Betting Markets Are More Accurate Than Polls In Predicting The 2020 US Election
More money has already been bet on this election on its exchange than on the 2019 Grand National horse race, the 2018 men’s football World Cup final and the Conor McGregor vs Floyd Mayweather boxing match combined. Betting Markets Are More Accurate Than Polls In Predicting The 2020 US Election
The world is gripped by fevered speculation regarding the outcome of the US presidential election. Will there be a second term for Donald Trump, or will Joe Biden best him at the polls?
In a recent tweet, betfair.com, a British online gambling company, showed that more money has already been bet on this election on its exchange than on the 2019 Grand National horse race, the 2018 men’s football World Cup final and the Conor McGregor vs Floyd Mayweather boxing match combined.
While we’ll know a lot more once the ballots begin to be counted (although this, in itself, could be a protracted and contentious process), there is currently a very wide array of opinion about what the most likely result will be.
Traditionally, both media coverage and scholars have focused on public opinion polls in evaluating likely election outcomes. Here, Biden has a commanding lead of 7-8% nationally, when you aggregate across various polling companies.
In fact, sites such as Real Clear Politics and FiveThirtyEight show a remarkable stability in Biden’s polling advantage in recent months, in what has often felt like a chaotic and unpredictable campaign.
As we discuss in our weekly podcast (which can be found here (Apple) or here (Spotify)), many polling analysts have pointed out, Biden’s polling lead is larger and more consistent than Hillary Clinton’s in 2016. There are far fewer undecided voters (estimated at about 3% in this cycle as opposed to 11% in 2016), and, of course, there’s been a massive upturn in early voting.
Crucially, Biden also holds (admittedly narrower) polling leads in the “battleground” states that will be crucial to the election outcome.
Forecasters who use polls to create an estimate of the likelihood of election results are therefore bullish about Biden’s chances – with FiveThiryEight giving the Democratic nominee an 89% chance and the The Economist forecast going as high as 95%.
But the election gamblers are considerably more cautious. When you translate the odds available for Biden across a range of gambling companies into probabilities, they give him a 64% chance. While this has ticked up as the campaign has unfolded (and particularly following Trump’s COVID-19 diagnosis) there remains a striking discrepancy. Why is this the case?
Can Polling Be Trusted?
Fundamentally, the difference comes down to doubts about the validity of polling as a means of ascertaining voting intention in this election. While the electoral college gives Trump an in-built advantage, this is taken into account in poll-based forecasts. Furthermore, while polling error is also factored in, many people are betting that the polls are systematically biased against Trump.
As a recent article in The Hill explained, there are several mechanisms that could create such an outcome.
In the first place, there is something called social desirability bias, which arises when a certain survey answer is perceived to be potentially offensive to the interviewer. With American politics as highly polarised as they are, voters might be “shy” about admitting their true intention to vote for Trump.
Second, there is a wider process in play whereby the polling industry is increasingly being conflated with the “lamestream media” in American political discourse. This might lead to a refusal of some likely Trump voters to participate in polling, and may encourage others to seek to “punk” pollsters by deliberately misleading them.
In such a scenario, it is extremely difficult to know how much the polls can be trusted – and this, alongside the memory of the way the 2016 election result was so wrongly predicted, helps to explain the relative caution of the betting markets.
It also shows us just how much is at stake in this campaign for the polling industry. In order for the election to be close run, or for Trump to win, the polls would have to be systematically biased against him to the tune of about 5% nationally.
The very consistency of polling would, in retrospect, be damning for pollsters, and massively diminish the allure of polling in both future election races and day-to-day political coverage.
It is likely that polling companies are aware of this, which throws up a further possibility – what if Biden’s support is being systematically underestimated? With pollsters incentivised to seek out and weight Trump supporters in their analysis – while likely to face little recrimination for underestimating Biden’s support – this is not as unlikely as it may seem.
So where does this leave us? Well, as the baseball-playing philsopher Yogi Berra is often quoted as saying: “It’s tough to make predictions, especially about the future.”
