Something’s Odd About the Political Betting Markets

But more recently, prediction markets have developed an odd sort of problem. There seems to be a feedback mechanism now whereby the betting-market odds reify themselves.

What do we mean by that? In the case of Brexit, it goes like this: Different surveys give different results, and we all know not to trust the polls, which have notoriously failed in... See more

Prediction markets work because traders can see all of the standard forecast data and aggregate it along with other idiosyncratic or dispersed information about the election. Traders can aggregate polling data or follow published poll aggregates, and they can add in any other information they think is relevant.

As researchers in political science and as economists, we see three enticing advantages of forecasts from prediction markets, compared with poll-based forecasts of election outcomes: 1) Markets have full coverage of outcomes. They covered all primaries and caucuses in 2016, when polls covered about 50 percent of possible contests. Similarly, for Br... See more