Prediction markets see Obama as favorite

Much of the political news cycle is devoted to poll tracking, but online prediction markets are quickly becoming a new way to measure who is winning an election.

Prediction markets like Intrade, Betfair and the Iowa Electronic Markets allow Internet users to bet on who they believe will win elections countrywide, and, right now, the markets favor President Barack Obama over Republican nominee Mitt Romney in the presidential race.

PredictWise, a website that averages the odds of the Intrade, Betfair and IEM, found Obama with a 65-percent chance of winning, compared to 35 percent for Romney, as of Sunday afternoon.

The markets, while certainly a flawed tool for measuring a candidate’s chances of winning, provide an opportunity to see how public opinion, or, rather, the collective conventional wisdom of traders, shifts in real-time instead of waiting for days for a new poll.

“Markets like Intrade are very imperfect,” Justin Wolfers, an economist at the University of Pennsylvania, told the New York Times. “But they are also very useful. And when you need an election forecast in real time, I’m confident that they are better than the alternatives.”

For example, following the first presidential debate, the consensus among both the public and talking heads in the media was that Romney won decisively, giving him a much-needed boost after a rough few weeks on the campaign trail. Romney’s chances of winning were down to almost 20 percent on InTrade before the debate.

As soon as the debate ended, Romney’s chances of winning increased drastically as more people placed money on him to win the election. At one point, Romney’s odds were as high as 49.5 percent, though his odds have since fallen in the wake of favorable swing state polling for Obama.

The markets also allow users to place bets on who they think will win each state. While these markets are not traded on nearly as much as those for the national race and more traditional gambling fare like sports, they can provide a chance to gauge public opinion on the state of state races.

For example, recent polls out of Colorado have shown a virtually tied race since the first debate, which took place in Denver. While it is now considered a toss-up, Obama was previously considered the favorite to win the swing state.

Intrade’s data had the odds of the Republican nominee winning Colorado as low as 24 percent before the debate, but the numbers have since moved more in Romney’s favor. InTrade now gives him a 49.5-percent chance of winning, down from 60 percent a couple weeks ago.