One key consideration is that even the most bullish forecasts for Biden are not absolute, and they leave (admittedly narrow) scope for Trump to win. Biden has certainly run a frontrunner’s campaign, largely aiming to avoid mistakes and lately focusing his campaign activities on traditionally “red” states. In a few short days, we’ll discover whether this was smart strategy or electoral hubris.
Is Political Betting More Accurate Than Polling?
While Joe Biden continues to lead most presidential polls, the betting odds reflect poll skepticism and the possibility that secret Trump voters are keeping quiet. While Biden leads by over 7 points in the Real Clear Politics (RCP) average, he leads by only 3.4 in battleground states. Meanwhile, RCP’s betting average as of October 29th gives underdog incumbent Donald Trump a 36% chance of winning, with Bovada LV climbing to 39%.
“My own personal take,” says Sascha Paruk, political editor and oddsmaker at SportsBettingDime.com, “is that, as a bettor, I trust money more than I trust polls.”
But are betting odds more accurate? Short answer: It depends.
“While it is sometimes claimed that political betting markets are a recent invention, they are clearly not,” historians Paul Rhode and Koleman Strumpf write in “The Long History of Political Betting Markets,” “Rather it is the absence of such markets during the mid- and late-20th century that are the exception.”
Rhode and Strumpf studied wagers for papal conclaves in sixteenth-century Italy, elections in Victorian Britain and Ireland, and elsewhere. In the United States, political betting is as old as our Constitution. “They don’t have Gallup polls yet,” Rhode told NPR’s Planet Money about early America. ”They don’t have scientific polls yet. And it turns out that the odds are remarkably accurate.”
After the Civil War, betting markets became increasingly concentrated around Wall Street. Rhode says of the 15 presidential elections between 1884 and 1940, betting markets only got it wrong once. Epitomizing the wisdom of crowds, betting markets allow bettors to benefit from inside or expert information – presumably people who are betting enough money to move these markets have done their homework.
“Such markets are likely to be a useful tool,” Rhode and Strumpf conclude in “Historical Prediction Markets: Wagering on Presidential Elections” – but vulnerable to manipulation. Studying the 2008 US elections for the presidency and Senate, Wharton’s David Rothschild agreed. Rothschild found early in the election cycle, betting odds could provide more accurate probabilities than polling.
Yet fears of manipulation and immorality led leaders from the Vatican to Great Britain to forbid political wagering. In the US, the advent of scientific polling – generally cited as the 1936 US presidential election – combined with changes in tax laws, anti-gambling statutes, and a desire by Wall Street to disassociate investing from gambling during the Great Depression. The result? An end to legal political betting.
A reversal began in the United Kingdom in 1963, led by William Hill Sports Book, after Prime Minister Harold McMillan’s resignation during the Profumo Affair. In the US, PredictIt and Iowa Electronic Markets – begun in 1988 – gained special dispensation from the Commodity Futures Trading Commission (CFTC) due to their university relationships, but must limit wagers.
In recent years, the rise of Internet online sportsbooks made it technically legal for people in most US states to bet on politics – as long as the sportsbook is not based in America, according to VegasElectionOdds. In 2013, Nevada bookmakers proposed political betting, but the Nevada Gaming Control Board rejected it.
After the federal ban on sports betting ended in 2018, West Virginia allowed FanDuel to take bets on Trump vs. Biden in April 2020. That lasted about an hour before the state told them to take it down.
Rhode and Strumpf warn that betting markets remain vulnerable to political manipulation. In 2013, economists Rajiv Sethi and Rothschild, now at Microsoft Research, concluded a single “whale” had bet $4-7 million on Mitt Romney to defeat President Barack Obama in 2012 – fully one-third of all the money bet on the Republican.
The scientists conclude the “Romney Whale” could have been hedging against earlier Obama wagers or smelled an upset, but was more likely an attempt to boost Republican voter morale. Amid CFTC investigations, Intrade soon shut down over “financial irregularities.”
