What Prediction Markets Say About The Harris/Trump Debate

This evening, if Kamala Harris and Donald Trump shake hands before the debate, some people could make a lot of money. It is all because they placed a bet in a prediction market:

Because many fewer people have placed a $10 bet on “yes,” they would make far more money (shown by my green arrows) if they are right:

In addition, Polymarket wagers relate to big and small election issues.

They suggest who has a better chance of winning:

And what they will say:

Prediction Markets

In prediction markets, we can bet on a debate handshake, the probable winner of an election, or the timing of interest rate declines. Combined, our bets create a price that signals whether the event is likely.

With supply and demand determining prices, the basics in prediction markets are the same.

In the Iowa Electronic Market (IEM), we can learn the probability of a candidate’s success through the price of a contract. If, for example, it is 22-cents, then we have a 22% probability that they will win. Like any market, price fluctuates because of supply and demand.

Slightly different, Polymarket bundles the yes and no bets and then creates shares. As they described it, “Just like buying shares of a company, if more people buy yes, the price of yes shares goes up. People can buy and sell these shares up until the event happens. They use cryptocurrencies to make the trades.”

We should note that U.S. regulators ban election betting.

Our Bottom Line: The Power of the Market

Years ago, I had the opportunity to ask former Secretary of the Treasury Lawrence Summers a question. As he walked in one direction and I in the other, I waited for our paths to cross and then said that I taught economics and wondered what he thought was the most important idea my students could learn. Barely pausing, he said, “the power of the market,” and continued onward.

We could say that through the power of the market, we can even predict the future. As Adam Smith suggested, a freely fluctuating market provides a wealth of information.

My sources and more: Thanks to the Journal podcast for inspiring today’s post. From there, I recommend going directly to the IEM and Polymarket websites to learn more about them. Finally though, if you have time to ponder The Wisdom of Crowds, then do read the book that considers why groups are better at predictions than individuals.

Please note that several of today’s sentences were in a past econlife post.