Why Prediction Markets May Be More Accurate Than Polls in Calling Elections

PredictIt is facing headwinds from the CFTC, which is looking to outlaw all election betting. If passed, Americans wouldn’t be legally allowed to participate in any prediction markets, though some may try using VPNs to bypass regulations, which likely occurs now. The most popular prediction markets are largely unavailable to US participants. US-based users can’t bet on Polymarket, and Betfair, one of the longest-running events markets, is only available in some US states. While they’re not without their misses — they were notably wrong during the 2022 midterm elections, and after Biden won the 2020 election — Rutgers University statistics professor Harry Crane says prediction markets are historically more accurate than traditional polling.

For instance, many people have moved away from a home phone number to only using a cellphone number, or maybe they don’t answer phone calls at all and prefer to do all of their communication via text and online sites. In fact, of the 8 upset elections in that time, half of them took place by 1892. The only upsets since the 20th century are the aforementioned wins by Trump (2016), Truman (1948), and then a couple of much closer races. As one would expect, having better odds like -250 instead of a closer favorite with -120 odds does increase the likelihood of winning. In fact, the recent change for 2024 with Donald Trump improving to -175 odds at BetOnline is significant.

If someone injects a huge amount of money into a market to make it look a certain way and that appearance is at odds with the underlying reality, then there’s money to be made taking the other side of that bet. That’s especially true on sites like Kalshi and Polymarket, which have larger investors, like hedge funds. Like a lot of economists and political scientists, I’ve long been a big fan of prediction markets. They provide a useful complement to polling by summarizing conventional wisdom about candidate odds, and also function as a tax on bullshit.

Political bookmaking may even influence the progress of an election campaign. After all, politicians often change course if they see policies going down badly with an electorate. Betting markets, as well as opinion polls, simply highlight the popularity, or otherwise, of policies and the personalities behind them. And in today’s interconnected and data-driven world, opinion polls are not the only sources of truth for democratic parties and their representatives – betting markets also play a valuable role during elections. The Literary Digest predicted that Alfred Landon would defeat Franklin Roosevelt in the 1936 presidential election, which was wrong. This gave an https://roobetofficial.com/ opportunity to George Gallup to modernize and create scientific political polling of the masses in America in the 1930s.

Prediction markets in the 2024 presidential election

There’s a lot of cheap talk in political punditry, and I’m generally of the belief that if you say things like “Trump will definitely win Florida by 8 points,” good etiquette requires you to bet money on that proposition. Making the bet means you’re putting your own money behind your prediction, and if you have to do that, you’re probably going to make fewer garbage predictions. Zitzewitz notes that prediction markets are vulnerable to manipulation, particularly when a small number of users place massive bets to sway outcomes. DealBook reported that four Polymarket accounts, all traced to a single foreign national, put $28 million in pro-Trump bets during the last election. Polymarket, unlike Kalshi, remains unregulated, but its success has shown the scale of this emerging economy.

• A paper by David Rothschild looking at markets during the 2008 presidential and Senate elections found that early in the election, prediction markets were significantly more accurate than polls; closer to the election, they were roughly equal.
• These betting sites allow traders to buy and sell shares on the outcome of a given event, like whether Trump will get impeached or Biden will leave the presidential race.
• In 2012, a “Romney whale” who spent heavily trying to prop up Mitt Romney’s odds in prediction markets wound up losing $4-$7 million.

Over time, betting markets arguably have the better track record as they performed great before polling became big in the 1930s, and they have done a solid job since. Both can run into accuracy issues with manipulative bettors and untruthful responders. Also, the markets havelargely aligned with what the polling data has been saying for decades, so it’s harder today to see a large disagreement between the methods. You can buy a Prediction Market “share” to hold until the event in question (e.g., a presidential election) takes place and the option pays off – or you can buy at today’s price and hope to resell at higher price to another buyer tomorrow.

List of prediction markets

Burned by such errors, and uncertain about the validity of the data, almost every new poll today comes with a caveat about the ways in which it could be just plain wrong. When asked about nefarious betting meant to falsely inflate the odds of a given candidate, Mansour said election markets are “self-correcting” because bettors will see an opportunity to make money on an inflated outcome. Major papers, like The New York Times, would publish the betting odds as a source of information, Romer said. But in the latter half of the 20th century, during the advent of scientific polling and a number of prohibitive gambling laws, election betting fell out of favor. ” the “yes” outcome for Trump is currently at $0.54 and the “yes” outcome for Harris is $0.50.

