Competing Approaches to Forecasting Elections: Economic Models, Opinion Polling and Prediction Markets

ANU Centre Economic Policy Research Discussion Paper No. 502

IZA Discussion Paper No. 1972

34 Pages Posted: 16 Nov 2005  

Andrew Leigh

Australian National University - Economics Program, Research School of Social Sciences

Justin Wolfers

University of Michigan at Ann Arbor - Department of Economics; The Ford School of Public Policy, University of Michigan; University of Sydney Department of Economics; The Brookings Institution; Peterson Institute for International Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Kiel Institute for the World Economy

Multiple version iconThere are 4 versions of this paper

Date Written: February 2006

Abstract

We review the efficacy of three approaches to forecasting elections: econometric models that project outcomes on the basis of the state of the economy; public opinion polls; and election betting (prediction markets). We assess the efficacy of each in light of the 2004 Australian election. This election is particularly interesting both because of innovations in each forecasting technology, and also because the increased majority achieved by the Coalition surprised most pundits. While the evidence for economic voting has historically been weak for Australia, the 2004 election suggests an increasingly important role for these models. The performance of polls was quite uneven, and predictions both across pollsters, and through time, vary too much to be particularly useful. Betting markets provide an interesting contrast, and a slew of data from various betting agencies suggests a more reasonable degree of volatility, and useful forecasting performance both throughout the election cycle and across individual electorates.

Keywords: Voting, elections, prediction markets, opinion polling, macroeconomic voting

JEL Classification: D72, D84

Suggested Citation

Leigh, Andrew and Wolfers, Justin, Competing Approaches to Forecasting Elections: Economic Models, Opinion Polling and Prediction Markets (February 2006). ; IZA Discussion Paper No. 1972. Available at SSRN: https://ssrn.com/abstract=848946

Andrew Leigh (Contact Author)

Australian National University - Economics Program, Research School of Social Sciences ( email )

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Justin Wolfers

University of Michigan at Ann Arbor - Department of Economics ( email )

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