“When you see these offshore lines of US presidential betting and things like that, I really don’t take them all that seriously,” Circa Resort & Casino CEO Derek Stevens told PlayUSA. “They’re limited-action markets, basically small sample size, and I don’t believe it’s really a true market.”
But starting in 2016, those markets got a lot bigger. “Starting with Trump’s initial salvo on the political realm,” SportsBettingDime’s Paruk explained, “the market has grown larger and larger by the year, if not month.”
In 2016, most betting markets did no better than pollsters and pundits – perhaps worse, according to business journalist Josh Barro. OddsShark, on the other hand, found betting markets outperformed polls – but still lost money. In the most infamous example, Irish online sports betting company Paddy Power, for reasons still unclear, paid out Hillary Clinton bets before the election. Paddy wound up taking 4 million pounds in losses – about $4.7 million.
“Wagering on this year’s election is five times higher than 2016,” says Bovada political oddsmaker Pat Morrow, “which was also record-breaking for us.”
A person bet a record 500,000 pounds on Biden (about $650,000) to win at 1.53 through UK-based Betfair. And Betfair, which gives Trump a 34% chance of winning, reports an unusual pattern. Their ten biggest bets have all been on Biden, but they have taken more overall money on Trump – £83 million to £74 million.
“Betfair’s Next President market is now the biggest betting event of any kind in history, including sports,” Betfair reported on October 28th. “Based on current and past trends, the total may well go beyond £400 million” – over a half-billion dollars.
When Polls and Pollsters Fail Us…Where Do We Turn?
Voters might be forgiven if in the closing weeks of the 2020 election cycle they are experiencing a sense of déjà vu. After all, this year, as in 2016, the pollsters are nearly unanimous: the Democrat is way ahead, and the chances for an upset victory by the Republican — who supposedly no one likes — are slim to non-existent.
Leftists (and journalists — the two categories largely overlap) are licking their chops, dreaming not just of winning the White House, but of securing the House, the Senate, and the Supreme Court, all in one fell swoop!
What makes our sense of déjà vu tingle with special ferocity is the fact that the polling in 2020 is so darn similar to 2016. RealClearPolitics allows savvy readers to compare polling trends in the battleground states in 2016 versus 2020 in one handy table. The results are shocking.
At this point in 2016, Trump’s standing in states like Wisconsin, Michigan, Pennsylvania, North Carolina, and Florida was almost identical to what we see today. And, in case anyone has forgotten, Trump was behind in all those states in the average of polls in 2016…and he nonetheless won every single one of them when the votes were counted.
It sure feels, therefore, as though the pollsters and the pundits, who are ready to write Trump off in 2020, are making the same mistakes they made before. Clearly, those of us who want more accurate and reliable predictions of the election results need to look elsewhere. At the very least, we should be willing to consider what other metrics and tools of analysis have to offer.
Among the more whimsical and unscientific options are the forecasts based on seemingly trivial factors: Biden- and Trump-themed cookie sales in suburban Philadelphia, TV ratings for Biden and Trump’s dueling town halls, or the prevalence of yard signs for one candidate or the other.
Much as we may find these amateur efforts at prognostication amusing, sometimes they fall spectacularly short. In 2016, for instance, “Boots,” a Scottish goat famous for his psychic powers, predicted that Hillary Clinton would beat Donald Trump. After that blunder, Boots had to eat his own tartan cap.
Another option, if we want to forecast the results in 2020, is to consider the mountains of data about early voting that are already accumulating. Just as in 2016, this year a cottage industry has developed devoted to reading the tea leaves of mail-in and early in-person voting. We don’t know, of course, how people have voted, but we do know, in some cases, their party affiliations, their age, their race, and the areas where more or fewer votes are being cast.
The problem, however, is that there is so much data on early voting that it can easily be spun one way or the other. There are, in fact, warning signs for both parties in the early vote totals. Therefore, to gain an accurate sense of who has the upper hand — Biden or Trump — we need to look even deeper.
