In the early 20th century, for brief periods, the most frenetic American trading pits were not the raucous markets in which stocks were traded, nor the venues where bonds were exchanged. The real action was in the market for betting on the next president. “Crowds formed in the financial district…and brokers would call out bid and ask odds as if trading securities,” write Paul Rhode and Koleman Strumpf, two economists. Markets were deep, liquid and smart: in 15 presidential elections from 1884 to 1940, the favourite won 11 times and three races were essentially tied (in odds and result). Only once did markets miss the mark.
Lively markets in political betting would be a gift today, since they have taken on a profound importance in the days since Joe Biden’s disastrous debate against Donald Trump. The question of whether Mr Biden should drop out is urgent; the answer influenced by his chances of beating Mr Trump. Polls, even fast ones, are slower than markets. And markets moved sharply against Mr Biden’s chances of continuing in the White House and being the Democrat nominee, before recovering a little in response to the president’s obstinacy (see chart).