Prediction Markets Still Offer Election Bets

Published November 16, 2020 by Lee R

Prediction Markets Still Offer Election Bets

We all know Biden is going to win, but how mathematically certain is that assumption?

With a history of accuracy actually stretching back some 500 years, the political upset remains one of the true “upsets” of our society.

The Ultimate Upset?

President Trump's surprise victory in 2016 revealed the disparity that arises between environmental context and public opinion in respective prediction markets of punting activity versus political prediction models. 

Preserving the New Dichotomy

Amid the grandstanding threats of President Trump leading up to the election, a more informed data-based prediction approach accurately called the Biden victory in 2020 but flubbed the tally—revealing once again the disparities between the most empirical political prediction systems and the prediction markets based on betting activity brought to light in 2016.

The Prediction Model v Market

A historical examination further reveals how prediction markets diverge from the expertise of data-based predictions by factoring in more environmental context that accounts for any overlooked components of political prediction models. Political prediction models are based on data that factors pure public opinion—with prediction markets of betting activity reacting to immediate environmental impacts such as structural components of the prediction environment—which in America means the electoral college system.

Historical Context of the Upset

The examples of the 2020 election include further folly from the Trump Administration, whose leader already bucked political predictions and revealed the inequities of the political prediction system in 2016—a system which prediction markets rapidly corrected in the form of wagering that turned increasingly in favor of Trump as the election results became apparent.

Betting on presidential elections actually traces all the way back to 1868.

Research reveals that no odds-on favorite had ever lost the White House before Trump's victory in 2016 except in 1948 8 to 1 long-shot sitting President Harry S. Truman famously defeated Republican rival, Thomas E. Dewey.

The modern 2016 upset took place when the polls opened with Democratic candidate Hillary Clinton trading at 7 to 2 (equivalent to a win probability of about 78%), only to ultimately lose in the electoral college to Donald Trump.

Trump's infamous populist victory not only triumphed over voting polls and expert predictions, but the “wisdom of the crowd” itself as reflected in betting markets.

Betting Market Provenance

The exception anomaly proved the rule in that the wisdom of the crowd was inherently correct and accurate: Trump lost the election by some 3 million votes, but he triumphed by a whopping 77 votes in the electoral college--meaning his votes were distributed across more states, while Clinton's votes were consolidated in landslide victories in the fewer states she won.

This year 2020's result was more consistent with the conventional wisdom of the prediction markets—with far less confidence on the heels of the Trump anomaly of 2016.

Prediction Market Projections

For example, The Conversation reveals that spread betting company Sporting Index predicted a Biden win with between 305 and 311 electoral votes when polls opened, with Trump trailing at 227 to 233 electoral votes.

The median adds up a Biden triumph by 308 votes to 230 in the electoral college, which reflected a general consensus among all bookmakers, betting exchanges and prediction markets.

Political Prediction Model Projections

Meanwhile, expert presidential results predicted much more success for Biden: a median on the base of 40,000 simulations by Nate Silver of data-based prediction tank Five Thirty Eight placed Biden ahead by 348 electoral college votes to 190 for Trump; the New Statesman model foresaw 339 votes to 199 for Biden; and the Economist’s model had Biden prevail 356 electoral votes to 182; for an average prediction of 348 for Biden to Trump's 190 across data-based, non- gambling prediction entities.

Current Outcome

Unconfirmed results from all states now have Biden at 306 votes to Trump's 232 electoral college votes, with the assumption that the Georgia recount will uphold the final tall for Biden.

Prediction Market Accuracy

This leaves the election outcome faithful to the betting spreads not the political prediction markets.

Consistent with History

The uncanny precision yielded by betting prediction markets responding to the actual amount of money bet on each candidate corresponds to Presidential election accuracy built up since 1868, and applies to historical Papal betting markets all the way back to 1503.

The New “Exception”

These accurate prediction markets are now predicting another historical anomaly: Sporting Index' placing of the departure date of President Trump from the White House at February 26, 2021, though the presidential inauguration date is January 20, 2021.

Legal Basis for Possibility

The prospect of obstinant Trump's extended occupancy would be built on legal challenges that Trump has made to the election results. The punting on that prospect in prediction market exchange trading puts a 7.8% chance of Trump retaining office.

Election Results Outlook

This minimal percentage to election watchers and experts represents 7.8 percentage points more than 0 in the prediction markets, opening the door for long-shot bets based on flights of fancy or substantive information embracing the logistical possibility for Trump may retain the White House. While his chances of winning are dead, bets on on Trump's White House outcomes continue.

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