Adding some further comments on the performance of prediction markets in the 2020 election here—while the election is still ongoing, I think so far it seems to support the article. Some numbers here are based on my fallible and sleep-deprived human memory, if anyone disagrees/has a better source I can update this.
Coming into the election, 538 had Trump at a 10% chance to win (saying words to the effect of ‘Biden is in a very strong position, where he has several paths to victory even through a correlated polling error of the sort that happened to Clinton’). PredictIt and Betfair had Trump at 30-40%.
As the day went on, Trump did better than expected in several places (particularly Florida), and took a lead in several important states (PA, MI, WI), though with many mail-in and urban ballots remaining that were expected to be Democrat-favored. At 11pm, 538 wasn’t giving hard numbers but a couple places in their chat were talking about Trump being anywhere from a 20-50% chance to win and emphasizing that mail-in ballots were expected to shrink or remove his leads, while PredictIt and Betfair both had Trump at ~70% to win.
As of this writing on the afternoon of the next day, with no new surprises I am aware of except for the entirely as-predicted shrinking of Trump leads due to later-arriving ballots, 538 continues to say ‘Trump is behind but could still manage an upset’, while Betfair and PredictIt have swung from their previous ~70% to a ~20% that is in line with what 538 was saying last night.
While there are several interpretations you could place on these numbers, it rather looks to me like prediction markets overrated Trump from the beginning, heavily overreacted to Trump’s early outperformance, failed to predict the effect of late-arriving ballots until it actually happened, and then swung around and dropped their probabilities heavily based on this predictable news, while 538 did a lot better.
538 forecast: 10% → Trump gets positive news → 20-50% → predictable shrinkage in Trump lead → ~20% Prediction market forecast: ~40% → Trump gets positive news → ~70% → predictable shrinkage in Trump lead → ~20%
If we were dealing with an efficient market I wouldn’t expect this to happen. Then again, if we were dealing with an efficient market I would expect hedge funds to hire skilled analysts on 6-figure salaries to stay up all night tracking election results and arbitraging market swings like that. Until that happens, I will keep an eye on prediction markets, but I will trust 538 over them.
Adding some further comments on the performance of prediction markets in the 2020 election here—while the election is still ongoing, I think so far it seems to support the article. Some numbers here are based on my fallible and sleep-deprived human memory, if anyone disagrees/has a better source I can update this.
Coming into the election, 538 had Trump at a 10% chance to win (saying words to the effect of ‘Biden is in a very strong position, where he has several paths to victory even through a correlated polling error of the sort that happened to Clinton’). PredictIt and Betfair had Trump at 30-40%.
As the day went on, Trump did better than expected in several places (particularly Florida), and took a lead in several important states (PA, MI, WI), though with many mail-in and urban ballots remaining that were expected to be Democrat-favored. At 11pm, 538 wasn’t giving hard numbers but a couple places in their chat were talking about Trump being anywhere from a 20-50% chance to win and emphasizing that mail-in ballots were expected to shrink or remove his leads, while PredictIt and Betfair both had Trump at ~70% to win.
As of this writing on the afternoon of the next day, with no new surprises I am aware of except for the entirely as-predicted shrinking of Trump leads due to later-arriving ballots, 538 continues to say ‘Trump is behind but could still manage an upset’, while Betfair and PredictIt have swung from their previous ~70% to a ~20% that is in line with what 538 was saying last night.
While there are several interpretations you could place on these numbers, it rather looks to me like prediction markets overrated Trump from the beginning, heavily overreacted to Trump’s early outperformance, failed to predict the effect of late-arriving ballots until it actually happened, and then swung around and dropped their probabilities heavily based on this predictable news, while 538 did a lot better.
538 forecast: 10% → Trump gets positive news → 20-50% → predictable shrinkage in Trump lead → ~20%
Prediction market forecast: ~40% → Trump gets positive news → ~70% → predictable shrinkage in Trump lead → ~20%
If we were dealing with an efficient market I wouldn’t expect this to happen. Then again, if we were dealing with an efficient market I would expect hedge funds to hire skilled analysts on 6-figure salaries to stay up all night tracking election results and arbitraging market swings like that. Until that happens, I will keep an eye on prediction markets, but I will trust 538 over them.