Recently a reader asked me why I focus on polls rather than political betting markets for insights into the race and whether I thought polls were more reliable. I was honestly baffled by the question. To me this was like asking whether I thought a scale was a better way to measure weight than dead reckoning. And I’m not trying to be critical of the reader, who is probably reading this. I gave him my answer and we had a good exchange. But I thought it was worth sharing my thoughts on this question.
My analogy about scales is certainly imperfect in a number of ways, just as polls are imperfect. Indeed, it isn’t even really a question of which is better. The most important thing to understand about the relationship between polls and political betting markets is that the latter is largely downstream of the former. Most bets in political betting markets are driven by people looking at polls and betting accordingly. So by definition they can’t be better. Because the bets are derived from the polls.
But there are a few other points that are worth noting and which are worth considering in a broader context.
First there is a wisdom of markets. Indeed, let’s hope so, because we run a good deal of our society on that basis. We allocate capital to business on this basis. People obviously have different opinions on the function of markets. Most of us think they’re mainly good barometers but also prone to various kinds of overshooting and panics and so forth. But even if you’re a strong believer in markets, political betting markets really don’t function in the same way.
First of all, as I said, bets are largely made on the basis of polls. But let’s go a bit beyond that. In theory, at least in equity markets, you have armies of industry analysts studying industries and providing insights into the future challenges and profitability of businesses. Same in commodities, currencies, bonds, etc. Investors make investments on the basis of this and other kinds of information. To the best of my knowledge there’s really nothing like this informing political betting markets. Again, it’s mainly polls and the “analysts” who you see in the media. If we’re talking about calling most races right within ten points of the result, keeping informed on those fronts is a good idea. But those aren’t the kind of races we’re talking about. If you want to place your money on the basis of political commentators’ predictions about the future, on the basis of the roundtable on the Sunday shows … well, good luck to you.
Then there’s another point. Efficient markets need broad and diverse participation. There’s very little evidence these markets have that. Just to note one example, one of the most prominent of these “markets” this year has been Peter Thiel’s Polymarket. But Polymarket only takes bets in crypto and can’t accept bets within the United States. So we’re talking the insights into U.S. election outcomes of foreigners or expats trading in crypto. I am, shall we say, skeptical of the decisions and prognostications of that group.
The final point is that betting markets, in my experience, tend to disproportionately be made up of people who like to play the market. Which means they tend to be fairly right-leaning. Are there exceptions? Absolutely. But here’s where the non-diversity issue connects up with the disinterest markets are supposed to be based on. My impression over a couple decades of watching these markets — in which admittedly they’ve become more established and likely broader in their participation — is that they routinely lean right in their predictions. The idea is that this is people who have skin in their game, money on the line. So their opinion counts a bit more than someone who is just saying rah rah for their candidate. But again, I don’t buy it. These markets tend to be much more aspirational than most allow. I’m not saying people are throwing away their money on purpose. But again, it’s different from equities markets. Most people don’t have big personal or identity investments in Proctor & Gamble. They want to know future profitability. They’ll buy or sell on that basis. It’s not the same for political candidates. Most people care a lot — particularly the people spending a lot in betting markets.
Don’t get me wrong. They can be fun. I look at them occasionally, mostly as a barometer of conventional wisdom about the state of the campaign. But they fail on all the key metrics on which people judge the efficient function and “decision-making” of markets: thin participation, limited and unreliable information, confounding biases on the part of participants and more. Sure, polls aren’t great either. But since most of this betting is heavily based on polls, by definition it can’t be better. Again, they’re interesting. But they tell us very little.
