Pod Insights Planet Money Before Kalshi and Polymarket there was the Iowa Electronic Markets About this episode Prediction markets aren’t new. Election betting was common until the 1940s, then mysteriously faded away.
There was an entire political era when party bosses were expected to conspicuously gamble on their candidates (even if they secretly hedged).
And in the 1980s, a few economists designed an election market that beat out election polling 74 percent of the time.
Today, we’re running an excerpt from our friends at Throughline, NPR’s excellent history podcast. Subscribe right now if you don’t already https://www.npr.org/podcasts/510333/throughline. And, listen totheir extended version of the episode https://www.npr.org/2026/05/21/nx-s1-5828906/prediction-markets-are-making-a-150-year-comeback to hear about the early markets for betting on terrorism and military uses of prediction markets.
Support:
NPR+ https://n.pr/3HlREPz
Read:
Our book: Planet Money: A Guide to the Economic Forces That Shape Your Life https://lnk.to/i3AukBdD Our weekly longform Planet Money newsletter https://n.pr/3zrFvUBOur weekly Indicator round-up newsletter https://www.npr.org/newsletter/indicator
Follow:
Instagram https://n.pr/3FqLuwsTikTok https://n.pr/3sGZdrqYouTube https://lnk.to/iCVDaW3CFacebook https://n.pr/3h92GwS
Today's episode was produced for Planet Money by Sam Yellowhorse Kesler, edited by Alex Goldmark, and engineered by Maggie Luthar. The original Throughline episode was produced by Rund Abdelfatah, Casey Miner, Cristina Kim, Devin Katayama, Sarah Wyman, Julia Redpath, and Kyana Moghadam.
See pcm.adswizz.com https://pcm.adswizz.com for information about our collection and use of personal data for sponsorship and to manage your podcast sponsorship preferences.
NPR Privacy Policy https://www.npr.org/about-npr/179878450/privacy-policy
Transcript 0:00 Speaker 00 This episode's sponsor is HubSpot, which offers the following message. What if, instead of updating your CRM, your CRM updated you? HubSpot's self-updating CRM keeps your customer context current, so you can win more deals. Learn more at hubspot.com.
0:17 Speaker 01 Hey, guys. We have an episode for you. We always do. But first, we have a question.
0:22 Speaker 02 A lot has happened in the past five or so years, and we want to know how you all are holding up. Did you make any big decisions that are maybe backfiring now? Like, did you move to Montana during the pandemic, and now your work wants you back in the office in Seattle? What's your plan?
0:40 Speaker 01 Or is your money in the stock market right now, and you are just like watching it grow, grow, grow, grow? What are you spending it on?
0:47 Speaker 02 Yeah, we want to check in with our whole Planet Money community. Does it feel like things cost a lot more these days? Groceries, going on dates, doing something fun for your family? Have you found any great life hacks to help you get by or maybe even thrive in this economy?
1:02 Speaker 01 Yeah, we want to hear from you. And maybe we'll call you up for a future show about how things feel right now. Send us an email about how the economy is affecting you and your life at [email protected] , and maybe we'll call you up to chat.
1:17 Speaker 02 That email, [email protected] . All right, Erica, you have a show to start.
1:22 Speaker 03 This is Planet Money from NPR.
1:27 Speaker 01 Recently, I heard a story that changed how I think about prediction markets. One moment in the story in particular. It was part of the history of where prediction markets came from, which, as you may have heard, goes back hundreds of years in some form. But also, in another form, prediction markets, as we know them today, were cooked up by economists trying to test some theories on markets. And in this story of the evolution of prediction markets, there's a moment when an economic historian studying the long-ago early roots of prediction markets realizes there's already a well-functioning design of a prediction market. At the racetrack.
2:09 Speaker 01 Now, of course, many of you will say, yeah, obviously gambling is gambling, of course. But the part I didn't quite know is that prediction markets for elections were popular and robust until they mysteriously faded away. And one theory is horse racing took over. You know, because instead of an election every year or whatever, you can have a dozen races a week. This all comes from this fascinating history of the economic origins of prediction markets. The economists who cooked up the proto-predicting markets. The political machines that basically had to financially bet on their candidates hundreds of years ago. And even farther back than that. So today, we're going to share an excerpt of this story for you.