One predictive avenue that more and more people are gravitating towards is “prediction markets.” These are essentially betting markets, in which experts and laymen alike stake their bets on a very wide range of questions, from who will win the U.S. presidential election, to where the Dow Jones will stand at the end of 2020, to when the first coronavirus vaccine will be approved.
Much like how Wikipedia has leveraged the contributions of eggheads worldwide to forge the most successful and influential compendium of knowledge in history, prediction markets accept bets from people from all walks of life (a variant of crowdsourcing), but with one thing in common: they are willing to put their own money on the line to support their forecasting ability. This is, when you think about it, a critical advantage.
Look at it this way: how many “journalists” in the mainstream media make a good living churning out stories about why Democrats are winners and Republicans are losers? How many of them wrote off Donald Trump’s chances long ago, despite the fact that he is actually doing better in the battleground state polls in 2020 than he was in 2016?
The truth, of course, is that left-leaning analysts can talk up the Democrats’ chances and trash Republicans with impunity because, if they turn out to be wrong — even grossly wrong, as they were in 2016 — there’s no semblance of accountability. How many pundits were fired in 2016 because they got everything about that historic election dead wrong? None. In shilling for Hillary Clinton and in downplaying Trump’s chances, they literally had nothing to lose.
What if, however, correspondents and talking heads had to stake their careers, or even a small portion of their salaries, on the accuracy of their predictions? What do you think would happen? Would they be equally dismissive of the electoral prospects of Donald Trump and the GOP…or would they think a little harder before they spoke? Would they, in fact, give Trump and Republicans the benefit of the doubt?
The answer is obvious, and it explains why prediction markets are an increasingly attractive option for those wanting an accurate and informed perspective on what is likely to happen in the future. Not surprisingly, while most pundits currently rate Trump’s chances of winning as very low, the prediction markets have consistently given him a realistic shot at victory. In fact, they view a Trump win in 2020 as significantly more likely than in 2016.
They seemingly have figured out what the pollsters have missed: that this is a fundamentally evenly divided country, in terms of political ideology and partisan leanings. Moreover, the vast majority of our recent elections have been close, so the idea that either party could be out of the running in 2020 is pure bunkum.
And, for those who are intrigued by prediction markets already, there’s even more good news: the markets themselves are still in a state of flux.
Just as a poll gets more reliable if you survey a larger number of people, prediction markets’ accuracy improves as additional investors/prognosticators join the movement — and prediction markets have been growing their constituency apace.
In addition, new players are trotting on to the field with fresh ideas about how to make prediction markets even more, well, predictive. For example, while venerable markets like PredictIt, Betfair, and Augur continue to offer useful insights and valuable forecasts, in many cases superior to what pollsters have to offer, new and rising companies like Polymarket also show promise.
Polymarket incorporates blockchain technology to allow for the democratization of information, meaning greater flexibility and choice for those who place their bets. It is thus a truly free market of ideas — ideas about the future.
The upshot of the role of prediction markets in forecasting the 2020 election is that they consistently rate Donald Trump’s chances of victory higher than the professional pollsters do. Whereas Nate Silver gives Trump only a 12% chance of winning, prediction markets say he has roughly one-in-three odds.
Despite all this prognosticating, no one can say for sure who will win the 2020 election. Human behavior is sufficiently mysterious that no model, no formula, can encompass all of its complexities.
Be that as it may, anyone who wants a valid forecast of what will happen on Nov. 3rd would be foolish not to consider the prediction markets in combination with early voting data and the polls.
Moreover, we should monitor these various sources of insight about future events continuously and closely, because much can change between now and election day. Joe Biden had a good summer, in terms of the polls and the prediction markets, but October may not be as kind.
There is already compelling evidence that Trump is closing the gap…and in the swing states there may not be much of a gap to close.
If you are among those who desperately want to know whether America will stay red in November, therefore, or will turn some shade of blue, the good news is that there is more and better information available now on which to base an informed and realistic forecast.
