By JOSEPH AX
THE JOURNAL NEWS
(Original publication: October 27, 2004)

John Murray, 38, spends his days trading currency futures on Wall Street and his leisure time trading political futures on InTrade.com, an Ireland-based Web site where users can gamble on future events.

"I'm on the site every day," he said.

Murray and tens of thousands of others have discovered Web sites like InTrade.com or the Iowa Elections Market at the University of Iowa, where investors essentially bet on whether Bush or Kerry will win — much the same way that traders gamble on futures and stocks on Wall Street.

With a dizzying number of polls seemingly unable to tell who exactly is winning this race, some have turned to these markets to assess the current state of the campaign. Though political scientists dispute it, a number of economic experts now believe that these markets may be far more accurate than polls.

Minutes after the third debate ended, President George Bush's contracts dropped a couple of points, while challenger Sen. John Kerry's rose, mimicking what had happened after each of the first two debates. After the first debate 29,000 contracts were exchanged.

"We instantly told you what polls took sometimes 24 or 36 hours to tell you," Mike Knesevitch of InTrade.com said.

A recent study by Columbia University professors S.G. Kou and Michael Sobel found that markets are more successful as predictors of political races than polling.

At InTrade.com, where $6.8 million in Bush contracts alone have been traded, anyone can put money into an account and bet on anything from the electoral vote to the popular vote to individual state votes.

Yesterday, a "Bush to win the election" contract was selling at about 55.5, meaning that the market set Bush's chances of winning at 55.5 percent.

Each contract is worth $10. In other words, if you buy a Bush contract at 55.5, it will cost $5.55, and if he wins, you earn $4.45. If he loses, you lose your original investment of $5.55. If you think he will lose, you can sell Bush contracts instead.

Futures markets gained notoriety last year, when the Pentagon proposed a market in which anonymous bettors would wager on the likelihood of terrorist attacks. The proposal was met with furious public opposition and was quickly dropped.

But this type of market is not new. From the late 1800s to the 1940s, a thriving futures market on the presidential race existed on Wall Street, according to a paper by Koleman Strumpf and Paul Rhode, economists at the University of North Carolina. They found that the markets accurately forecast the results.

At the Iowa Elections Market (www.biz.uiowa.edu/iem), which began with the 1988 presidential election, the average margin of error for the popular vote has been 1.4 percent, half of most major polls and news organizations, said finance professor Tom Rietz, one of the project's directors.

Though economics professors tend to believe in the power of these markets, a number of political scientists disagree.

"It is reasonable to believe that futures traders are using the polls to place their bets," said Jonathan Trichter, who operates the Pace Poll, a polling and research institute at Pace University. "So it's market-driven by the very practice it means to undermine."

Knesevitch said the market often responds to news events long before polls measure any effect. Case in point: Howard Dean's contract to win the Democratic nomination tumbled from 40 to nine only minutes after his infamous "scream" speech.

The volume of traders ensures more accurate data, he said. Since their inception in January 2003, more than 675,000 Bush contracts on TradeSports.com have been traded — nearly $7 million worth.

But others say those numbers are a drop in the bucket compared with Wall Street markets.

"That's about what eBay trades in four or five minutes," said Barry Ritholtz, who works at a New York investment bank and studies these types of online markets.

Trichter also said that most traders tend to be Wall Street-types and therefore Republican, making the market prices biased. But Murray said even ardent Bush backers don't allow partisanship to get in the way of their wallets.

"I like George Bush, but I also understand value," he said. "They definitely trade with their pocketbooks."

Reach Joseph Ax at jax@thejournalnews.com or 914-694-5064.Reach Joseph Ax at jax@thejournalnews.com or 914-694-5064.