2:54 Speaker 01 It comes from our friends at Throughline, NPR's excellent history podcast. They take one big question every episode and bring you the history and context behind it, beautifully sound designed and deeply researched. Today, we pass it off to host Rund Abdelfatah and Throughline for A History of Prediction Markets.
3:14 Speaker 04 Part one, three professors walk into a bar.
3:18 Speaker 05 On a spring afternoon in 1988, Robert Forsythe and two of his colleagues were sitting around a table at a local sports bar called The Airliner in downtown Iowa City. And like they often did, the three economics professors got to talking about the news.
3:34 Speaker 06 And I would say the conversation was helped because it was a three beer lunch, which led to this creativity, I think, some days.
3:43 Speaker 05 Three beers each or each of you had a beer?
3:46 Speaker 06 Each, each.
3:47 Speaker 05 OK. It was an election year. After Super Tuesday, Michael Dukakis was the presumptive frontrunner for the Democratic nomination. That is, until a huge surprise upset.
3:58 Speaker 07 The polls had predicted a Dukakis victory, but it didn't happen.
4:03 Speaker 06 It was the day after the Michigan caucus, which, as you may recall, Jesse Jackson won.
4:11 Speaker 07 Jesse Jackson, he scored a stunning win yesterday in Michigan's Democratic caucuses, defeating Michael Dukakis by a margin of nearly two to one in the popular vote.
4:20 Speaker 06 And that was a big surprise. The polls missed it altogether.
4:24 Speaker 05 Going in, political polls had shown Jackson and Dukakis running neck and neck. But what happened was a blowout. Jackson won the Michigan caucus with 53% of the vote, and Dukakis only got 29%.
4:38 Speaker 06 And that's where it came from. We said, well, gee, you know, as economists, what would we do if we were going to try to predict the outcome of something? And what's natural for a bunch of economists is that, well, let's run a market on it.
4:50 Speaker 05 Like a stock or commodities market. So Robert and his colleagues got together a couple hundred people, students and faculty at the University of Iowa. They set up an online interface where those people could buy stock in political candidates. And just like on Wall Street, these political stocks could be traded. So for example, when George H. W. Bush and Michael Dukakis ultimately went up against each other in the general election, if you didn't like Dukakis's chances, you could sell your shares in him. The overarching idea here, the market might show what people were actually thinking, even better than polls could, the wisdom of the crowd.
5:29 Speaker 06 And lo and behold, at midnight the night before election day, we ended up predicting the outcome of the popular vote within two tenths of one percent.
5:40 Speaker 05 That result outperformed major polls, including Gallup, Harris, and CBS New York Times. It was so effective that Robert and his colleagues thought, we'd like to do this again next election, this time with a bigger sample size.
5:54 Speaker 06 So we went through the Commodity Futures Trading Commission and asked them whether they would give us permission to operate nationwide.
6:00 Speaker 05 And just so I understand, what was the law that you needed to get around?
6:05 Speaker 06 Well, anytime you have people exchanging real money on the outcome of something, the question is, is this gambling or not? And even though there's some form of regulation that's going to oversee you.
6:17 Speaker 05 Back then and now, the body that oversees that regulation in the US is called the Commodity Futures Trading Commission, or the CFTC. It's been in charge of commodity futures, like markets that set the future price of grain, since the 1970s.
6:33 Speaker 06 They've issued us what they called a no-action letter.
6:35 Speaker 05 That letter was basically like a permission slip. As long as the Iowa electronic markets followed a few set rules, the CFTC would allow it to do its thing.
6:45 Speaker 06 In the rules, we stayed small. We couldn't accept the cons over $500, and we didn't engage in paid advertising.
6:53 Speaker 05 So they could only run markets on presidential elections. Sports were off the table. And the Iowa electronic markets did not make a profit. Between 1988 and 2004, the Iowa electronic markets grew from a one-off experiment to one of the most reliable predictors of American presidential elections. During that period, its predictions beat traditional polls 74% of the time. And as the market continued to grow, so did the public's interest in it.
