Joe Biden: how betting markets foresaw the result of the 2020 US election

While prediction markets have been around for a while, they’ve grown in popularity—especially for political events. 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. Moreover, the subject matter in prediction markets today is mostly limited to topics that could be bet on elsewhere. The current popular markets include politics (due to the election season), crypto, and sports.

While polls tell you about how people responded in the recent past, the odds on sites like PredictIt and Polymarket show real-time sentiment and are better for mapping the future, according to Miller. Plus, polls don’t show who will win the electoral college, while traders on prediction markets can wager on its outcome. Prediction markets, also known as betting markets, information markets, decision markets, idea futures, or event derivatives, are instruments that enable individuals to predict specific outcomes using financial incentives. In simple terms, these markets allow participants to place bets on a wide range of topics, from sports outcomes and financial prices to political events and even weather conditions. Betting markets for presidential elections in the U.S. aren’t a new phenomenon. In fact, before scientific polling was well established in the late 1930s and early 1940s, Wake Forest economics professor Koleman Strumpf told Fortune that betting markets were where newspapers got their election predictions.

Prediction market

• But prediction markets aren’t perfect, Waite said, explaining that they can be manipulated by someone with a lot of money who wants to sway perception and that they aren’t always accessible to everyone.
• 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.
• To determine the main factors driving the variation in voter preferences, they performed an analysis that identified the overriding patterns in the data.
• The highly anticipated U.S. presidential election is just 22 days away, and polls show an increasingly tighter race.
• Right now, their market, with over $50 million bet in total, indicates that Trump has a 61 percent chance of victory.
• For Flutter, activity on the Betfair Exchange provides an important, unique source of information as the most liquid market in political betting.

While these markets often held great predictive value, they were soon usurped by the rise of scientific public polling (and also discouraged by the moral standards of the era). I do have one prediction though, the more tumultuous and data-heavy our democratic politics becomes, the more influential the highly reactive odds from political gambling will be. The LA Times/USC were one of the only polls that had a Trump victory, which was a poll that was criticized for months leading up to the election. In the 2012 election, someone referred to as a “whale” in betting circles wagered anywhere from $4 million to $7 million on Romney to defeat Obama, which obviously did not happen.

Right now, their market, with over $50 million bet in total, indicates that Trump has a 61 percent chance of victory. There was a similar consensus in the run up to the 2020 election that Trump would lose – but the degree of confidence displayed by the markets and the models diverged markedly. To illustrate, Sporting Index, the spread betting company, announced it thought Joe Biden would win with between 305 and 311 electoral votes as the polls opened on election day, with Trump trailing on 227 to 233 electoral votes. Given those who are placing and taking bets are backing their opinions with money, you could say betting markets are a more powerful source of truth. However, bettors are also a self-selecting audience, while opinion pollsters canvas carefully selected – hopefully, representative – groups of people. While no method is 100% at predicting U.S. presidential elections, both betting markets and polls can be strong predictors and should be viewed together to fully gaugethe prospects of an election.

The clusters are derived from current 2024 election data, rather than historical data, and can update dynamically as voter opinions shift during the run-up to an election. Each state carries electoral votes based on its House representation plus two Senate seats for a total of 538 electoral votes; 270 needed to win. So, better data on voter dynamics in each state ought to improve election forecasting.

Scientific Polls Find Their Place in Elections

It appears few journalists, pundits and experts have dug deep into how these prediction markets actually work – and fewer yet have ever actively ‘bet’ on these sites. We have, and we’ve been startled by what we found as we made bets on these sites (as an academic exercise). Records of the betting on US presidential elections can be traced back to 1868.

Unlike traditional betting sites, Polymarket allows traders to buy and sell shares on the outcome of a given event. Any user can make a market by posing a question with a fact-based resolution. Traders then buy shares depending on which outcome they think is most likely. The share price—or “odds”—rise or fall depending on demand, and the contract—or the “bet”—will either rise to $1 and pay out if the event happens the way you predicted, or fall to zero if it does not.

The 17th-century Amsterdam Stock Exchange formalized the practice of speculating on future outcomes through commodities and company shares. This evolved further with the advent of futures contracts in the 19th century, which allowed farmers and merchants to hedge against price fluctuations. In the contemporary era, prediction markets epitomize this age-old connection, leveraging financial incentives to forecast events in domains such as politics, sports, and even weather. By harnessing the collective insights of participants, these markets enhance the accuracy of predictions, underscoring the inseparable relationship between finance and gambling.

Prediction markets were particularly useful for quantifying swings in the general consensus in a way that didn’t have an obvious substitute. They may be at their most useful in the midst of big uncertain events, when there’s a possibility of the underlying event resolving at any time. This dramatically increases the risk of playing games with the order book, as there’s always a chance that one side of the bet could suddenly be wiped out. All trading on Polymarket is public (it is ~on the blockchain~, after all). This would presumably make it difficult for the FrediGroup accounts to try to start slowly selling off shares without causing a stir. The story of the “French whale” on Polymarket seemed to give credence to these fears.

Similarly, the day before the Republican National Convention, Polymarket had Vance winning the VP nomination at 68%. Trump’s odds of winning the election spiked on the site after Biden’s disastrous debate performance on June 28, and continued to climb in the next few weeks. At one point shares traded as https://roobetofficial.com/ high as 72%, meaning a 72-cent contract on a Trump victory would pay $1, in the wake of the assassination attempt against him in mid-July. But since Harris became the presumptive nominee, Trump’s lead has slowly drained away. Contracts for a Trump victory fell below 60 cents on July 26, then below 55 cents on Aug. 1.

Based on 40,000 simulations, the midpoint estimate of the model provided by Nate Silver and FiveThirtyEight put Biden ahead by 348 electoral college votes to 190 for Trump, a margin of 158. The Economist’s model was even more lopsided in favour of Biden, estimating that he would prevail by 356 electoral votes to 182. Taking the unweighted mean of all three forecasting models, Biden was projected to win 348 votes in the electoral college to 190 for Trump.

The researchers utilize FiveThirtyEight’s polling averages and supplement them with data from Nate Silver’s independent Silver Bulletin to address gaps in data availability that emerged right after Kamala Harris replaced Joe Biden as the Democratic candidate. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month. Prediction markets will have to show they can weather the chaos of an American political brawl. If Prediction Markets pan out, they could even render traditional polling obsolete for certain questions. Which is apparently much needed – as traditional polling methods seem to be breaking down. The adaptation of financial theory and practice to other fields is becoming more common.

Prediction markets work on the premise that more people will weigh in with more realistic opinions when their own money is on the line, Dartmouth economics professor Eric Zitzewitz tells Observer. That logic held true during last year’s presidential election when prediction markets across PredictIt, Polymarket and Kalshi more accurately favored Trump’s win over traditional polls during the lead-up to the election. Despite these red flags, prediction markets have largely evaded scrutiny with media accounts, experts, and pundits citing them as credible sources of information. The reality is that prediction markets are not at all predictive, despite their name, and entirely unreliable.

The flexibility of the prediction market makes more precise and targeted risk exposure possible, enabling investors to isolate risks and express their views in a variety of ways. The confidence of betting markets in Trump’s prospects contrasted sharply with the conventional wisdom of a toss-up race, raising questions about which forecasting method would prove more accurate. The landscape of political betting platforms has evolved considerably across these three elections, with established players maintaining dominance while new entrants introduced technological innovations.