The bad news is that we will still have to wait until all the votes are counted before we know anything for sure.
The Big Question: How Do You Make Polls More Accurate?
A Q&A with pollster Ann Selzer on why polls have stumbled in predicting the outcome of the last two U.S. presidential elections, and what can make them better.
Frank Wilkinson: You’ve conducted the famed Iowa Poll, published by the Des Moines Register and rated A+ by FiveThirtyEight, since the 1990s. It’s an Iowa institution. And in your last poll, published the weekend before the election, you found Republican Senator Joni Ernst ahead by 4 points and President Donald Trump ahead by 7 statewide — which is pretty much the way the race turned out, but not what other polls predicted. In fact, polling proved dodgy across the country in 2020, with many surveys missing the mark for a second presidential election in a row.
I actually received an email this week from someone whom I respect a great deal that included the phrase, “polling is broken.” Is that correct?
Ann Selzer: Paraphrasing Shakespeare, “First thing we do, let’s kill all the pollsters.” There are polling practices that don’t work. But there are polling practices, obviously, that do work.
FW: Can you explain the distinction?
AS: I can’t tell you I’ve done an exhaustive look at everything there is to know about every single poll, but I was reading one poll that said the poll sample is weighted for party primary vote history — based on state voter registration and the census. I call it polling backward. If your head is turned around, looking backward, saying “What’s past is prologue, so I’m going to pay attention to the past,” you’re going to miss the freight train that’s coming straight ahead.
I assume nothing. It sounds simplistic, and that’s why people get a little concerned and think it can’t possibly work. One day it won’t work and then I’ll be a goat, not golden. I’ll have to pick myself up and carry on.
FW: In this election, it was clear from the beginning that Trump was not trying to persuade voters to switch from one party to the other. He was trying to find non-voters and make them voters.
AS: That had been successful for George W. Bush. So let’s be clear that it’s not that that’s an unwise strategy, it has worked in the past. It was just perhaps harder this year.
FW: Given the murky composition of that electorate, why was your poll so accurate?
AS: I think my polls are accurate because I have a method where my data will reveal to me what the future electorate is going to look like. And then as somebody said, I have the guts to just sit there after the poll numbers are released and wait to find out if it’s right.
FW: Meaning that if you get back an outlier poll, you don’t fiddle with it?
AS: Well, how do I know it’s an outlier? I mean, I might know it’s an outlier in relationship to other polls, but I do not know whether it is or is not an accurate reflection of this future electorate. There’s no way for me to know for certain. If we see something that surprises us — and that sometimes happens — we check things. But most of the time we don’t find anything that we think deserves to be messed with.
FW: Isn’t what you’re describing really about skill and expertise in modeling the electorate?
AS: I think it’s a different point of view about whether it’s a good idea to try modeling the electorate. This was cemented in my spine in the 2008 caucuses. I was the outlier. Our final poll said not only that Obama would win with a comfortable margin, but also that for 60% of the people who would show up on the Democratic side, it would be their first caucus. Nobody who is modeling caucus-going would ever put a number like that in their model. It had never happened in the past. It was more like maybe 25% or 35% — somewhere in that range. I had a call from a friend of mine who was high up in the Hillary Clinton campaign, who said, “Look, I’ve trusted your numbers until now, but I’ve knocked on 99 doors and I don’t find this lurking Obama support.”
And I said, “Well, tell me about the doors you knocked on.”
“Oh, we’re talking to former caucus goers and registered Democrats.”
What Obama figured out is that if that were the caucus-going public, he would lose. So he was out creating new caucus goers. And the entrance poll on caucus night said it was something like 57% new caucus goers. Judy Woodruff comes to my office and says, “How did you assume this? Why did you assume this?” And my answer is so simplistic. I assumed nothing. My data told me.
FW: In Iowa this fall, most polls predicted a very close election. You concluded those numbers didn’t represent the actual electorate.
