Why Prediction Markets Often Beat Polls
Prediction markets aggregate information faster than polls because traders are paid to be right and punished for being wrong.
It's a stylized but well-supported finding: prediction markets, in aggregate and over time, produce more accurate forecasts than expert polls. Wolfers and Zitzewitz showed this for elections; Berg, Forsythe, and Rietz showed it for political markets; the Good Judgment Project showed it for geopolitics.
Why markets aggregate information better
Polls ask people what they think. Markets ask people what they'd bet. The first answer is cheap; the second has skin in the game. Information that would never make it into a poll — a campaign internal, a political donor's body language, a tracking model's latest run — finds its way into a market via someone willing to trade on it.
When polls win
Polls outperform markets when the market is thin, manipulated, or biased by partisan retail flow. The 2024 US election briefly saw Polymarket pricing significantly higher for one candidate than poll aggregators predicted — a gap eventually closed by reality but at the time hotly debated.
Markets also fail at unknowable events. A poll of epidemiologists is more useful than a thin novelty market on a future pandemic, even though the poll is less rigorous in form.
How to use both
Use poll aggregators for ground-truth sampling of voter intent. Use markets to see how aggressively traders are willing to put money behind that intent. The gap between the two is itself information — it tells you where the smart money disagrees with the mainstream.