The Fascinating History of Prediction Markets: From Ancient Bets to Modern Politics

Prediction markets have a long and intriguing history, with roots tracing back over a thousand years. These markets have evolved from informal betting on significant events to more formalized structures and modern political betting platforms.

In the early 16th century, formalized prediction markets began to emerge in Italy, where bets were placed on the next Pope. In 1591, Pope Gregory XIV issued an edict that anyone betting on the outcome of a papal conclave would be excommunicated. This marked one of the earliest attempts to regulate such markets.

In 18th-century London, prediction markets flourished in coffeehouses, where bets were placed on parliamentary scandals and changes in prime ministers. Charles James Fox, a member of the British Parliament, became the first documented 'whale' in prediction markets, betting heavily on political events and eventually going bankrupt. In the early 19th century, James Buchanan, who later became president, lost three land plots by betting on the wrong candidate. John Van Buren, the New York State Attorney General, made over 100 bets on the 1834 midterm elections, totaling $500,000 in today's value.

In 1876, John 'Old Smoke' Morrisey, owner of the largest billiard halls in New York, returned bets to participants but kept his commission after a chaotic election. In 1936, Gallup polls replaced betting markets as the primary indicator for journalists, leading to a decline in interest in market coefficients. The modern era of political betting began in the 1960s with Ladbrokes in London, offering odds on Conservative Party leadership elections. Betfair, the largest user-to-user betting market, regularly opens lines on major elections and political events, including Brexit.

Iowa Electronic Market (IEM) started in 1988 as an academic experiment at the University of Iowa, with strict limits on betting amounts. Intrade and Tradesports, launched in 2002-2003, offered binary contracts on various events, with partial funding from American billionaires Paul Tudor Jones and Stan Druckenmiller.