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Consistency in the US Congressional Popular Opinion Polls and Prediction Markets

  • Elliot Tonkes
  • Dharma Lesmono
Registered author(s):

    Prediction and betting markets have evolved with contracts based on electoral outcomes and the traded prices provide a measure of speculators' views on electoral outcomes. Conversely, popular opinion polls yield data which provide statistics on the public's declared voting intentions. This article formulates a model to describe the stochastic evolution of opinion polls, and the resultant probability distribution of seats won in the US House of Congress. Based on standard methods from financial option pricing theory, we can then determine the theoretical value of observed contracts in the prediction markets. Our results show that qualitative predictions are obeyed, but there exist significant deviations between the actual prices traded in the Iowa Electronic Market (IEM) and our theoretical valuation under real-world expectations. Some explanations are provided, which are consistent with conclusions drawn by other authors who have studied electoral prediction markets.

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    File URL: http://www.ingentaconnect.com/content/ubpl/jpm/2010/00000004/00000002/art00004
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    Article provided by University of Buckingham Press in its journal Journal of Prediction Markets.

    Volume (Year): 4 (2010)
    Issue (Month): 2 (September)
    Pages: 45-64

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    Handle: RePEc:buc:jpredm:v:4:y:2010:i:2:p:45-64
    Contact details of provider: Web page: http://www.ubpl.co.uk/

    Order Information: Web: http://www.predictionmarketjournal.com/index_files/Page418.htm Email:


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    1. Holbrook, Thomas M. & DeSart, Jay A., 1999. "Using state polls to forecast presidential election outcomes in the American states," International Journal of Forecasting, Elsevier, vol. 15(2), pages 137-142, April.
    2. Eisinga, Rob & Franses, Philip Hans & Ooms, Marius, 1999. "Forecasting long memory left-right political orientations," International Journal of Forecasting, Elsevier, vol. 15(2), pages 185-199, April.
    3. Lionel Page, 2008. "Comparing Prediction Market Prices and Opinion Polls in Political Elections," Journal of Prediction Markets, University of Buckingham Press, vol. 2(1), pages 91-97, May.
    4. Paul W. Rhode & Koleman S. Strumpf, 2004. "Historical Presidential Betting Markets," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 127-141, Spring.
    5. Smith, Alastair, 2003. "Election Timing in Majoritarian Parliaments," British Journal of Political Science, Cambridge University Press, vol. 33(03), pages 397-418, July.
    6. Ito, Takatoshi, 1990. "The timing of elections and political business cycles in Japan," Journal of Asian Economics, Elsevier, vol. 1(1), pages 135-156.
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