Prediction Markets vs. Polls in Election Forecasting

Prediction markets are becoming more reliable for forecasting elections, as stated by Kalshi CEO Tarek Mansour in an interview with The Block.

Mansour asserted, "Prediction markets work better, they really do." Unlike polls, which may take up to two weeks to get results, prediction markets like Kalshi provide real-time information. Historical inaccuracies in election polls, particularly highlighted during the 2016 and 2020 presidential elections, brought attention to this issue. In 2016, polls inaccurately predicted a Hillary Clinton win, while in 2020, they misjudged Donald Trump's support.

In response to these concerns, pollsters are adopting new strategies for more accurate outcomes, as reported by CNBC. Mansour suggests bias and polarization contribute to polling inaccuracies. Conversely, he claims that with money at stake, prediction markets yield more truthful results, stating, "it's much harder to lie when you have some money on the line."

Recently, Kalshi achieved a significant victory after an appeals court allowed the prediction market to include election betting. This development follows a ruling last year by the U.S. Commodity Futures Trading Commission (CFTC), which prohibited Kalshi from offering election contracts, citing that it was 'contrary to the public interest.' Kalshi subsequently sued.

In a recent ruling, Judge Jia M. Cobb of the U.S. District Court for the District of Columbia found the CFTC had overstepped its authority in blocking Kalshi's plans. Although the agency appealed the decision, the appeal was ultimately dismissed.

Kalshi allows bettors to wager on which political party will control the U.S. House or Senate. On Friday, it launched a market for betting on the U.S. presidential election winner. Meanwhile, competitor Polymarket has a thriving betting market for the upcoming presidential election, amassing over $1 billion in cumulative wagers.

CFTC has expressed worries about the impact of election betting on election integrity. During a recent hearing, CFTC general counsel Rob Schwartz argued that betting could undermine electoral integrity. The agency is also working on rulemaking to potentially ban betting on political events.

Mansour dismissed the CFTC's concerns as "baseless," asserting that it is "mechanically impossible" to manipulate election perception. He argued that even if someone spends large sums to mislead the public about a candidate, arbitrageurs will quickly correct any price fluctuations caused by misinformation.

Mansour concluded, "These markets actually bring more truths to the system. They do better than polls."

Update: Oct. 4, 3:10 p.m. UTC – Kalshi's site now includes betting on the U.S. presidential election.