In the days leading up to the US election, pollsters had the race deadlocked. The vote was essentially a coin flip.
But over on the betting platform Polymarket, the odds were much more solidly in former President Donald Trump’s favor. On Monday, Trump led Vice President Kamala Harris 58% to 42% — a lead that, by Wednesday morning, proved to be a much more accurate reflection of reality.
For free market purists, the success of betting sites like Polymarket, Kalshi and PredictIt isn’t surprising at all. The basic theory behind prediction markets is that a lot of people with money on the line can better predict an outcome than any one expert. Even if those people are not well informed, collective wisdom emerges from everyone’s aversion to losing money.
“Financial markets are generally pretty efficient, and the evidence suggests that the same is true of prediction markets,” Eric Zitzewitz, an economics professor at Dartmouth, tells me. “There’s no virtue-signaling in an anonymous market when you’re betting.”
But just like polls, prediction markets are far from perfect.
There have been some high-profile misses, so the Nate Silvers and Ann Selzers of the world probably won’t be out of a job anytime soon.
Read the full analysis.
