Do prediction markets have a future in US elections?

Election campaigns are often full of predictions that don’t come true and that have few consequences other than a loss of credibility. But in 2024, hundreds of millions of dollars could be at stake thanks to the growing popularity of “online prediction markets,” also known as betting or information markets.

Betting on politics is an ancient practice that dates back to the time when medieval Italian merchants placed bets on the papal succession. But it wasn’t until the age of the Internet that real-time political betting became possible on a global scale. Electronic platforms have been liking since the early hours of the morning intrade allowed users to buy and sell options contracts that pay out when a certain future condition is met. While the contracts can cover everything from wars to entertainment prices, US elections have quickly become one of the most popular prediction categories.

It’s not just potential bettors who are attracted to prediction markets. By tracking how many millions of people are willing to bet on a particular outcome, contract prices act as aggregated surveys that are updated in real time. That’s why political scientists believe they are potentially more accurate than traditional polls – a theory known as the wisdom of the crowd. According to a University of Bergen study, prediction markets outperformed surveys in both state and federal levels in 2012.

But prediction markets have had some problems, starting with the fact that they are considered a form of online gambling. Because it is banned in most of the US, major platforms are often based in other countries such as Ireland and New Zealand. Furthermore, if the types of events that people can bet on include the future prices of assets such as gold and cryptocurrencies, prediction markets effectively function as unlicensed and illegal commodity exchanges.

Since intrade was closed in 2012 by a Commodities Futures Trading Commission (CFTC) decision, other platforms like Polymarket have banned US-based customers from trading – although this hasn’t stopped many American users from circumventing the ban by using cryptocurrencies and virtual private networks. Other markets such as Iowa Electronic markets And PredictIt, which are operated for academic research purposes and limit users’ investment opportunities have received regulatory approval.

However, as the 2024 election approaches, the prediction market landscape could be changing. Sports betting has recently been legalized in many states, creating an opening for other types of betting and a US-based prediction website Kalshi began its legal operations in 2021. During Kalshis Although the plan to offer betting on congressional elections awaits a final decision from the CFTC, the total election prediction market has grown to over $800 million, dwarfing previous cycles of $634 million for 2020 and $85 million for 2012.

Beyond the technical regulations, there is the question of how betting on elections can affect American politics. Economists have found that prediction markets are a valuable way to track public opinion Kalshis A dedicated legal team has suggested they provide an incentive to combat disinformation.

However, the accuracy of political prediction markets could become more questionable as their popularity increases and people start basing their bets on the odds themselves rather than incorporating real information such as news reports.

Other analysts see a darker side to the prediction markets’ cynicism toward the democratic process and its potential for manipulation.

With the hotly contested elections just weeks away and their regulatory status still unclear, the role of prediction markets in American elections remains unpredictable.