Public Opinion Quarterly Advance Access published online on May 2, 2008
Public Opinion Quarterly, doi:10.1093/poq/nfn010
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Are Political Markets Really Superior to Polls as Election Predictors?
Address correspondence to Robert S. Erikson; e-mail: rse14{at}columbia.edu or Christopher Wlezien; e-mail: Wlezien{at}Temple.edu
Election markets have been praised for their ability to forecast election outcomes, and to forecast better than trial-heat polls. This paper challenges that optimistic assessment of election markets, based on an analysis of Iowa Electronic Market (IEM) data from presidential elections between 1988 and 2004. We argue that it is inappropriate to naively compare market forecasts of an election outcome with exact poll results on the day prices are recorded, that is, market prices reflect forecasts of what will happen on Election Day whereas trial-heat polls register preferences on the day of the poll. We then show that when poll leads are properly discounted, poll-based forecasts outperform vote-share market prices. Moreover, we show that win projections based on the polls dominate prices from winner-take-all markets. Traders in these markets generally see more uncertainty ahead in the campaign than the polling numbers warrant—in effect, they overestimate the role of election campaigns. Reasons for the performance of the IEM election markets are considered in concluding sections.
ROBERT S. ERIKSON is with Political Science, Columbia University, New York, NY 10027.
CHRISTOPHER WLEZIEN is with Political Science, Temple University, Philadelphia, PA, 19122. Previous versions were presented at the Annual Meetings of the World Association of Public Opinion Research, Cannes, 2005, the American Political Science Association, Chicago, 2005, the Midwest Political Science Association, Chicago, 2006, the American Association for Public Opinion Research, Montreal, May, 2006, the Elections, Public Opinion, and Parties (EPOP) Group of the Political Studies Association, Bristol, 2007, and the First World Meeting of the Public Choice Society, Amsterdam, 2007. For helpful comments, we thank seminar participants at Dartmouth College, Harvard University, University of Leiden, New York University, Northwestern University, Princeton University, Washington University, and Yale University, and also Joseph Bafumi, Neal Beck, Tereza Capelos, Dennis Chong, James Druckman, Sean Gailmard, Andrew Gelman, Jeff Jones, George Krause, Michael Laver, David Lowery, Peter Miller, Rebecca Morton, Jonathan Nagler, Benjamin Page, Thomas Palfrey, Mark Pickup, Colin Provost, Michael Sobel, and the three anonymous referees. The research was suppored by National Science Foundation grants SBR-9731308 and SBR-0112856.