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Recently, the Commodity Futures Trading Commission, or CFTC, withdrew its letter of no action from Victoria University of Wellington, which has been licensed to manage the PredictIt political forecasting market since 2014.
The original letter of non-action allowed Victoria to manage limited-scale markets for political events for research purposes. Since its inception in 2014, PredictIt data has been made freely available to researchers in a wide range of disciplines, including economics, statistics and political science. Research from these markets has led to a deeper understanding of a wide range of topics, including the impact of Brexit on trade between countries, the extent of Russian trolling on Twitter, and what makes a successful financial trader. .
From the perspective of Victoria’s initial tenure from the CFTC, PredictIt has more than kept its end of the deal. But beyond their use in public policy and social science research, political forecasting markets serve an invaluable public good.
If anything, the CFTC should lift its restrictions on PredictIt and other markets, rather than close them. At a time when the media denigrates rampant “misinformation” and “disinformation”, particularly election-related, forecasting markets play a crucial role in the public interest. Unlike experts and polls, with their bizarre methodologies and unspoken bias, forecast markets are much more transparent and accurate.
At the time of this writing, the political event “Who will be the Speaker of the House of Representatives in the next Congress?” he had contracts on Kevin McCarthy which was selling for $ 0.64 each, Nancy Pelosi for $ 0.15, Hakeem Jeffries for $ 0.13 and a host of others for $ 0.05 or less. After the next speaker in the House has been decided, each of these contracts will be worth $ 1 (if that person is chosen as speaker) or nothing. At a high level, this indicates that traders believe a half-term Republican House is more likely than a Democratic one. But more than that, the precise values assigned to each candidate simply indicate that the most recent deal on McCarthy involved a trader selling a contract to another trader for more than $ 0.60. No arcane algorithms or political attitudes.
While this sounds comparable to what we can learn from polls, political forecasting markets are more accurate and always up to date. Research on the 2020 election, by Harry Crane and Darrion Vinson, comparing the reliability of PredictIt’s market prices with that of FiveThirtyEight’s survey analysis, finds that PredictIt’s market prices are a more accurate predictor of outcomes electoral compared to competing polls and the analysis of data widely cited in the media. The results for 2020 confirmed the same results as a 2018 midterm analysis.
In addition to forecasts, forecast markets make civic engagement educational and fun. They provide a platform where people of different ideologies can interact, an increasingly rare place in an age of increasing polarization. As users focus on the objective outcome of who will win an election, they are more focused on facts and data than on emotions and vitriol. The large comment section associated with each PredictIt market is a testament to this.
There is no doubt that PredictIt diehard traders are more knowledgeable about the pros and cons of elections than many political journalists. Market participants are encouraged to delve into survey methodologies, read between the lines of political announcements, research outdated electoral laws and be aware of their own personal prejudices. New traders also benefit: There is evidence that trading on PredictIt markets can increase college students’ interest in the political process.
Critics point out that if forecasting markets received more widespread attention, the possibility of market manipulation would open up opportunities to manipulate public perception and negatively impact election results. But such criticisms are based on theoretical concerns that have not been confirmed in practice, and they also overlook the fact that opportunities for manipulation are already rampant for the media and polling stations.
When prices move for no apparent reason, traders step in to bring them back. While some have argued that profit will lead to market manipulation, in practice it is nullified by the same reason.
Forecast markets are an important alternative to our debased public discourse. Anyone who has ever criticized the “liberal media”, “right-wing pollsters” or the “toxicity” of our political climate should hope that the commission reverses its decision as soon as possible.
We need more platforms like PredictIt to manage markets and foster discussion on public interest events, no less.
Harry Crane is a professor of statistics at Rutgers University and co-founder of Researchers.One. Koleman Strumpf is the Burchfield Presidential Chair of Political Economy at Wake Forest University and an associate editor of The Journal of Prediction Markets. This article first appeared in the Chicago Tribune.