From Polls to Profits: How Betting Markets Predicted the Election Winner

In addition to the rise of crypto; another key takeaway from this election is the rise of betting markets.

While polls consistently showed Trump and Harris were tied, betting markets predicted a clear Trump win. How did that happen?

Polls ask people who they will vote for. Betting markets are a place where people bet money on who will win the election.

The Wall Street Journal covered Théo, who won $50 million by betting on Trump through Polymarket (a betting site). Théo believed that the polls were missing some Trump supporters who didn’t want to openly express their support. He thought a better approach would be to use “neighbor polls” – basically asking people who they think their neighbors support.

The idea was that people might not want to reveal their own preferences, but will indirectly reveal them when asked to guess who their neighbors plan to vote for. This would provide a better and unbiased view as to what the voters were going to do.

Théo conducted his own surveys with a major pollster, that showed Trump’s support increased when people were asked about their neighbors’ preferences instead of their own. This convinced him that Trump had more support than polls indicated, leading him to place his big bet.

Théo’s main motivation was profit, not politics—he is French and claims to have no political agenda. He simply wanted to predict the winner accurately to make money, and he did.

Because he had millions at stake, he invested in more accurate data than typical polling. As a result, Polymarket turned out to be more reliable than traditional polls in predicting this election.

How Betting Markets Differ from Polls

In betting markets, people wager their own money on who they think will win the election, unlike polls, where people simply answer questions about their own voting choice.

Betting markets can sometimes be more accurate than polls for a few reasons:

1. Incentives for Accuracy: Bettors put their own money at risk, encouraging more thoughtful predictions based on solid information.
2. Continuous Updating: Betting markets constantly update based on new information, whereas polls are only conducted periodically and may miss sudden changes.
3. Collective Intelligence: Betting markets combine the knowledge of a broad group of people, like analysts, campaign staff, pollsters, money managers, and informed citizens, giving a well-rounded view of expectations.
4. Hidden Opinions: Betting markets may pick up on “shy” voter behavior, where people might not openly support a candidate but still plan to vote for them.

Limitations of Betting Markets

Betting markets have recently gained popularity—not just in elections but also in sports and other areas. There are even esoteric bets being made; for example, there’s a betting market on whether Taylor Swift will break up with her boyfriend in 2024!

Although betting markets are becoming popular, they are far from perfect. They can be influenced by people placing large bets, political biases, and limited information. This can lead to overconfidence and sometimes wildly inaccurate predictions.

Additionally, betting markets can become gambling markets if people place bets without having any new or significant information.

As you can imagine, I did not conduct my own scientific poll during the election. Nor do I know more about Taylor Swift than millions of Swifties. So, while I follow betting markets out of curiosity, I don’t participate in them.

---