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Melissa Harris-Perry: Thanks for staying with us on The Takeaway. I'm Melissa Harris-Perry.

Speaker 2: They're off in the Belmont Stakes and the--

Melissa Harris-Perry: A lot of us in media try to avoid tweeting politics like a horse race, but there is a little bit of that element and not everyone keeping an eye on DC has the same concern.

Speaker 3: We are two months away from the US midterm elections, which means that the US presidential election odds continue to shift.

Melissa Harris-Perry: A financial trading company called Kalshi is trying to open up a new financial market, one that would allow investors to bet on the outcomes of the upcoming midterms. These aren't just dollars and doughnuts they'd be trading if the company gets federal approval, investors would be able to wage up to $25,000 on the outcome of elections. It raises a lot of questions.

Speaker 4: Isn't this gambling? Why should this be illegal?

Melissa Harris-Perry: Or--

Speaker 5: Who's better at predicting presidential elections, professional pollsters or online gamblers?

Melissa Harris-Perry: That's really the question I've got. Here to help us get some of these answers is Professor Koleman Strumpf, the Burchfield Presidential Chair of Political Economy and my colleague at Wake Forest University. Koleman, thanks for coming on The Takeaway.

Professor Koleman Strumpf: Thanks for having me on, Melissa.

Melissa Harris-Perry: Let's just start with the nuts and bolts. What does it mean to bet on the outcome of political races? How does it actually work?

Professor Koleman Strumpf: You would go to one of these online sites and you might, for example, be interested in who gets elected president in 2024. You might have some insights about who you think would get elected, and you would invest some money on the site. Then you would buy shares of a particular candidate, say you buy shares of Ron DeSantis. If Ron DeSantis ends up getting elected president a few years from now, your investment will grow in size, and you would make some profits.

Conversely, if he does not get elected president for whatever reason, then your investment would expire worthless. What I've always found interesting about these markets is not so much the people doing the investing, is that even if you aren't somebody who's interested in doing that kind of transaction, you can go look at these markets, see what they're saying, and get a very good understanding of the state of the race.

Melissa Harris-Perry: Let's dive into those two separate parts. First, let's talk about the people who are actually making the investment, doing the betting. I think for some folks, there's a concern as there is, for example, in sports betting, that rather than simply making the investment and then watching to see what happens, that there'd then be some attempt to affect the outcome. Is that a problem for democracy?

Professor Koleman Strumpf: It's definitely something that people should be potentially its concern. Let me raise a couple reasons why I don't think it's a particularly important issue with these markets. The first one is, if you actually think that's something that could go on, that people might try to rig an election to make some money, they're not going to make money going to one of these markets. These markets are not that big.

There are lots of other ways to make money that already exist whether these markets are around or not. You can go to the stock market and pretty well indirectly bet on these kinds of things. For example, if you knew a Republican was going to win the presidential election, there are certain either defense or green stocks that you would buy, and the potential for making money would be much larger.

The other more direct answer I can give is, some of my research is related to the history of these markets and these markets have existed in the United States, at least going all the way back to the start of the country. They were really large and active markets, particularly in the early 20th century, right outside Wall Street. Despite the participation of political insiders that actually traded on these markets, I could find no example of people changing or influencing the integrity of these elections with the goal of making money.

Melissa Harris-Perry: Koleman, let's dig in on folks who are watching these markets, even if they're not in them. How good are these markets at predicting election outcomes?

Professor Koleman Strumpf: The markets are, to the best of my knowledge, the best forecast we have of what will happen in an election. Now, it's important to remember, I'm saying the word best, that doesn't mean perfect. These markets are potentially fallible. They wrap up the conventional wisdom of the people trading in the market, but they're not always perfect, but they give you a very good sense of how close an election is and what people who are real political experts think about the likeliness of things that are going to happen.

Melissa Harris-Perry: What kind of data are people using to assess the odds of any of these election outcomes?

Professor Koleman Strumpf: The people who trade on the site are incredibly clever folks, from what I've observed and interacted with folks. They could do everything from taking a wide range of polls and combining them, to looking at economic data, to historical elections and combining it together in a very, very sophisticated fashion. In fact, there's even people on these sites who conduct their own polls to try to give themself an edge over other investors on the site.

Melissa Harris-Perry: What I want to think a little bit about here is, again, those most worried that it would have this effect of trying to actually influence elections are concerned in that way. I guess for me, I think, well, actually, democracy is in part about us trying to influence elections in all kinds of ways, whether your investment is made on a market or whether your investment is made with a direct campaign contribution to a party or to an individual candidate. I'm wondering if the aspect of the markets might be good for democracy just by keeping people in the game?

Professor Koleman Strumpf: That's a great point, Melissa. I find these markets when I show them to people, I teach about them at Wake Forest, the students become much more engaged in the elections. Even if they're not investing or not investing real money, they find following the details of who these candidates are, what they're about, because those, of course, are important factors as to who actually gets elected. I do find them becoming much more engaged in the democratic process. You raise an excellent point, there's lots of ways aside from these markets, like political contributions, that people already can influence, potentially, election outcomes.

Melissa Harris-Perry: What is your bet on the likelihood that Kalshi will actually be able to open up this new financial market?

Professor Koleman Strumpf: That's a very tough question. I mostly find myself to be an observer of these markets, rather than an expert forecaster. There seems to be a lot of-- comes down to there's a regulatory agency in Washington called the Commodities Futures Trading Commission. It's a bunch of regulators that are going to meet in a room and weigh pros and cons of this particular proposal. I'd be hard-pressed to say exactly if this is going to happen or not, but I think it's going to be pretty close. There's five commissioners, and I think it's going to be a three-two vote. It's going to be down to the wire type situation.

Melissa Harris-Perry: Koleman Strumpf is Professor and Burchfield Presidential Chair of Political Economy at Wake Forest University. Koleman, thanks so much for joining us.

Professor Koleman Strumpf: Great. Thank you so much, Melissa.

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