7:24 Speaker 07 I'm Val Bedworts, and this is NPR's Morning Edition. If you think you know who the next president of the United States will be, there's a place in Iowa where you can back up your convictions with a buck or two.
7:37 Speaker 05 At what point did you realize that people outside of the University of Iowa, outside of your orbit, were starting to pay attention to what you all were doing?
7:47 Speaker 06 Well, we started to get a lot of national publicity. This was different enough that before we knew it, The Wall Street Journal and The Financial Times of London and--
7:58 Speaker 05 NPR.
7:59 Speaker 06 NPR. And a lot of the television media started picking us up because it was just so different, right? I mean, who would ever made a market on an election?
8:08 Speaker 05 Oh, so they thought this was the first time something like this was happening?
8:11 Speaker 06 That's right. That's right.
8:14 Speaker 05 It was, of course, not the first election betting market, not by a mile. After the break, we go back farther and meet an economic historian trying to find the origins of election betting. More Throughline after the break.
8:41 Speaker 00 Stay tuned for the following announcements and messages from our sponsors. This message comes from Apollo. The world's leading companies don't need off-the-shelf financing solutions. That's where Apollo comes in. Apollo provides access to long-duration capital and a broad range of financing capabilities, helping companies develop customized financing solutions designed around their strategic objectives and structured at an efficient cost of capital. Learn more at apollo.com/capital. Support for this podcast and the following message come from E-Trade from Morgan Stanley.
9:15 Speaker 01 Simplify your finances and discover the convenience of investing and banking all in one place. Plus, get up to $1,500 when you open a brokerage account with a qualifying deposit today. Learn more at etrade.com/offer. Banking products and services are provided by Morgan Stanley Private Bank, National Association, Member FDIC. Terms and other fees apply. Investing involves risks. Morgan Stanley Smith Barney LLC, Member SIPC. Okay, let's call this Part Two, The Race Track. We pick it up with Run from Throughline and Coleman Strumpf.
9:50 Speaker 03 I am an economics professor at Wake Forest University. I've been teaching a course on prediction markets for almost 20 years.
9:58 Speaker 05 Coleman may be an economist, but his driving interest is in human behavior. On top of prediction markets, he's written papers about illegal file sharing, tax evasion, and the economics of addiction. And he says if you want to understand where prediction markets came from, just head down to your local horse track. They're on their start orders, and they're off.
10:22 Speaker 03 My uncle used to take me to the racetrack and have me bed on horses. I guess I was already a social scientist in training at 10 years old because, first of all, yes, back many, many years ago, you could be 10 years old and go to a racetrack and bed, and I couldn't even reach up to the counter and nobody seemed to care very much. But it was as interesting as much to me to watch what everybody else was doing. And a lot of things that I see when I look at markets today, I could sort of first see then.
10:53 Speaker 05 Watching people read the odds and make bets taught Coleman something essential about gambling. Winning makes people feel good. And the longer the odds, the better the winners feel.
11:05 Speaker 03 I remember when I was younger and I was watching people do it. Somebody would bet on a long shot horse, and that horse would actually win. The person would not only win a lot of money, but they were going around to all their friends saying how smart they were because they managed to figure out this very, very unlikely thing from happening. And I sort of realized that's, you know, part of this, the sort of psychology of these markets is people like to be smart. People like to use this as a way of sort of showing off their smarts of how they figure these things out.
11:36 Speaker 05 I should say here, there's been a lot of back and forth over the years about whether or not prediction markets are really just betting dressed up as something fancier. Or if you're looking at legal definitions, whether they might count as gambling. We're not here to litigate that. Coleman's point is as long as people have been putting money on things, whether it's on the stock market, in insurance, or at the racetrack, social scientists and economists have been able to learn something about us from those bets. So flash forward to the 2000 presidential election. George W. Bush versus Al Gore, one of the closest presidential races in a century. Coleman was doing research about election forecasting at the University of North Carolina,
12:21 Speaker 05 and he was keeping a close eye on the Iowa electronic market.
