Big Money, Big Influence: How Prediction Markets Might Be Skewing Elections

Prediction markets were once hailed as the future of election forecasting, offering real-time data and financial incentives. However, concerns are now arising that these markets might be easily swayed by wealthy individuals, potentially shaping public opinion in unexpected ways.

The Influence of Wealthy Players

One major concern is the potential for a few rich players to manipulate the markets. Dr. Don Moore, a professor at UC Berkeley, pointed out that these markets can be easily manipulated by a small group with deep pockets. This raises questions about the trustworthiness of the data they produce.

The New York Mayoral Race: A Case Study

The recent New York mayoral race serves as a prime example. Despite polls showing a tight race, betting platforms like Polymarket and Kalshi consistently showed one candidate, Mamdani, leading with over 90% of the vote. This discrepancy persisted even as other candidates dropped out and polls showed different results.

The Impact of a Single User

On Polymarket, one user, dubdubdub2, joined last month and has spent over a million dollars betting on Mamdani's victory. This user's activity is public due to the platform's use of blockchain technology, which makes all trading activity visible. This raises questions about whether one person can have such a significant impact on the perceived outcome of an election.

The Perception Problem

Moore also noted that betting markets can influence perception. If one candidate seems way ahead, it might discourage people from voting or change how they vote. This is particularly concerning given the visibility of these odds in high-traffic areas like Times Square and Penn Station.

Lack of Ethical Guidelines

Unlike traditional polls, betting markets do not have the same ethical guidelines. Pollsters usually wait until after the polls close to release their data to avoid influencing voters. However, betting markets operate in real-time, and their data is often amplified through ads and media coverage.

Efforts to Prevent Manipulation

Kalshi, one of the platforms, employs market makers who try to prevent manipulation. For instance, during the 2024 presidential election, one bettor spent $85 million on Trump shares, pushing his odds up to 70% on Polymarket. However, Kalshi's market makers kept the odds below 65% by taking the other side of the trade.

Historical Concerns

This is not the first time betting markets have raised concerns. In 2012, the prediction market InTrade showed Mitt Romney's odds surging on election night, causing worry within the Obama campaign. With betting markets becoming more visible and influential, it is crucial to scrutinize their role in shaping public opinion.