Beyond the Polls: How Election Betting Markets are Shaping Presidential Candidacy Races

The 2024 US Presidential election marked a transformative moment in political forecasting, with the return of legalized betting markets like Kalshi and Polymarket. As billions of dollars were wagered in the run-up to the election, the markets demonstrated an ability to accurately predict the electoral outcome, outperforming traditional opinion polls. Do these election betting platforms offer an alternative to outdated polling methods, or do they merely amplify speculative biases? As their popularity surges, the question of their accuracy and influence looms larger than ever.

Large political betting markets operated in the United States from 1868 to 1940, with betting activities becoming a staple of election season (Rhode, Strumpf, 2004). These markets aggregated public sentiment with notable precision, filling the void in the absence of scientific polling. However, following World War II, the rise of political opinion polling and the regulation or outright prohibition of gambling drove political betting markets underground, where they remained dormant for over 70 years (The Economist, 2024). 

In October 2024, a month before election day, a US federal court cleared Kalshi, a betting exchange, to offer political bets to Americans (The Economist, 2024). The Commodity Future Trading Commission (CFTC) which regulates listed financial markets, including contracts that bet on events, has consistently blocked attempts to open up election betting. Following the landmark court ruling, the platform was allowed to operate during the appeal process, thus operating for the remainder of the 2024 electoral campaigns (Cheung, Brock, Sullivan, 2024). Kalshi has since received over $400 million in wagers, and Polymarket and PredictIt collectively facilitated betting volumes amounting to several billion dollars (The Economist, 2024). 

Despite their legal re-entry, these markets remain controversial. The CFTC contends that Kalshi’s election market trades run afoul of both the gaming and unlawful activity prongs of the statutory mandate of the agency, claiming they serve no redeeming public interest and should therefore be prohibited.(Frankel, 2024). By allowing election betting, the CTFC fears that  partisans could use prediction markets to influence public opinion of the presidential race and that “investors hoping to lock in profits from their trades might spread false information to impact election outcomes” (Frankel, 2024). Moreover, critics point to the ongoing legal battle with the CFTC, warning that the decision to permit such betting may still be overturned following the 2024 election (Cheung, Brock, Sullivan, 2024). 

The 2024 election brought to light a stark contrast between betting markets and opinion polls. Throughout the campaign, betting platforms continuously favoured Donald Trump, giving him a greater chance of victory than polling methods that predicted a close race between Kamala Harris and the Republican candidate (Jones, 2024). For instance, on Polymarket, “Trump’s chances of victory never dipped far below 50%” despite Kamala Harris’s predicted win in many swing-state polls. On the eve of the election, Kalshi still gave Trump a lead over Harris, when most political models predicted the race as tied (The Economist, 2024). Ultimately, Trump won the election, defying the polls. 

While some attribute the success of election betting venues to the “wisdom of the crowd” effect, others warn that these platforms may reflect biases rather than actual insight (The Economist, 2024). Polymarket’s user base, heavily populated by cryptocurrency enthusiasts, likely skewed pro-Trump sentiments, while Kalshi’s dual function as a risk-hedging exchange might have further impacted its data (The Economist, 2024). Elon Musk, a prominent Trump supporter, incorrectly interpreted Polymarket’s odds as evidence of Trump leading in voter preference, when they merely reflected betting probabilities (Cheung, Brock & Sullivan, 2024). 

Bets in these markets are bids on political futures’ contracts. Buying a contract, such as the prospect of Trump regaining the presidency, drives the price of that contract, or the perceived probability of it happening, higher. In many markets, bets are quoted per wagered dollar; “if  a general election wager shows 52 cents for one candidate winning, then 52 cents successfully wagered on that candidate would return $1, a payout of 48 cents” (Cheung,Brock & Sullivan, 2024). Additionally, “if the pricing shows one candidate at 52 cents over the other candidate at 48 cents, that does not mean the former is projected to win 52% of the popular electoral vote”, a misconception Elon Musk shared with his millions of followers on X which might impact public perception on potential election outcomes (Frankel, 2024) (Cheung, Brock & Salivan, 2024). 

Scholars argue that betting markets should complement, not replace traditional polling (Cheung, Brock, Sullivan, 2024). Election betting offers a unique lens into public sentiment but is influenced by biases and speculative tendencies (The Economist, 2024). The success of election betting markets in the 2024 election underscores their potential, but it also raises concern about their susceptibility to misinterpretation and manipulation. 

Although this is the first time political betting markets have been allowed to operate since 1940, and one election may not be enough to determine the betting market’s ability to successfully predict an electoral outcome, when election betting markets were in use seven decades ago, they were widely recognized for their remarkable ability to accurately predict election outcomes (Rhode & Strumpf, 2004). Only one case exists over that period where the candidate favored in the betting market lost on Election Day (Rhode & Strumpf, 2004). This important precedent highlights that despite modern scholars’ critiques of the betting market’s influence in the 2024 elections, these markets have historically proven to be accurate at predicting electoral outcomes. 

As political betting markets gain traction once again, they could challenge traditional forecasting methods as they grow in popularity. Whether they remain a fixture of U.S. elections depends on their legal status, predictive reliability, and the public’s ability to discern their true value. They remain one data point amongst many, a tool to be used alongside polls and models to understand the momentum of modern campaigns (Cheung, Brock, Sullivan, 2024).

References

Cheung, B., Brock, S. & Sullivan, M. (2024). Election betting is newly legal — and risks getting confused with poll. https://www.nbcnews.com/politics/2024-election/election-betting-newly-legal-risks-getting-confused-polls-rcna177880

Frankel, A. (2024, November 18). Column: Election betting is public boon, trading platform Kalshi tells US appeals court. Reuters. https://www.reuters.com/legal/government/column-election-betting-is-public-boon-trading-platform-kalshi-tells-us-appeals-2024-11-18/

Jones, C. (2024, November 15). Online prediction betting markets look ahead after US presidential election triumph: ‘We’re just getting started.’ The Guardian. https://www.theguardian.com/us-news/2024/nov/15/online-betting-markets-expansion-after-presidential-election

Jones, C. (2024, November 7). Trump’s lead over Harris in betting market erodes as platforms tighten odds. The Guardian. https://www.theguardian.com/us-news/2024/nov/04/presidential-election-betting-odds-polling

Rhode, P. W., & Strumpf, K. S. (2004). Historical presidential betting markets. The Journal of Economic Perspectives, 18(2), 127–142. https://doi.org/10.1257/0895330041371277

 The Economist. (2024, November 7). What betting markets got right and wrong about Trump’s victory. The Economist. https://www.economist.com/finance-and-economics/2024/11/07/what-betting-markets-got-right-and-wrong-about-trumps-victory