To:           Interested Parties
From:     Dennis Kelleher, President and CEO
Cc:           Media Contact: Anton Becker, Dir. of Communications,  abecker@bettermarkets.org
Date:       November 13, 2024
Re:           Prediction Markets did NOT Nail the 2024 Election

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The 2024 election

The so-called “prediction markets” did not “nail the presidential election” as the industry claims. Frankly, the results show that the financial industry is really just trying to rebrand “gambling markets” as “prediction markets.”

The industry might claim that “prediction markets” better reflected some of the polls/models that had a tie or a slight edge to Harris, but even that is really a stretch, especially if the margins of error in the polls are taken seriously. Plus, it’s clear that the so-called prediction markets often followed the polls.

For example, when the Selzer Iowa poll came out shortly before the election showing Harris doing better than anyone expected, “Trump’s election odds tumbled on betting markets” in direct response to the poll.  That’s just one example where that happened.  And, don’t forget, the prediction markets also got the popular vote wrong. Plus, there were some wild misses.  For example, the markets had Senator Bob Casey at 75% going into election day and he is likely to lose.

The mixed record of prediction markets is spelled out by the economist James Broughel in  Forbes:

“Instead, they delivered significant confusion and contradiction. Throughout the campaign, Kalshi and Polymarket sometimes showed different probabilities for the same outcome. One market would Trump as the likely winner while the other favored Harris or showed them evenly matched–a situation that should be impossible in efficient markets. In theory, such discrepancies create risk-free arbitrage opportunities: traders could bet on the lower-priced candidate in each market, guaranteeing a profit regardless of the outcome.”

…

“Some prediction markets remained inconsistent right up until election day, with PredictIt and Polymarket still showing conflicting probabilities just days before voters went to the polls. Some defenders point to how quickly these markets identified Trump as the winner on election night, before major networks made their official calls. However, this is hardly impressive. The New York Times election needle and other related indicators were similarly quick to suggest Trump’s advantage as results came in. In fact, betting markets were likely reacting to the same publicly available vote counts and analysis that informed the media forecasting tools, as opposed to providing unique insights.”

The False Premise of Prediction Markets

Saying that markets for election betting can forecast the future better than others is to say that gamblers are better at predicting the future than most Americans. If that were true, why do most gamblers lose money?

The core claim that people who bet and put money on the line are better able to predict a future political outcome is based on a number of false assumptions.

• Gamblers are mostly young males with a higher tolerance for risk and usually with money to lose or the ability to lose money. That’s totally unrepresentative of the American people. They are also a demographic that typically does not vote or consumes news from historically valid sources. Thus, the basis for their predictions is suspect. They are not and never will be a statistically valid sample of likely voters who will determine the results even if standard polling isn’t as accurate as people would like.
• These markets are just as subject to bias, if not more, when betting on a candidate, i.e., they like Trump or Harris or whoever. They are not making objective or even necessarily informed judgments on fundamental values or some such data.
• No matter the denials, these markets are subject to manipulation that dilutes if not destroys their predictive value. For example, the reporting on the “French Whale” may very well have been an attempt to manipulate the market to benefit Trump. This is just one of the reasons why French regulators are looking into Polymarket. There is also the outright interference problem where someone drops false info/deepfakes in the days before an election that go viral on social media and are accepted as fact before it can be countered. As AI becomes more available and useable, this is going to become a very serious problem.

 Looking Forward

These prediction markets are little more than gambling, which is regulated by the states, not the Federal government.  And notwithstanding the attempts of the industry to rebrand gambling as “prediction,” there can be little doubt that all the ills of gambling, from debt to addiction, will follow, as has been tragically shown too often. That’s why many are showing why “legalizing sports gambling was a huge mistake.”

Finally,  even if prediction markets were a step up from just gambling, it shouldn’t be regulated and policed by a small, chronically underfunded financial regulatory agency without any expertise or experience in such regulation. Better Markets will continue to oppose the financial industry’s attempt to use the backdoor of the CFTC to unleash gambling on elections in the U.S. via event contracts.  It is wrong, dangerous, and only a matter of time before that at best weak CFTC “regulation” fails and democracy is undermined.