Economist Writing Every Day

As we enter election season, I can sympathize with those that want to ignore it as much as possible. But if you do want to follow it closely, here is my advice: talk is cheap, so follow the money.

And by money, I am not referring to campaign contributions. I mean prediction markets, where people are putting their money where their mouth is, rather than just making predictions based on their own intuition (or their own “model,” which is just a fancy intuition).

There are a number of betting markets online today, but a good aggregator of them is Election Betting Odds.

For example, here is their current prediction for which party will win the Presidency:

You really can’t get much closer than that! The beauty of prediction markets is that people are betting real money, and if there are enough people that think the current odds are wrong (perhaps the guy screaming “Trump has much better chances than that!”), they will affect the odds through their actions of buying and selling contracts. All publicly available (and some private) information is priced into the odds.

Are prediction markets perfect? Of course not. The odds change all the time. But we must always ask “compared to what?” The other options are polls, models, and expert opinion. These all have their flaws, but here’s the case for prediction markets: they can take all of those others into account!

Although, once again, I am open to the argument that we should all just close our eyes until November.