- Prediction markets swung in Trump’s favor in the weeks leading up to his victory as polls showed a virtual tie.
- Proponents point to a number of factors that make betting markets more accurate.
- They say the public may start to trust prediction markets more if the polls don’t improve.
In the weeks leading up to Donald Trump’s victory, polls showed the former president locked in a dead heat with Vice President Kamala Harris.
Prediction markets, however, told a different story.
Trump started to show a solid lead in betting markets like Polymarket, PredictIt and Kalshi in mid-October, and those odds increased largely in the weeks leading up to Election Day.
The odds narrowed a bit in the past few days, but by the time the first major polls closed at 6:00 PM ET Tuesday night, markets were showing about a 60% chance for Trump.
They reacted quickly amid a flurry of results from individual states, and by 1:30 a.m. Wednesday, they predicted a more than 98% chance of a Trump victory, according to the election betting tool.
This was still hours before the mainstream news media announced the election
Prediction site founders and researchers have long argued that betting markets are more accurate than traditional polls. This week was the largest demonstration to support this claim.
“They’ve always been accurate. They just have more interest now,” Tarek Mansour, co-founder of the Kalshi prediction market, told Business Insider. Kalshi is the only betting site for US users to bet on political races.
Kalshi saw a huge influx of traffic on election night, with 123 million page views in the 24 hours before the race was officially announced, he said.
These numbers point to a growing sense of confidence in betting markets among voters, which will help platforms like Kalshi gain mainstream prominence, Mansour says.
“I don’t think we’re going back. I think this is the dawn of a new era for prediction markets and prediction markets are here to stay,” Mansour said. “People won’t go back to headlines and polls after that. Prediction markets are basically the last thing people will look at now,” he added.
Why the betting markets got it right
Betting experts say that prediction markets have several key advantages over polls, and most of them depend on the motivation behind the participants: instead of asking who the voter is wants to win, the prediction markets ask who they are THINK will win.
Putting money on the line – potentially tens of millions in the case of a French trader – means that participants have to be very confident in their prediction. This means that those with high conviction and potentially better information are especially attracted to the pages.
If a trader is willing to put up that much money, he must have particularly high conviction in his bet and may base it on information that is not publicly available, or simply on keen observers of recent developments, Prof. of Statistics Rutgers University, Harry. Crane told BI.
Experts also point to the ability of forecast markets to respond to new developments in real time, which proved particularly powerful this year given a series of extremely influential events, according to Northwestern University’s Thomas Miller.
Miller, who runs the election forecasting model The Virtual Tout, points to particularly big swings after President Biden dropped out of the race and endorsed Harris, plus two assassination attempts against Trump.
He says the markets responded immediately while the polls lagged.
“Prediction markets can be volatile. They can be responsive to current and campaign events. They move and can move significantly. This election is an extreme case of that,” Miller said.
Others also point to the large volumes traded in this election cycle and say that prediction markets will only become more accurate with more volume.
Crane says that if the CFTC’s strict rules on betting markets allow more US participation, it will increase volume, making it less likely that any attempts at market manipulation will work.
“I think no restrictions are really the way to go if we want to have better, cleaner, more accurate markets,” Crane told BI in an earlier interview.
Proponents of the prediction market say the polls’ failure is likely to put pressure on pollsters to improve in future election cycles.
“Prediction markets are basically the last thing people are going to look at now,” Mansour said, adding, “It’s going to put pressure on the polls. The polls have to improve, or people won’t trust them,” Mansour. said.
If they don’t improve, betting markets could replace them entirely, he predicted.
Others, however, are skeptical even after the recent election.
Davide Accomazzo, a finance professor at Pepperdine Graziadio Business School, says the final election result remained within the margin of error of traditional polls, indicating that they were not necessarily inaccurate but needed refinement.
“The bottom line was not outside the statistical margin of error that the polls have shown. What’s interesting, though, is that every single margin of error went in Trump’s favor. So that definitely tells you there was something fundamentally wrong. given the construction of these traditional polls,” he said, adding that this could highlight a mistake in underestimating a non-traditional candidate.