Are political betting markets more accurate than public opinion polls? Judging by the outcome of the 2020 general election, the answer appears to be a resounding ‘yes.’
Although President-elect Joe Biden was declared the eventual winner of a bitter contest, one major takeaway was the spectacular failure of opinion polls in predicting President Donald Trump’s electoral strength among key demographics.
Narrow margins of victory in key swing states led to head-spinning volatility on election night, and prompted Trump to mount a losing court battle to overturn the results amid unfounded accusations of voter fraud.
However, political bettors on Smarkets and U.S. Bookies appeared more accurate in predicting the final Electoral College outcome than major polling aggregators. Predictive markets — where bets skyrocketed to over $1 billion — outperformed sites like FiveThirtyEight and The Economist, both of which saw Biden winning a more landslide-like votes of around 350, compared to the actual result of 306-232.
"With more political betting volume than ever before this year, as well as a successful election for the markets in terms of predictive power, it seems more and more people are using them as a source of information to help cut through the noise,” Smarkets political analyst Patrick Flynn said this week. With the exception of Georgia, the site’s Electoral College forecast predicted the results of all states correctly.
Perhaps more consequential was the failure of a “Blue Wave” that would catapult Democrats to political dominance in Washington. The loss of seats in the House, and a stalemate in the Senate, has touched off widespread recriminations about the polling industry, while partly emboldening Trump in his refusal to concede.
“While many cited polls forecasting an easy Biden win, the betting markets were always much cooler on his chances,” US-Bookies said this week. “This could justify the ‘shy Trumper’ theory, in that a lot of would-be Trump voters’ sentiments weren’t accurately assessed in the polling data.”
In fact, US-Bookies data found that betting odds for the 2020 election were more accurate than in previous campaign seasons, “as the odds the day before this past election day showed a closer race than odds on the day before the 2016 election.”
“With the amount wagered on this year’s election breaking records by surpassing $1 billion, using odds to predict all sorts of political outcomes could become even more accurate if the interest in betting on them continues to increase,” the market added.
Will the Biden era be shorter than expected?
Even as the COVID-19 pandemic tightens its grip on the U.S., Trump’s refusal to transition power has calcified, and fanned concerns about a potentially destabilizing Constitutional crisis.
Smarkets bettors, which accurately predicted that Trump would refuse to relinquish power, aren’t done placing bets on the future. Early price action is forecasting a 34% chance that Biden — who just turned 78 and battled accusations throughout the campaign about his mental acuity — will step down before 2024.
Moreover, Smarkets investors have Biden’s odds to win 2024 pegged at 23%, “though this is somewhat low for a newly elected president,” according to the site. An early departure would put Vice President-elect Kamala Harris’ odds at 17%, Smarkets found.
Javier David is an editor for Yahoo Finance. Follow Javier on Twitter: @TeflonGeek