With the 2024 presidential election between Vice President Kamala Harris and former President Donald Trump drawing nearer, the search for clues to the ultimate victor intensifies. While polls have historically been the go-to method for election forecasting, their misses in 2016 and 2020 have prompted a search for alternative predictors. Enter political betting markets, now legal in the United States, which are gaining popularity as a potential indicator of event outcomes. But just how accurate are they?
What Are Betting Markets?
Online prediction markets operate on a simple premise: investors buy and sell futures on current event outcomes rather than physical assets. Leading platforms, including Polymarket and Kalshi, utilize cryptocurrency as their trading currency. This means a trader profits if the event’s outcome aligns with their bet. Kalshi, and now Robinhood, allow US users to participate, while Polymarket is restricted to international users.
The 2024 Election: A Close Race?
The Harris-Trump matchup has the potential to be one of the closest elections in decades. Polls suggest razor-thin margins in all seven swing states, although Trump seems to be gaining some momentum. However, Polymarket bettors are more bullish on Trump. As of October 30, Trump’s odds of winning on the site stood at 66.6% compared to Harris’ 33.4%. Trump’s odds have surged by 17.6% in the last month, shifting the race from a “Toss-Up” to “Lean Trump” according to this metric. This significantly favors the GOP compared to polling data.
Election forecaster 538 takes a more cautious approach. Their polling-aggregated model gives Trump a 52.5% chance of winning, up from 43% last month. While this seems like a substantial swing, the election remains effectively a toss-up.
Are Betting Markets Accurate?
Theoretically, betting markets, like any market, strive for perfection. Polymarket’s website asserts, “Research shows prediction markets are often more accurate than experts, polls, and pundits. 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.”
However, the reality is more nuanced. Polymarket’s user base, for one, might be somewhat homogenous. CNBC reports that twice as many men invest in cryptocurrency as women. Additionally, the exchange has reportedly spent significant capital on advertising on X (formerly Twitter). Polymarket boasts over 400,000 followers on Elon Musk’s platform compared to just 80,000 on Instagram. Polls have recognized a gender support gap in the election: women are more likely to support Harris, while men are likelier to support Trump. The X user base has shifted towards the right since Musk acquired the platform in 2022.
Homogeneous participants are more susceptible to herd behavior, making similar decisions that amplify trends and potentially lead to asset bubbles or crashes. Market efficiency relies on diversity among participants as varied perspectives and approaches contribute to more dynamic and accurate asset pricing.
It’s worth noting that pollsters can also fall victim to this “herding” phenomenon, as observed by 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).”
Furthermore, the calculated market odds are vulnerable to wild swings from “whale” bettors, individuals with significant capital influence. One bettor on Polymarket has reportedly spent as much as $43 million for Trump to win.
Does This Even Matter?
Regardless of whether betting markets accurately reflect a true shift in presidential odds, it’s crucial to remember that voting is the only definitive determinant of an election outcome. These markets offer a fascinating perspective on the current political landscape, but their predictions are just one data point in a complex and ever-changing equation. Ultimately, the American people will decide the fate of the 2024 presidential election.
