In the election race, prediction markets are challenging traditional polls

But it’s not just traditional election predictors that see Harris pulling Democrats back into the race.

This month, Polymarket, the controversial cryptocurrency betting site that accurately called JD Vance the VP nominee and Joe Biden out of the race, showed Harris’ odds of winning the presidential election surpassing Trump’s. It was the first time Trump’s chances fell below 50% since May, and Harris’s probability rose to 54% on August 15.

Unlike traditional betting sites, Polymarket allows traders to buy and sell shares based on the outcome of a particular event. Any user can make a market by asking a question with a fact-based resolution. Traders then buy stocks based on what they think is the most likely outcome. The share price – or “odds” – rises or falls based on demand, and the contract – or “bet” – will either rise to $1 and pay if the event happens as you predicted, or fall to zero if it does happen. not. Essentially, if you get the wrong answer, your actions are worthless.

“The way Polymarket prices are set is just by people trading on the exchange,” said Harry Crane, a statistics professor at Rutgers. wealth. “So it’s very similar to the New York Stock Exchange or any kind of stock market in that prices are determined by supply and demand.”

While individual bettors in the market may have gaps in their information – or biases – taken collectively, bets on crowdsourced platforms add up to a highly informed opinion on the outcome of the election and could be more accurate than traditional polls , Crane said. Polymarket’s success in predicting political outcomes is somewhat surprising given that election betting is illegal in the US and US bettors are technically prohibited from using the platform. But Crane said wealth that just because the markets are run by non-US residents doesn’t make them any less reliable. In fact, it might even be an advantage – non-residents who trade based on the outcome of the election are less likely to lean Democratic or Republican. In addition, because Polymarket users who trade in the election have financial skin in the game, punters are likely to be very knowledgeable, Crane said.

Given the high stakes of the upcoming election, sites like Polymarket are seeing increases in trading volume and active users. Trading on Polymarket reached a record $380 million in July, up from $110 million the previous month, according to Block, a crypto news agency.

Trump’s odds of winning the election rose on the site after Biden’s disastrous June 28 debate performance and continued to rise over the next few weeks. At one point, the stock traded as high as 72 percent, meaning a 72-cent contract on a Trump victory would pay $1, following the assassination attempt against him in mid-July. But since Harris became the presumptive nominee, Trump’s lead has slowly eroded. Contracts for a Trump victory fell below 60 cents on July 26, then below 55 cents on August 1. On August 15, contracts for a Trump win were down 45 cents. The decline was reversed Thursday, with Polymarket showing Trump leading Harris 52 percent to 46 percent.

Relative newcomer Polymarket isn’t the only crowdsourced prediction site with markets on this year’s presidential election. PredictIt, a site that grew out of a project at Victoria University of Wellington, has been around for a decade. But Polymarket started to generate buzz this summer after a series of correct calls ahead of most pundits.

Even before Biden’s debate performance, punters were saying there was a 20 percent to 25 percent chance he would drop out of the race, and three days before Biden made his decision, the odds were nearly 90 percent. Similarly, the day before the Republican National Convention, Polymarket had Vance winning the VP nomination at 68%.

“Market participants, because they have financial incentives to make money, are incentivized to look at all the information available,” he said. That information includes traditional polls, he said, but also includes other factors such as economic indicators, voter registration and recent news.

Polymarket did not respond Of luck interview request.

That doesn’t mean the prediction markets are always right. In 2016, PredictIt punters had Hillary Clinton at an 80% chance of winning the election. But this error was no worse than polls from sources like New York Times, which gave Trump a 15 percent chance of winning on Election Day.

“It’s the best opinion available given all the information we have and provided to all participants who have the information,” Crane said.

History of political betting markets

Betting markets for US presidential elections are not a new phenomenon. In fact, before scientific surveys were well established in the late 1930s and early 1940s, Wake Forest economics professor Koleman Strumpf said wealth that the betting markets were where newspapers made their election predictions.

“The newspapers would report it on the front page, pretty much at least in the last month before the election, but usually a lot more than that,” Strumpf said. “Almost every major city in the U.S. had its own market, but the largest was in New York, and it literally existed right off Wall Street.”

Even back then, betting markets were a remarkably accurate predictor of election results. A study by Strumpf of the history of presidential betting markets showed that in the 15 elections between 1868 and 1940, the mid-October favorite won 11 times. Only once (Woodrow Wilson in 1916) has an underdog actually won an election.

“They picked the winner of the election pretty well, and it was something that people at the time knew,” Strumpf said. “So if you read the paper, they would call it ‘Wall Street betting odds.’ And the papers would say, like, “Wall Street betting odds are rarely wrong.” So there was more confidence in those markets in the early 20th century than I would say people have in polls today.”

said Smurf wealth that betting markets switched off from newspaper election coverage in the mid-1930s, just as Gallup and scientific polls were emerging. But sites like Polymarket and PredictIt have regenerated interest in prediction markets as a tool for political analysis.

“People want to know what the outcome of this is, whether you bet on it or not,” Strumpf said. “And these markets provide this quick shortcut to conclude what the conventional wisdom—of a lot of people who are really smart and think about it a lot harder than I do—think about it. For me this is a great source of news. Looking at these markets should be in your new resume.”

Polymarket’s future in the US remains in doubt. In 2021, derivatives market regulator Commodity Futures Trading Commission fined the platform more than $1 million for operating in the US. The CFTC is currently drafting new regulations to clamp down on event contracts like the one offered by Polymarket for the US election. But an uncertain legal environment has not yet deterred investors. The platform has raised more than $70 million in two rounds of funding, led by Peter Thiel’s Founders Fund. This summer, FiveThirtyEight founder Nate Silver agreed to join the company’s board of directors.