Prediction Markets in Trump’s Impeachment and the 2020 election
https://www.washingtonpost.com/business/economy/these-gamblers-are-putting-money-on-the-outcome-of-the-impeachment-inquiry/2019/11/13/da535bee-f0f6-11e9-b648-76bcf86eb67e_story.html
This article analyzes the effectiveness of prediction markets, specifically in regards to Trump’s impeachment and the 2020 election. “When people have a little skin in the game, they are more likely to distill facts from fiction and discount fake news,” says PredictIt co-founder John Phillips. “The theory here is that markets can be effective at pricing future risk.” Prediction markets can harness the “wisdom of the crowds”, although the fact that the majority of users are young, highly educated men makes this crowd skewed. In the case of the 2020 election, for instance, the market is valuing Andrew Yang at 7% despite him nationally polling around 3%. Yang, a successful entrepreneur, is likely favored by the market. Research does support that prediction markets are better forecasters than polls, although that doesn’t mean they’re good – they’re just less bad.
Recently, Trump being impeached has been between 70-80 cents. Before late September, it was around 25 cents, spiking up when House Speaker Nancy Pelosi announced that the house would begin formal impeachment proceedings on the 24th. Like we talked about in class, the price of an outcome can be read as the probability of it occurring, based on the market participants. With Pelosi’s announcement, the number of people participating in the market skyrocketed: on the 22nd, 9,500 people bought into the market. Just two days later, on the 24th, that number was up to 179.4 thousand.