• Many people have money riding on the Supreme Court's verdict on the Affordable Care Act, which is expected Thursday, from health care executives to 24-year-olds hoping to stay on their parents' insurance a few more years. But none has a more direct financial interest in the decision than those who have gambled on the outcome on Intrade.com. The price on the site currently rests at a 75 percent chance that the court will overturn the individual mandate provision at the center of the case. When the court issues its decision, those who placed bets will find out if they won or lost—probably.

    Situations like this test the strength of the online prediction markets in two ways. First, it can be tricky to define court decisions in a way that's precise enough to make it clear who won, particularly if the court takes a surgical approach to the law. Second, the crowd is less precise when it assesses the judgments of nine secretive people, compared to predicting the outcome of a popular election.

    First, there's the difficulty in deciding what to bet on. The Affordable Care Act consists of many different initiatives packed into one large law. At the core is the individual mandate, which requires that all Americans have health care or pay a tax. Several additional provisions stand out. The law requires that insurers make insurance available to people with preexisting conditions, expands Medicaid eligibility, sets up health insurance exchanges and allows dependents to stay on their family's health insurance through their 26th birthday, to name a few. It would be interesting to see how the wonkiest gamblers predict the fate of any of these provisions. But it would be a nightmare to write a legal contract in a way that would make it clear who won and who lost under the almost infinite possibilities available to the court.

    Intrade encountered a similar quandary recently with its book on the control of the Senate. What everyone wants to know is which party will control the Senate after the upcoming election. But there is a non-negligible possibility that this won't be clear even after every election is decided, thanks to the role of independent senators. If, for example, Maine's Angus King is the swing vote in the Senate, how would one clearly define the outcome? What if he waffles on which party he will caucus with or refuses to state his choice officially until Jan. 2? Even if there's a general political consensus, it may not satisfy the language of the contract on which people placed money. In this case, prediction markets have three objective outcomes: Democratic control, Republican control, and neither, even though "neither" is very likely Democratic.

    Read More »from Supreme Court could disrupt prediction markets with nuanced decision on health care
  • With the unrelenting focus on every aspect of the fight for the White House, it's easy to forget that the Senate is also up for grabs on Election Day. In fact, it could be the presidential election that determines the upper body's control: If the Republicans win a net total of three seats, the Senate will be divided 50-50. In that case, control will go to the party that wins the presidency. (If you need an eighth-grade civics refresher, this is because one of the vice president's few official duties is to break a tie.)

    Currently, the Democrats control 54 votes: 51 Democratic senators, two independent senators who caucus with them, and one vice president. But the way the dice fell does not favor them: Democrats control 23 of the 33 Senate seats that are up this cycle, giving them much more territory to defend and many fewer opportunities to pick up seats. Of those 23 races, seven are open seats (i.e., the Democratic caucusing member is leaving the Senate), while four of the 10 Republican seats are open.

    The prediction markets are aware of this, of course, which is why the odds that Democrats will retain their majority currently rest at 41.5 percent. That's a major improvement for them since the beginning of the year, when their odds clocked in at 25 percent.

    The likelihood of the Democrats successfully defending the Senate has increased dramatically since the new year, however, a jump that is largely attributable to one person: Olympia Snowe.

    Read More »from Can Republicans take the Senate? The odds are in their favor
  • Over and over, we've found that the political prediction markets offer accurate, real-time information on the odds of a politician's victory in any major contest. But there's a darker, less tested corner to some of the sites that allow people to wager real money on the outcome of world events. The gambling site Intrade, for example, is currently taking action on whether the regime of Syria's authoritarian president, Bashar Assad, will crumble before the end of the year. If that doesn't suit you, you can also gamble on whether the United States or Israel will bomb Iran in the same time frame.

    The reason the political markets are so useful for predicting election outcomes is that the people with money on the line have an incentive to gather as much information as possible about the odds of a politician's victory. In addition to polls, they can consult fundraising figures, news stories and a wealth of other data. When it comes to the fate of Syria or Iran, on the other hand, the universe of data is far less defined. But let's have a look and see how the market odds react to world events.

    Prediction market-based forecasts place the likelihood of a strike on Iran's nuclear facilities in 2012 by the United States or Israel at 33 percent. This likelihood of conflict in Iran is down in the last three months, which we expect to see as the number of days left in the year dwindles and the expiration of the contract approaches. The number should trend toward zero every day there is no airstrike and no new development in the conflict. The main jump in the odds appeared in early March, coinciding with information that Iran had increased its production of higher-grade enriched uranium. Those odds came down quickly as stalled talks with Iran resumed within days.

    Read More »from Gambling on war: The dark side of prediction markets

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About The Signal

The Signal is the Yahoo! News predictions blog featuring real-time forecasts and sentiment on politics, economics, and more. MEET THE TEAM: David Pennock, David Rothschild

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