As the 2024 US presidential election approaches, a new player in the forecasting game is gaining attention. Polymarket, a cryptocurrency-based predictions website, currently gives Donald Trump a 47% chance of winning the November election. This figure, based on nearly $1 billion in wagers, represents a significant shift from the 72% peak in mid-July and the 40% odds at the start of the year.
Prediction markets like Polymarket operate differently from traditional gambling sites. Users buy and sell contracts that pay out based on specific outcomes, creating a dynamic market that reflects real-time probabilities. For instance, a contract trading at 60 cents implies a 60% chance of that event occurring.
The platform has attracted substantial investments, with one user betting $2.5 million on a Trump victory. Polymarket's odds have consistently given the former president better chances than conventional opinion polls, leading some to question whether Trump's prospects are being underestimated.
Prediction markets have a long history, dating back to the 1980s with platforms like the Iowa Electronic Markets. These markets have often outperformed expert opinions in various fields, including politics and economics. The concept is rooted in the Efficient Market Hypothesis from financial theory, which suggests that markets efficiently incorporate all available information.
Beyond the US election, Polymarket and similar platforms offer predictions on a wide range of events. Current forecasts include a 39% chance of Israel invading Lebanon by November, a 50% chance of Robert Jenrick becoming the next Conservative leader, and a 23% chance of Taylor Swift getting engaged by year's end.
The growing influence of prediction markets has raised concerns about potential manipulation and insider information. In 2003, a prediction market saw a sudden spike in the odds of Saddam Hussein's capture, hours before the news was officially announced, suggesting a possible information leak.
"If [manipulators] create a mispriced market then the big, professional money comes in and mops it up."
Despite these concerns, proponents argue that prediction markets provide valuable insights into future events. Some even propose using them to guide policy decisions, a concept known as futarchy, introduced by economist Robin Hanson.
The legal status of cryptocurrency-based prediction markets remains uncertain, particularly in the United States. While Polymarket operates offshore due to regulatory concerns, a recent court victory for rival platform Kalshi may pave the way for more widespread adoption of political prediction markets in the US.
As the 2024 election approaches, the accuracy of these crypto-powered forecasts will be put to the test. If prediction markets like Polymarket prove more accurate than traditional polls, it could mark a significant shift in how we understand and anticipate future events.