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Competing Approaches to Forecasting Elections: Economic Models, Opinion Polling and Prediction Markets

Author

Listed:
  • Leigh, Andrew

    () (Australian National University)

  • Wolfers, Justin

    () (University of Michigan)

Abstract

We review the efficacy of three approaches to forecasting elections: econometric models that project outcomes on the basis of the state of the economy; public opinion polls; and election betting (prediction markets). We assess the efficacy of each in light of the 2004 Australian election. This election is particularly interesting both because of innovations in each forecasting technology, and also because the increased majority achieved by the Coalition surprised most pundits. While the evidence for economic voting has historically been weak for Australia, the 2004 election suggests an increasingly important role for these models. The performance of polls was quite uneven, and predictions both across pollsters, and through time, vary too much to be particularly useful. Betting markets provide an interesting contrast, and a slew of data from various betting agencies suggests a more reasonable degree of volatility, and useful forecasting performance both throughout the election cycle and across individual electorates.

Suggested Citation

  • Leigh, Andrew & Wolfers, Justin, 2006. "Competing Approaches to Forecasting Elections: Economic Models, Opinion Polling and Prediction Markets," IZA Discussion Papers 1972, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp1972
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    References listed on IDEAS

    as
    1. Berg, Joyce & Forsythe, Robert & Nelson, Forrest & Rietz, Thomas, 2008. "Results from a Dozen Years of Election Futures Markets Research," Handbook of Experimental Economics Results, Elsevier.
    2. Cameron, Lisa & Crosby, Mark, 2000. "It's the Economy Stupid: Macroeconomics and Federal Elections in Australia," The Economic Record, The Economic Society of Australia, vol. 76(235), pages 354-364, December.
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    Cited by:

    1. Gikas A. Hardouvelis & Dimitrios D. Thomakos, 2007. "Consumer Confidence and Elections," Working Paper series 42_07, Rimini Centre for Economic Analysis.
    2. Andrew Leigh, 2008. "Bringing home the bacon: an empirical analysis of the extent and effects of pork-barreling in Australian politics," Public Choice, Springer, vol. 137(1), pages 279-299, October.
    3. repec:bla:ecorec:v:94:y:2018:i:304:p:51-63 is not listed on IDEAS
    4. Agustin Casas & Yarine Fawaz & Andre Trindade, 2016. "Surprise Me If You Can: The Influence Of Newspaper Endorsements In U.S. Presidential Elections," Economic Inquiry, Western Economic Association International, vol. 54(3), pages 1484-1498, July.
    5. Lennart Sjöberg, 2009. "Are all crowds equally wise? a comparison of political election forecasts by experts and the public," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 28(1), pages 1-18.
    6. Jeffrey S. DeSimone & Courtney LaFountain, 2007. "Still the Economy, Stupid: Economic Voting in the 2004 Presidential Election," NBER Working Papers 13549, National Bureau of Economic Research, Inc.
    7. Andrew Leigh, 2009. "Does the World Economy Swing National Elections?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(2), pages 163-181, April.
    8. repec:rim:rimwps:42-07 is not listed on IDEAS
    9. Alex Luiz Ferreira & Sérgio Naruhiko Sakurai, 2013. "Personal charisma or the economy?: Macroeconomic indicators of presidential approval ratings in Brazil," Economia, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 14(3–4), pages 214-232.
    10. Phillip Metaxas & Andrew Leigh, 2013. "The Predictive Power of Political Pundits: Prescient or Pitiful?," CESifo Working Paper Series 4261, CESifo Group Munich.
    11. Ray Fair & Cowles Discussion & Yale Working, 2006. "Interpreting the Predictive Uncertainty of Elections," Yale School of Management Working Papers amz2643, Yale School of Management, revised 01 Aug 2007.
    12. Goodell, John W. & McGroarty, Frank & Urquhart, Andrew, 2015. "Political uncertainty and the 2012 US presidential election: A cointegration study of prediction markets, polls and a stand-out expert," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 162-171.
    13. David Peetz & Barbara Pocock, 2009. "An Analysis of Workplace Representatives, Union Power and Democracy in Australia," British Journal of Industrial Relations, London School of Economics, vol. 47(4), pages 623-652, December.
    14. Sjöberg, Lennart, 2006. "Are all crowds equally wise? A comparison of political election forecasts by experts and the public," SSE/EFI Working Paper Series in Business Administration 2006:9, Stockholm School of Economics, revised 08 Sep 2008.
    15. Urmee Khan & Robert Lieli, 2016. "Information Flow Between Prediction Markets, Polls and Media: Evidence from the 2008 Presidential Primaries," Working Papers 201610, University of California at Riverside, Department of Economics.
    16. Joyce E. Berg & John Geweke & Thomas A. Rietz, 2010. "Memoirs of an indifferent trader: Estimating forecast distributions from prediction markets," Quantitative Economics, Econometric Society, vol. 1(1), pages 163-186, July.
    17. Casas, Agustin & Fawaz, Yarine & Trindade, Andre, 2014. "Surprise me if you can: influence of newspaper endorsements in US Presidential elections," UC3M Working papers. Economics we1416, Universidad Carlos III de Madrid. Departamento de Economía.
    18. Daniella Acker, 2016. "Prediction Markets: Reality and Theory," Bristol Accounting and Finance Discussion Papers 16/5, School of Economics, Finance, and Management, University of Bristol, UK.
    19. Acker, Daniella & Duck, Nigel W., 2015. "Political risk, investor attention and the Scottish Independence referendum," Finance Research Letters, Elsevier, vol. 13(C), pages 163-171.
    20. repec:gam:jrisks:v:5:y:2017:i:3:p:37-:d:105098 is not listed on IDEAS
    21. Rajiv Sethi & Jennifer Wortman Vaughan, 2016. "Belief Aggregation with Automated Market Makers," Computational Economics, Springer;Society for Computational Economics, vol. 48(1), pages 155-178, June.
    22. Robert Reig & Ramona Schoder, 2010. "Forecasting Accuracy: Comparing Prediction Markets And Surveys – An Experimental Study," Journal of Prediction Markets, University of Buckingham Press, vol. 4(3), pages 1-19.

    More about this item

    Keywords

    macroeconomic voting; voting; elections; prediction markets; opinion polling;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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