One week from Election Day, the Kalshi market favors Trump by over 30 percentage points — while most political polls show Harris and Trump statistically tied. This misalignment has raised questions about the accuracy of these markets. “The only outcome is basically — the people who tried to manipulate in the first place lost a lot of money,” Mansour said during an interview conducted when the Kalshi odds mirrored those of public polls. Mansour, the CEO, said the goal is to broaden election betting to the general public, similar to the creative financial vehicles that are available to hedge risks for “high-net-worth individuals” at investment banks like Goldman Sachs, his former employer.

Meanwhile, Polymarket shows Trump has a 54% chance of winning the presidential election with Harris trailing behind at just a 45.3% chance. The highly anticipated U.S. presidential election is just 22 days away, and polls show an increasingly tighter race. Two national polls released Sunday show an ultra-close race with Vice President Kamala Harris just barely in the lead, while a third poll shows her tied with former President Donald Trump. With long resolution dates, the returns in prediction markets are not attractive to many users.

Betting Markets’ Strong History at Predicting Elections Correctly

Before long, the idea migrated out of academia and became a business model. In the last several decades a number of companies have ventured into this space with various offerings.

The Wall Street Journal reported that the rise in Trump’s odds on Polymarket over the last few weeks was almost single-handedly fueled by a series of $30 million bets, apparently from the same foreign entity. One shudders to think which foreign entity might be behind this naked market manipulation. The governance of these prediction market platforms raises serious red flags with abundant personal conflicts of interest—apparently blurring the lines between personal political agendas and business judgment.

Prediction markets, also known as betting markets, information markets, decision markets, idea futures or event derivatives, are open markets that enable the prediction of specific outcomes using financial incentives. They are exchange-traded markets established for trading bets in the outcome of various events.1 The market prices can indicate what the crowd thinks the probability of the event is. A typical prediction market contract is set up to trade between 0 and 100%. The most common form of a prediction market is a binary option market, which will expire at the price of 0 or 100%. Prediction markets can be thought of as belonging to the more general concept of crowdsourcing which is specially designed to aggregate information on particular topics of interest.

Before the era of scientific polling, early forms of prediction markets often existed in the form of political betting. One such political bet dates back to 1503, in which people bet on who would be the papal successor. Domer, who only wishes to be identified by his pseudonym, is one of two million users on prediction market app Kalshi, a financial exchange that allows users to put money down on the outcome of events. PredictIt shows Trump’s campaign in the lead as the 2024 presidential election winner. It also has the GOP winning the presidency and the electoral college margin. As of Monday afternoon, Polymarket, a cryptocurrency-based prediction marketplace, also shows Trump has a better chance of winning the election on Nov. 5.

The economists Paul Rhode and Koleman Strumpf have studied presidential election markets in the US that ran at large scale from 1868 to 1940; “betting activity at times dominated transactions in the stock exchanges on Wall Street,” they find. In 1916, the peak year of these Wall Street markets, betting reached $290 million in today’s dollars. Polymarket, which can’t legally operate stateside (but has plenty of American users via VPNs), is most famous for its presidential election contract, on which nearly $950 million is at stake. While its founders tout it as “the future of news,” with Polymarket charts having been integrated into reports from Bloomberg Terminal and CNN, there are traders raising doubts about how predictive it really can be, especially for a high-stakes electoral showdown. Circuit ruled last Thursday that Kalshi had to pause its election-betting operations as the appeal goes to trial—just hours after Kalshi had set up two separate markets for gamblers to bet, respectively, on House and Senate control.

Sports Odds History has a collection of betting odds for presidential elections going back to 1872 with results prior to 2012 coming from archived searches at newspapers.com. Another disadvantage of polling data is the potential for change in public opinion. People can change their minds, and a sentiment captured in a poll may not necessarily translate into a vote on election day. Betting markets and polling data are two of the most popular methods for predicting election outcomes. Both have unique advantages and disadvantages and understanding these can provide a clearer picture of their reliability.