As the 2024 presidential election between Vice President Kamala Harris and former President Donald Trump draws nearer, observers are looking for any clue to the ultimate winner. While polls have traditionally been the method of choice to forecast elections, polling misses in the 2016 and 2020 elections have led many to look toward alternatives.
Political betting markets, now legal in the United States, are widely discussed as another possible predictor of event outcomes. How accurate are they?
What Are Betting Markets? The premise of online prediction markets is simple: investors buy and sell futures on current event outcomes rather than on a physical asset. The most prominent prediction markets, including Polymarket and Kalshi, use cryptocurrency as a trading currency.
Thus, a trader profits if the event’s outcome resolves to their bet.
Kalshi — and now Robinhood — allow users in the U.S. to bet on the site; Polymarket is restricted solely to international users.
The 2024 Election: The Harris-Trump matchup could be the closest election in decades. Polling shows razor-thin margins in all seven swing states, though Trump has some momentum.
Polymarket bettors are more bullish on Trump. As of Oct. 30, Trump’s odds of winning on the site are 66.6% to Harris’ 33.4%. Trump’s odds have shifted by 17.6% in the last month, moving the race from “Toss-Up” status to “Lean Trump” by this metric.
This is a much higher margin for the GOP than what’s seen in polling counterparts.
Election forecaster 538 is more reserved in its confidence. The polling-aggregated model gives Trump a 52.5% chance of winning, up from 43% last month. While this may seem like a large swing, the election remains an effective toss-up.
Are They Accurate?
“Research shows prediction markets are often more accurate than experts, polls, and pundits,” Polymarket’s website reads. “Traders aggregate news, polls, and expert opinions, making informed trades. Their economic incentives ensure market prices adjust to reflect true odds as more knowledgeable participants join.
“This makes prediction markets the best source of real-time event probabilities,” the website insists.
In practice, the answer is murkier.
For one, Polymarket’s user base is likely somewhat homogenized. Twice as many men invest in cryptocurrency as women, according to CNBC. Additionally, the exchange has seemingly spent significant capital advertising on X. Polymarket has over 400,000 followers on Elon Musk‘s platform and just 80,000 on Instagram.
Polls have recognized a gender support gap in the election: women are much more likely to support Harris, while men are likelier to support Trump. The X user base has swung more conservative since Musk acquired the platform in 2022.
Homogenous participants are more likely to engage in herd behavior, making similar decisions, amplifying trends and causing asset bubbles or crashes. Efficiency in markets relies on diversity among participants because varied perspectives and approaches lead to more dynamic and accurate asset pricing.
It is worth noting that pollsters can also be prone to such behavior, dubbed “herding,” according to election forecaster Nate Silver.
“There are too many polls in the swing states that show the race exactly Harris +1, TIE, Trump +1. Should be more variance than that,” Silver posted on X. “Everyone’s herding (or everyone but NYT/Siena).”
Additionally, the calculated market odds are susceptible to wild swings from “whale” bettors. One individual on Polymarket has possibly spent as much as $43 million for Trump to win.
Does This Even Matter? Regardless of whether betting markets are tracking a true, major shift in presidential odds, voting is the only determinant of an electoral outcome.
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Image created using artificial intelligence via Midjourney.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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