12:25 Speaker 03 I was writing a paper about the Iowa electronic market when my then colleague is at the University of North Carolina at the time, Paul Rhodey, came by my office, asked me what I was doing. And I said, I'm looking at the first political prediction market we have. And Paul, who is an economic historian, said, nope, that's totally not correct.
12:47 Speaker 05 He was MIT and I'm Stanford, and a lot of times creative frictions happen from people with different perspectives. That's Paul Rhodey. He's an economic historian at the University of Michigan. But back in the early 2000s, he worked down the hall from Coleman at the University of North Carolina. I happened to be reading some microfilm at the library and came across news.
13:14 Speaker 07 News stories in October, November 1924 about election markets. So I go up to Coleman Strumpf, to his office and say, hey, did you know these happened? And he wasn't aware that they happened. So it was an interesting surprise for both of us.
13:32 Speaker 05 Paul and Coleman started digging into the archives in earnest. And it turns out, pretty much as long as there have been elections, people have been betting on them.
13:41 Speaker 03 Back to the 16th century.
13:44 Speaker 07 There's betting on who would become the pope.
13:46 Speaker 03 Elections in city-states and Venice in general.
13:49 Speaker 05 And in the US.
13:50 Speaker 03 You can like find markets going back to George Washington.
13:53 Speaker 07 How long the Stamp Act would be in place before the American Revolution.
13:59 Speaker 05 Paul and Coleman say for centuries, these markets stayed relatively small. There wasn't a ton of money on the line. Sometimes the bets didn't involve money at all.
14:09 Speaker 03 If the candidate I support doesn't win, I'm going to cut my beard. Or I'm going to walk from New York to Boston.
14:16 Speaker 07 Or you have to eat a crow if I'm right. You have to push me in a wheelbarrow down Main Street.
14:22 Speaker 05 But around the turn of the 20th century, election markets in the United States really started to gain steam.
14:29 Speaker 03 The main place that people would trade on elections was something called the curb exchange, which literally, as the name suggests, was the curb outside the New York Stock Exchange.
14:39 Speaker 07 They'd be sitting on the curb and they'd be trading stocks and signaling the people in the offices about them.
14:46 Speaker 05 Stocks, to be clear, in political candidates, people running for office.
14:52 Speaker 03 Reporters for The Wall Street Journal, New York Times could go down to this pit and not only tell us what the overall price was, but the names of the people trading. And if you look, the people we're trading, these were like the elite of the city. These were people from Tammany Hall, these were bankers, Wall Street folks, people who owned hotels.
15:11 Speaker 07 People would be doing this very publicly. So if you were like the head of the Republican Party or you're the head of the New York Tammany Hall, you'd be expected to go to The betting commissioner is be willing to offer money for your candidate.
15:26 Speaker 05 Wow.
15:27 Speaker 07 So be part of the publicity about your standing behind this person. You think they have a good shot of winning.
15:34 Speaker 05 Were you expected to bet on your own candidate? Or could you bet against your candidate if you thought your candidate wasn't going to win?
15:41 Speaker 07 So we knew that like William Jennings Bryant, the populist from Nebraska, was not popular with the workers in New York. The democratic machine in New York has to like bet for him. But then the stories are behind the scenes, they're placing bets the other way to so that they cancel out.
16:00 Speaker 05 Because they don't want to lose money. Like publicly, they'll say, we love him, we endorse him. But they don't want to lose their money in the market.
16:06 Speaker 07 Yeah, so they're going to be like hedging or going against their candidate.
16:11 Speaker 05 All of this was happening in a sort of legal gray area. Making a friendly bet on the outcome of an election wasn't against the law. But if you did that, you weren't supposed to vote.
16:22 Speaker 07 But I don't think anybody ever said, we're turning you away from the polls because we know that you bet on elections.
16:29 Speaker 05 Were these prediction markets, as far as you can tell, good at predicting the outcomes of elections? And whatever else was being bet on?