AS: It’s not a matter that I knew or didn’t know. My approach is to stay out of the way of what the data will reveal.
FW: But you still have to decide what an appropriate universe of respondents is, don’t you?
AS: What we do is random digit dialing, we talk to adults 18 and over, and you’re one of two ilks: You are either going to meet our definition of a likely voter and we’re going to continue with you, or you’re not, in which case we’re going to gather a few demographic bits of information — your age, your sex, maybe education, and what county you live in.
So that’s about 900 people whom we talk to, and we’re going to weight that to known population parameters so that it looks like the whole population. Then we extract from that the 800 who are likely voters.
And if you’re more likely to vote, if you’re older, for example, you’re going to be more prevalent in my likely voter sample. There is known error in who responds to polls and who doesn’t. And we adjust for that at the general population level. We don’t presume to know what’s happening at the likely voter level.
FW: Most of the public polls in 2020 were off in the same direction. Whether they were state or national, they were a little bit higher, or a lot higher, on the Democratic side. Is part of the problem the response rates and what type of people are agreeing to respond?
AS: Oh yeah. We rely on the kindness of strangers — people who will pick up their phone and find out who it is and continue to talk to us and answer our questions. And, yes, my concern for the industry, and for me personally, maybe more than anything else, is how long that kind of business model can persist.
FW: How should the industry deal with that?
AS: There is no such thing as the industry at large. It’s a collection of commercial enterprises that have various ways that they market what they do. Why would a newspaper pay the money to do their own polling? Well, because it helps tell a story. Imagine if there were no polls and you’re a reporter, how do you know what’s going on? Who’s getting traction? Who’s failing to get traction? It’s a device to help inform. This idea that it’s become an Olympic sport is a little odd, right?
FW: Yet it seems that inaccuracy is more prevalent than in the past.
AS: Some of that is due to the changing technology. When I first started polling, you typically had one phone number per household. And if we knew your phone number, we pretty much knew where you lived. Those were the days, my friend, the golden years. Then came this, that, and the other technological change. And it got harder and harder. Now with response rates being so low, the deck is stacked against us being able to do this.
FW: Both because of technology and because of the decline of social trust, I assume.
AS: I don’t know what to say about that. Again, you’re talking to me after our poll worked out, right? So I can’t be in a position of saying, “Well, there’s no trust.”
FW: Because you had sufficient trust to reflect what the electorate was in fact going to do.
FW: Do you foresee any specific evolution to increase accuracy or do you think that polling will be a bit of a shot in the dark?
AS: The American Association of Public Opinion Researchers has a listserv, and there’s a fair amount of conversation on it. I don’t think there will be some unified response. I think the change will happen at the level of the individual pollster deciding to do something different. The problem in 2016 had to do with an insufficient number of high quality polls in three states (Michigan, Pennsylvania, Wisconsin). So why did that happen? Well, because people decided telephone interviewing was either already dead or would soon be dead. And that the answer was to create very large panels of people who hold up their hands and say, “Poll me.”
The problem becomes, how do you make this group of volunteers look like the future electorate? Some have better approaches than others, but there is some guesswork, and it’s the guessing — even if it is educated guessing — that makes me nervous.
FW: Because the randomness has been removed.
AS: Correct. There’s a thing in social science called the instrument effect, which is that the mere fact of measuring something changes what you’re measuring. If you take your tire pressure, you release some air out of the tire in order to measure it; you change the tire pressure. So if you are a person who has agreed to be polled repeatedly as part of a panel, what does that change? Does it change the way you consume media? Change the conversations you have with people? Does it change the conversations you have with yourself in the middle of the night?
FW: Introducing one more complication to an already complicated task. So, what’s your bottom line on how polls can be made more accurate?
AS: Other people — and I run across them all the time — say, “Well, what are you doing to anticipate and model the size and the shape of the future electorate?” And I say, “I don’t know how you do that.” Because yes, the best predictor of future behavior is past behavior. But the Selzer Caveat is: “Until there’s change.”
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