Monday, December 17, 2007

Prediction markets better than polls?

Is the collective wisdom of people risking their own money, motivated to gather and analyze as much information as possible, a better way to assess the future than conventional polls? This professor says yes.

Link

The betting markets saw their best triumph of 2004 in Florida. Even though a number of polls put Kerry ahead in that state, or said the race was too close to call, the betting markets consistently showed Bush would win Florida comfortably.

Indeed, if the Democrats had paid as much attention to the markets as the polls, I am convinced that the election result would have been different. They could have downsized their effort in Florida and focused their efforts more on other swing states where betting sites showed the race was much closer. Intrade followed up in 2006 when the market favorite won each and every Senate seat up for election. Moreover, in large part the stronger the favorite, the bigger was the margin of victory.