Prediction Markets as Election Forecasting Tools

Prediction markets are becoming more effective for forecasting elections as polling accuracy declines, according to Kalshi CEO Tarek Mansour.

“Prediction markets work better, they really do,” Mansour stated in an interview with The Block.

Kalshi’s prediction markets offer real-time information, unlike polls, which can take up to two weeks to produce results. Past election polls have faced criticism for inaccuracies, notably in 2016 when polls predicted Hillary Clinton’s victory and similarly in 2020 regarding Donald Trump’s support. Pollsters are now trying new techniques for better accuracy, reports CNBC.

Mansour attributes polling inaccuracy to bias and polarization. He noted, “it’s much harder to lie when you have some money on the line.”

He added, “You’re actually much more truthful, and that’s why these markets work so well.”

Recently, Kalshi achieved a legal victory as an appeals court authorized the predictions market to include election betting. This follows a ruling a year prior from the U.S. Commodity Futures Trading Commission (CFTC) that deemed Kalshi’s election contracts “contrary to the public interest” and likened them to gaming, prompting Kalshi’s lawsuit.

Judge Jia M. Cobb of the U.S. District Court for the District of Columbia ruled that the CFTC overreached its authority in blocking Kalshi’s betting contracts. Although the CFTC appealed, the ruling was ultimately upheld.

Kalshi currently allows bets on which political party will control the U.S. House or Senate, with plans to introduce a market for wagering on the U.S. presidential election imminent.

Meanwhile, Polymarket, a competitor in the blockchain-based betting sector, has an active market for the presidential election, reflecting over $1 billion in total bets.

The CFTC has expressed concerns about election integrity regarding political betting. Rob Schwartz, the agency’s general counsel, indicated that betting on elections might compromise their integrity. The CFTC is considering a ban on bets for political events, although this rule is not yet finalized.

Mansour dismissed the CFTC’s concerns as “baseless,” arguing that it’s “mechanically impossible” to manipulate public perception of elections. He asserted that even substantial money spent on disinformation can only slightly influence market prices, which would quickly stabilize due to arbitrage.

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