16:39 Speaker 03 So this was like the second thing that I was wrong about. My sense was, OK, the markets will do as well as they can, but there's not much information to be had. These markets won't really tell us anything. Well, that I was definitely wrong on. And they were always right, basically. They would tell us who would win. They could give you a sense of whether there'd be a landslide. It was really pretty remarkable.
17:05 Speaker 05 By the 1980s, the IO electronics market would put that theory into practice. But why did it take them so long? That's after the break.
17:21 Speaker 01 Stay tuned for the following announcements and messages from our sponsors. This message comes from Apollo. The world's leading companies don't need off the shelf financing solutions. That's where Apollo comes in. Apollo provides access to long duration capital and a broad
17:36 Speaker 03 Wide range of financing capabilities, helping companies develop customized financing solutions designed around their strategic objectives and structured at an efficient cost of capital. Learn more at apollo.com/capital. Support for this podcast and the following message come from E-Trade from Morgan Stanley. Discover a wide range of investing choices and banking solutions all in one place. Plus, get up to $1,500 when you open a brokerage account with a qualifying deposit today. Learn more at etrade.com/offer. Banking products and services are provided by Morgan Stanley Private Bank, National Association Member FDIC. Terms and other fees apply. Investing involves risks. Morgan Stanley Smith Barney LLC, Member SIPC.
18:22 Speaker 03 This message comes from Rula. World Mental Health Day takes place in October, making it a great time to take that next step in getting support if you need it. Rula makes accessing quality mental health care affordable with sessions costing an average of $15 with insurance. So turn off the talk track that's keeping you from progress and head to rula.com, that's R-U-L-A dot com, to find a therapist the easy way.
18:49 Speaker 01 And now, part three, the other golden age of prediction markets. Back to Run from Throughline with economist Coleman Strumpf.
18:59 Speaker 05 You kind of pointed out that late 19th century to World War II era is this kind of golden age almost of prediction markets. Why did they fall off after that for a while?
19:11 Speaker 03 It's a combination of factors. One of the things that both drove the popularity of the markets as well as the discussion of the markets was the press coverage. Through this period, all the newspapers covered it, but they were never very comfortable doing this. Then in the 1930s, that's when the scientific polls, Gallup and some other folks came around. And so the polls were doing something that was kind of the same thing. And newspapers were much more comfortable writing about polls than they were with markets.
19:41 Speaker 03 The other thing in some sense has to do with interest of the people trading. So if you're somebody who really likes this, for whatever reason, you like to be known as a good forecaster, you like to make money, you like the adrenaline rush, any of these factors. The problem with elections, or at least I'll just say US elections, is we don't have enough of them. This is around the time when thoroughbred racing started to really take off. And so instead of a couple of events a year, you could have 12 races a night. And I think for people who were interested in that, I think the horse track was more attractive as a thing to do. And I think some of the interest among traders kind of dissipated at that time.
20:20 Speaker 05 As far as Coleman and Paul can tell, presidential election markets went dark sometime in the 1940s. And then for the next four decades, radio silence.
20:32 Speaker 03 I have never found one person who could have been around during that period, or even books that talked about elections during that period, that mentioned these markets. This was not some small, tiny thing. I don't know how they've managed to slip through the cracks of what's known about that time, but they seemingly did.
20:52 Speaker 05 Until 1988, when three professors in Iowa went for a three-beer lunch. And the Iowa electronic markets catapulted prediction markets back into the public consciousness as an alternative to political polls. Here's Robert Forsyth again, one of the founders of the Iowa electronic markets.
21:13 Speaker 06 Once we went nationally, two things happened. We would get phone calls from traders around the country, gotten realizing we had a $500 limit, wanting to send us a check for several hundred thousand dollars to invest in the market.
21:27 Speaker 05 Wow.
21:28 Speaker 06 And we'd have to say, well, gee, that'd be great, but we only can take $500 of your money. But we got to realize that many of these people weren't speculators. These were people that were involved and were trying to hedge some political risk that would affect their company or their operations.
21:42 Speaker 05 Say you're worried a certain candidate might win and pass laws that will hurt your business. You can hedge your bets. Put some money on the person you do not want to win. If they win, you cover your losses.
