Alex Tabarrok has an excellent post at Marginal Revolution this morning explaining why he had and has confidence in prediction markets. It’s very hard to argue, while predicting, against people who are putting their own money on their own predictions.
Like Alex, I tracked those markets closely, which is why I was telling friends that I expected Donald Trump to win the presidential election and the Republicans to take the Senate.
I also had my own personal prediction machine that told me Trump would win. Admittedly, it was after the polls had closed in the eastern time zone, but it was only a little while after.
If you followed the election, you know that one of the big issues was which way Pennsylvania would go. If Donald Trump were to win Pennsylvania, he would likely win the national election. We all knew that it would be close but we were also told that it could take hours to count the Pennsylvania vote, as it did.
But New Jersey abuts Pennsylvania. Why not, I thought, use New Jersey as a leading indicator of the vote in Pennsylvania? I said to my wife, while we were watching the results live, that if Donald Trump gained at least 4 more points in the popular vote in New Jersey than he gained against Biden in 2020, he would win Pennsylvania. Why? Because in 2020 Trump had lost Pennsylvania by only 1.2 percentage points. So with a gain of at least 4-points in New Jersey, relative to his share in 2020, he would likely get at least a 1-point margin in Pennsylvania. We found out early that Trump beat his 2020 New Jersey percentage by about 5 percentage points. He ended up getting a 2-point margin in Pennsylvania.
I’m not saying that my method was better than the prediction markets: my method was clearly worse because it gave me results so much later. But it was way better than sitting there in the early evening PST or late evening EDT, wondering, like millions of Americans, who would win.
Note: By the way, I won $40 from a friend on Facebook and $10 from a neighbor, betting that Trump would win. I made these bets 2 to 3 days before the election, and what gave me confidence was the prediction markets. These are the ones I followed.
