The federal election is just over a month away. You’ve got your predictions on which candidate will take the cake, right? Why not put your money where your hunch is?

The University of British Columbia’s Election Stock Market (UBC-ESM at www.esm.ubc.ca) allows you to do just that, with a web-based exchange in which people can buy and sell contracts based on their projections of the final outcome of the election. Just like speculators invest in everything from oil companies to iPods (and gamblers “invest” in everything from horse racing to football), participants can invest in shares representing political parties. The value of those shares goes up or down depending on how well the parties do in the election.

Among the areas investors can speculate on are the percentage of the popular vote each party receives, the share of seats each party wins and the odds of a majority government. The UBC-ESM website features live, up-to-the-minute quotes on market prices. Those prices are essentially continuous measurements of public support for the parties, according to Professor Thomas Ross, a director of the project.

“In the seats market for example,” explains Ross, “if you are holding a share of the Conservatives and those shares are trading for 48 cents, that’s basically the market predicting the Conservatives will get 48 per cent of the seats. When the election’s over, if you’re holding one of these Conservative shares, we will pay you for it at $1 times the fraction of seats the Conservatives get.”

“If I tell you the price of Conservatives just went from 48 to 53 cents,” he continues, “it’s basically because the traders now think the Conservatives are going to get 53 per cent of the seats.”

The market prices closely coordinate with developments that occur over the course of an election. Everything from leaders’ debates to campaign ads to political gaffes will cause significant price movements. While these very same factors can also influence public opinion polls, Ross stresses that poll results are not as precise.

“In a poll, you ask people, ‘Who do you want to vote for?’” he says. “But we’re not asking people about their own personal preferences, we’re asking them basically to make a prediction about how the country’s going to go. So it’s much more like having a panel of experts.”

While Ross admits the investors aren’t all formally educated political-science gurus, he points out that since they could potentially win or lose hefty sums of cash, they’re more motivated to pay close attention to the election path and essentially remain “plugged-in.” He notes that participants come from a wide range of backgrounds, but follow politics obsessively, the way some people follow sports.

The UBC-ESM has been fairly spot-on when predicting past elections. In the 2006 national vote, the project was ranked second among Canada’s pollsters and research companies in accurately predicting the popular vote outcome and final parliamentary seat tally.

If you’re looking for big-time bacon, Ross says the market with the largest payoff has generally been the majority government market, where winning contracts get $1 if they accurately predict which party will win by a majority, while losing contracts get nothing. Investors may choose “other” if they think neither party will win by a majority.

This time around, however, the UBC-ESM has added a new section called the plurality market. Like the majority government market, this market operates by a winner-takes-all rubric where winning contracts get $1 if their chosen party gets the most seats, but not necessarily a majority. “We added this market because we have a feeling that the majority-government market might get kind of boring if nobody has a chance of a majority,” Ross explains.  

The UBC-ESM for the Oct. 14 election opened up earlier this week. The minimum amount a trader can invest is $25, while the maximum amount is $1,000. Happy gaffe-spotting.
A similar international market, InTrade, also offers political gamblers an opportunity to bet on the Canadian ballot (with the Conservatives trading at over 80 cents earlier this week) at www.intrade.com.