 – when even all of the plastic surgery in the world will be insufficient for her to stay viable.

In the election of 1916 (Hughes vs. Wilson), which exhibited perhaps the highest volume of bets of any presidential election, the volume of betting (in 2002 dollars) was as high as $8.90 per vote cast in the election. If you figure that only 1 in 100 voters were casting bets, this would put the average bet at close to $900. Organized markets for such bets (such as financial exchanges and pools) have existed since the administration of Lincoln. It was also not uncommon for people to make “freak bets” – where the loser would be required to literally eat crow or engage in similar embarrassing exploits; in the election of 1900, it was estimated that 1 in 30 voters engaged in such wagers.

Today, the Iowa market is the one legal betting market for presidential elections. There, you can buy a contract that pays $95 if the candidate you bet wins. Right now, both Bush and Kerry contracts are selling for about $50, implying that the election is regarded as dead even. And speaking of the dead, don’t forget to count on them voting heavily for Kerry in 2004, as they historically vote more Democratic than even African-Americans. (There is a joke in New Orleans, where no one is buried in the ground, that this is to make it easier for them to get out and vote on election day). And the dead, unlike elderly Jews in Florida, never vote for Pat Buchannan. I trust the Iowa market over every poll, and the price of contracts on the day prior to the elections have even been more accurate predictions of the vote count than exit polls conducted on the day of the election.

The Iowa market is actually a bet on who will win the popular vote, so that the price for a contract is the predicted percentage of votes for a candidate. If you bet Al Gore in 2000, you actually won in the Iowa market. Now that would have been perfect – having your candidate win the election and still winning money on your hedge bet, but of course the opposite can occur as well.

As a public service, I should mention that I have a friend in Vegas who has the magic betting touch that only those in Vegas seem to have – whatever team he bets on invariably loses. But he works this to his advantage in killing off teams he hates. Remember the 2001 World Series, where Mariano Rivera came in to close out the Diamondbacks in the 9th inning of Game 7? Mariano Rivera hadn’t given up so much as a foul ball in a decade, and he gives up two runs to lose the Series in the 9th. At the time, you probably thought to yourself – nothing explains this. Well, now you know, my friend bet the Yankees, and you have him to thank. By the way, he is no fan of Kerry, so if you do plan to place your hedge bet on Kerry, I can funnel it through him. But if your betting the emotional hedge on Bush, you are on your own.


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