Regulating Political Speculation: Political Prediction Markets in the United States and United Kingdom

• In Event: 30462 - Theory Section Roundtables
  In Refereed Roundtable (60 minute): Table 5. Theorizing Economy

Abstract

University of Iowa economists invented political prediction markets (PPMs) in 1988 as a political forecasting technology. PPMs are digital sites where traders swap shares of upcoming political events, and economists theorized that the price of an event implied the probability of that event occurring. Research showed that PPMs were more accurate than other political forecasting technologies like opinion polls––and journalists increasingly cited PPMs prices each election cycle––but US regulators restricted access to, and ownership of, PPMs. Commodity Futures Trading Commission regulators only allowed PPM firms to operate if they affiliated with academic institutions, advanced the study of elections, limited the number of market participants, and limited the size of bets. In the UK, gambling firms developed PPMs in 2000 without the intention of forecasting elections, and academics and journalists disregarded PPMs as a political forecasting technology, yet Gambling Commission regulators liberalized PPMs. Why did the histories of PPMs take contradictory paths in the US and UK? Specifically, why were PPMs a political forecasting technology in the US, but not in the UK? Why did US regulators struggle to categorize PPMs as finance or gambling, while UK regulators categorized PPMs as indisputably gambling? And why did US PPMs endure, and UK PPMs avoid, regulatory interference? By process-tracing US and UK PPMs, I show that the histories diverged because 1) US PPM firms and experts tried to demonstrate, and UK PPM firms and experts neglected to demonstrate, that PPM traders produced competent political and financial speculations; and 2) beliefs about PPM traders implied that US PPMs were part of the public sphere and UK PPMs were not. My manuscript advances political sociology, economic sociology, the sociology of expertise, and the sociology of morality, and it illuminates the recent liberalization of PPMs, the new speculative economy, and the crisis of expertise.

Author

• Rafferty Thompson, Stony Brook University