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According to the WSJ’s fantasy political market, today’s top pick for president is Barrack Obama (trading at the highest price), followed John McCain and Hillary Clinton. The most active trading is for Mike Huckabee (largest volume of shares traded).

Fantasy betting has risen considerably in popularity in recent times, with web sites devoted to picking winners in every sport from football to fly fishing. The built in social network of most sites allows users to participate in fantasy betting with friends and family.

 BetFair as the front runners in the prediction markets game. 

BetFair is aimed at the European market and charges commissions on winnings (there is no charge for a net loss). Betfair was founded in 1999 and claims to process 15 million trades a day.

Intrade powers WSJs fantasy political market. Trading on the prediction market is simple. For example, if you think the likelihood of Hillary Clinton becoming president is more than 17% (see table above for Ask price) you buy contracts. If you think the probability is less, you sell a contract. The site charges 5c per trade. Members buy and sell contracts against each other. Intrade charges 5c per matched trade.

The big question is - other than being quite entertaining, are fantasy markets able to predict the outcome of events in a reliable fashion? Given that the betting is probability based, one can infer that with a suitable, unbiased population size, the predictions should be at least as good as those of the experts - similar to the financial markets where the success of the expert predictions of, say, the level of the S&P index in the future, has been no higher than those of the lay person. In a market where the collective thought process actually influence the outcome, it is very likely that the aggregate forecasting ability of the masses will actually provide a more accurate representation of reality.

Earlier we looked at crowdcasting and polling as ways of harvesting collective wisdom. Predictive markets are like 4 dimensional polls in that they have a time component folded in. Like true financial markets, they reflect the quicksilver nature of changing sentiments.

By the way, is the US in recession in 2008? According to Intrade, 65% think so!

Do you spend time on the Fantasy betting or Predictive markets sites? Take our poll on the sidebar.