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Lesson 11 min 20 XP

Prediction Markets

How betting markets aggregate information to forecast elections and whether they outperform polls and models.

Betting on Elections

Prediction markets allow people to buy and sell contracts that pay out based on election outcomes. If a contract paying $1 if Candidate A wins is trading at $0.60, the market implies a 60% probability of victory. The logic is that people with real money at stake have strong incentives to incorporate all available information, making market prices accurate forecasts.

Platforms like Polymarket, Predictit (in the US), and Betfair (in the UK) have attracted significant trading volumes during elections. In 2024, Polymarket processed over $3 billion in election-related bets. Prediction market advocates argue that markets aggregate diverse information sources, including polling data, insider knowledge, and qualitative judgments, more efficiently than any single model.