Are Political Markets Really Superior to Polls as Election Predictors?

Posted: 18 Aug 2009

See all articles by Robert S. Erikson

Robert S. Erikson

Columbia University - Department of Political Science

Christopher Wlezien

University of Texas at Austin

Abstract

Election markets have been praised for their ability to forecast election outcomes, and to forecast better than trial-heat polls. This paper challenges that optimistic assessment of election markets, based on an analysis of Iowa Electronic Market (IEM) data from presidential elections between 1988 and 2004. We argue that it is inappropriate to naively compare market forecasts of an election outcome with exact poll results on the day prices are recorded, that is, market prices reflect forecasts of what will happen on Election Day whereas trial-heat polls register preferences on the day of the poll. We then show that when poll leads are properly discounted, poll-based forecasts outperform vote-share market prices. Moreover, we show that win projections based on the polls dominate prices from winner-take-all markets. Traders in these markets generally see more uncertainty ahead in the campaign than the polling numbers warrant-in effect, they overestimate the role of election campaigns. Reasons for the performance of the IEM election markets are considered in concluding sections.

Suggested Citation

Erikson, Robert S. and Wlezien, Christopher, Are Political Markets Really Superior to Polls as Election Predictors?. Public Opinion Quarterly, Vol. 72, Issue 2, pp. 190-215, 2008. Available at SSRN: https://ssrn.com/abstract=1455018 or http://dx.doi.org/nfn010

Robert S. Erikson (Contact Author)

Columbia University - Department of Political Science ( email )

MC3320
420 West 118th Street
New York, NY 10027
United States
212-854-0036 (Phone)

Christopher Wlezien

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

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