21:55 Speaker 06 So that was the one kind of phone call. And then we would occasionally get a phone call saying, this is great, but you know, you have to stay small. We stayed in the United States. Why don't you come with us and come over to the Cayman Islands and we operate there? And you can run without restriction. And maybe we should have done that. I don't know. At that point in time, we were a bunch of academics who were mainly concerned with our teaching and our research. And so we turned those opportunities down.
22:23 Speaker 01 Looking back on it now, why do you say, well, maybe we should have done that?
22:28 Speaker 06 Well, you know, there are days that I'm sort of jealous of Kalshi and the poly market. I mean, they've really taken the same idea. I mean, they're running basically the same prediction markets we did, but on a much bigger scale. In fact, they basically use the same rules for trading and issuing contracts that we used back in 1988. But they certainly have expanded it vastly until you can just about trade on anything there.
22:54 Speaker 01 The Iowa electronic market established something important. It demonstrated to modern economists that prediction markets worked, and that sparked a chain reaction, says economist Coleman Strumpf.
23:07 Speaker 03 Once we see, oh, look, these markets kind of work in the modern period. Could we use these markets to forecast other things? So could we look at other elections? Could we look at current events? And I think it kind of showed to the world that these things could work, but maybe it was only in this one specific domain. And we didn't yet know, would that same kind of forecasting savvy translate into other situations? So that was for other markets to help point out.
23:42 Speaker 01 That was economist Coleman Strumpf, speaking with Rund Abdelfatah and Throughline, NPR's history podcast. Each episode, they take today's big questions and find the context in history. Deeply researched stories, beautifully sound designed. This is just a part of their episode on prediction markets. They have much more on terrorism, future markets, and military. Applications. Check it out in their podcast feed. We will put a link in our show notes. Thanks, as always, to our NPR Plus supporters. Reminder that we have a live virtual book tour event for you this Thursday, June 25 at 3 PM Eastern. Check out the start of our most recent bonus episode for details on joining. We're hoping to do more virtual events like
24:26 Speaker 01 this. And if you aren't a supporter and want to become one, yes, please, go to plus.npr.org. This episode was produced for Planet Money by Sam Yellowhorse Kesler and edited by Alex Goldmark. I'm Erica Barris, and I'll let Throughline and Rand give you the credits in their classic Throughline style.
24:46 Speaker 05 I'm Rand Abdelfatah. Throughline was created by me and Ramtin Anablui. This episode was produced by me and
24:54 Speaker 04 Sarah Wyman. Julia Redpath. Casey Miner. Christina Kim. Devin Kadyama.
25:00 Speaker 05 Kiana Mulholland. Irene Noguchi. Julie Kane. Thank you to David Bieri, Rhett Neely, Johannes Sturgie, Dylan Kurtz, Rebecca Farrar, Yolanda Sanghweni, and Tommy Evans. And shout out to Michael Strumpf. Fact checking for this episode was done by Kevin Vogel. This episode was mixed by Maggie Luthar. Music for this episode was composed by Ramtin and his band Drop Electric, which includes
25:26 Speaker 03 Navid Marvi. Sho Fujiwara. Anya Mizani.
25:31 Speaker 01 This is NPR. Thanks for listening.
25:43 Speaker 01 Stay tuned for the following announcements and messages from our sponsors. This message comes from NPR sponsor Charles Schwab. Financial decisions can be tricky. Your biases can lead you astray. Financial Decoder, an original podcast from Charles Schwab, can help. Download the latest episode and subscribe at schwab.com/financialdecoder.
26:05 Speaker 00 This message comes from EasyCater, the workplace food platform. EasyCater helps organizations order food from favorite restaurants, meet dietary needs, and stay on budget. With employee meal programs, flexible payment options, and 24/7 customer support, all on one platform. Learn more at easycater.com.
Previous The real horror of ‘Alien’ and how it explains why we’re not paid enough Next We almost had a smartphone in the 90s. Why did it fail? Page updated October 30, 2026 · transcript and summary are machine-generated