Political analyst and poll watcher Nate Silver recently mocked political prediction markets, accusing them of being delusional and out of touch with reality.
But when you look back at the 2020 election, the prediction markets were a better gauge on the outcome than nearly all of the elite polling outlets. While pundits pointed to polls that showed a massive Biden lead, prediction markets thought the election outcome was close to a toss-up.
In Wisconsin, Michigan, and Ohio, Biden’s support was vastly overstated by the polling industry. In Florida, Polls said Trump would lose. The markets said he would win. He won by over 3 percent.
The success of betting markets is not some great mystery: They harness the power of the profit motive. Pollsters and pundits almost never get fired for bad predictions. But futures markets punish bad predictions.
It’s time we pay less attention to pollsters and more attention to markets.