Here are some scattered comments about the 2024 elections.
I was glad to have Manifold Markets and Election Betting Odds to watch the results. I want numbers, not encumbered by the storytellers and emotions of the news media. I also watched the odds that Nate Silver tried to update, but that was a total flop.
Peak Polarization
I see many weak hints that the polarization of the US has subsided compared to 2020.
I vaguely recall hearing some angry protests in Berkeley after the 2016 election. I haven’t noticed any protests yet this month. This Manifold market suggest most of the riot risk came from Republicans this year.
Trump’s victory wasn’t due to Republican districts overwhelming Democratic districts. He managed to get significant gains in Democratic areas such as New York and New Jersey.
I’ve noticed lots of little pieces of weak evidence that add up a vibe that feels like the dog that didn’t bark.
What could be causing this new trend?
At least a little of it is due to people noticing that they lose some credibility if they claim for several elections in a row that this election is the most important election of their life.
Some of it is increased fighting between former allies. E.g. arguments about Gaza have reduced Democrats focus on Trump as the source of all evil, and have complicated Republican’s attempt at portraying Democrats as a monolithic enemy.
It used to be that institutions such as the news media and academia provided credible sources of authority that nudged voters into agreement on issues such as whether vaccines work, and whether elections were fair. That credibility has been eroding for decades, leaving somewhat of a shortage of obstacles to polarization.
I’m hoping that some of the reduced polarization is due to news media being replaced by something better. Twitter? I’ve avoided the political parts of Twitter, so I’m unsure what effects it’s having. Scott Alexander? None of my guesses seem adequate to explain the magnitude of the reduced polarization.
Prediction markets and AI are starting to fill the credibility void, and I’m moderately hopeful that they will help sustain the trend away from polarization, but they’re not yet effective enough to explain much of the trend.
Inflation
My impression is that something like 1/4 of the shift in votes to Republicans was due to voters being upset about inflation. Yet the markets (mainly the TIPS spread) said quite clearly that the election results mean higher inflation (but not enough of a difference that voters will clearly notice). I presume markets are saying there’s a small risk of the US becoming the kind of banana republic where the president is able to get the Fed to stimulate inflation whenever it suits his short-term needs.
We’re moving in a direction towards prediction markets and/or AI being authoritative enough that voters should know how their votes will influence inflation, but we’ve got a ways to go still.
Candidate Height
This years’ results provide another data point in favor of the pattern that the taller presidential candidate almost always wins. Hardly anyone seems to complain about this prejudice.
My Manifold Experience
I made about 2000 Mana on Manifold betting on the election this fall, mostly buying Trump contracts up to a price of 52, mostly motivated by the evidence that real money markets were showing clearly higher odds on Trump. (I made more than that over the summer by betting more aggressively against Biden).
I bet about $10 in Manifold Sweepcash against Trump at 55. I saw hardly any interesting markets with Sweepcash versions, and only started to notice any of them maybe a week before the election. The Sweepcash version usually showed prices for Trump about 5 points higher than the Mana version of the market.
There were more markets than I could keep track of that amounted to Trump vs Harris. I wasn’t able to keep track of how much I’d bet on Trump, and how much on Harris. There were also inefficiencies that I exploited due to some of the less liquid markets reacting slowly to news. Here’s one market where I bet in favor of Harris in mid-August, then forgot about that market. I noticed it again 24 hours after the poll closed. I was able to save most of my Mana on that market by bidding up the winning Trump contract from 45 to 95, and betting against Biden at 3.
Real Money Markets versus Other Forecasts
Scott Alexander has a good explanation of how much we should update on the success of prediction markets at calling the presidential race. But note that Rajiv Sethi points out some prediction market forecasts that did less well.
I disagree with Scott’s priors about how we should expect real-money prediction markets to compare to alternatives such as Metaculus and Manifold’s play money markets. He writes:
So when we’re asking whether to trust Polymarket’s conclusion (Trump 60%) or Metaculus’ conclusion (Trump 50%), we’re asking whether to trust the normal operations of the prediction market vs. the personal opinion of one whale. I trust the normal operations of the market.
No, it’s not just the opinion of one whale. It incorporates the judgment of many traders who could have bet against the whale but chose not to.
I’m one example of a trader who could have bet a 5 or 6 digit amount against Trump on a real money market, but didn’t. I wasn’t willing to trade on Polymarket itself, but it looked easy for me to trade on Interactive Brokers. I avoided that bet because I saw little reason to think the whale was more biased or foolish than the forecasters who were betting at 50%.
Interactive Brokers reports handling $560 million in Election Contracts. Kalshi apparently had a bit under $400 million. That suggests there was enough money available to mostly offset the whale if markets had good reasons to disagree with him. (Caveat: there were limits to arbitrage between Polymarket and other real money markets. The difference between those markets is a good estimate of how much the whale biased Polymarket).
My prior was to think real money markets were pretty close to being as trustworthy as Manifold / Metaculus / Nate Silver. That was partly based on experience with a wide variety of markets. There’s lots of somewhat relevant evidence from institutions that are somewhat similar to prediction markets.
There are some good reasons to expect that real-money markets become more reliable as their trading volume increases, so the lower volume markets of prior years aren’t necessarily the best evidence to inform our priors for this year.
I have never heard of a hedge fund betting on a prediction market and my guess is that it would either not be legal or require too much compliance paperwork to be worth it. I hope this changes!
I doubt that there are major obstacles. Some hedge funds specialize in crypto. Until recently, the main reason hedge funds avoided prediction markets was likely the low liquidity.