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

16 Pages Posted: 4 Aug 2006

See all articles by Andrew Leigh

Andrew Leigh

Australian House of Representatives Parliament House; Centre for Applied Macroeconomic Analysis, ANU; IZA

Justin Wolfers

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

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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 suggest a more reasonable degree of volatility, and useful forecasting performance both throughout the election cycle and across individual electorates.

Suggested Citation

Leigh, Andrew and Wolfers, Justin, Competing Approaches to Forecasting Elections: Economic Models, Opinion Polling and Prediction Markets. Economic Record, Vol. 82, No. 258, pp. 325-340, September 2006, Available at SSRN: https://ssrn.com/abstract=922432 or http://dx.doi.org/10.1111/j.1475-4932.2006.00343.x

Andrew Leigh (Contact Author)

Australian House of Representatives Parliament House ( email )

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ANU College of Business and Economics
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Justin Wolfers

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