Prediction Markets vs. Pollsters and Pundits in 2016 Presidential Election

In a University of Maryland, Robert H. Smith School of Business article, “Will Pollsters Be Surprised (Again)?”, I discuss prediction markets with respect to the 2016 Presidential Election:

SMITH BRAIN TRUST — Designing a good presidential poll can be tricky. Just ask Gallup, which missed the mark in 2012.David Kass, an economist at the University of Maryland’s Robert H. Smith School of Business, takes a different approach. Rather than worrying about things like sample selection and response bias, he simply follows the money on prediction markets.
Odds and lines: Betting on politics is mostly illegal in the United States, but online investors (maybe “gamblers” is the better term) can trade shares on U.S. candidates in places like Ireland.
Price discovery: “I never bet on any of them,” says Kass, who has followed the markets closely since 2004. “I just want the information.” He says the accuracy of the markets has been astounding. “People are betting to win,” he says. “It’s pure price discovery by the market.”
No political revolution: Recent polls show Bernie Sanders edging ahead of Hillary Clinton in Iowa, where caucus-goers will gather Monday. But PredictWise, a prediction market aggregator, shows that people with money on the line are sticking with Clinton by a 2-to-1  margin.
Terp power: Elsewhere, if you think Smith School MBA Carly Fiorina can win the Republican nomination, one penny gets you $1 on PredictIt, which lets traders buy and sell shares during the election season.
It’s gonna be YUGE: If you think Donald Trump will grab the GOP nomination, you could have made a killing in October, when trading on his $1 shares hovered around 20 cents. On Wednesday, after he announced his withdrawal from tonight’s Fox News debate, his shares climbed 3 points to 50 cents.
Market vindication: “It’s far more accurate than any pollster or pundit that I follow,” Kass says. Regardless, he says conventional polling still has value. “Pollsters are useful like stock market analysts,” he says. “You need information.” trump2

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David I Kass Clinical Associate Professor, Department of Finance Ph.D., Harvard University Robert H. Smith School of Business 4412 Van Munching Hall University of Maryland College Park, MD 20742-1815 Phone: 301-405-9683 Email: dkass@rhsmith.umd.edu (link sends e-mail) Dr. David Kass has published articles in corporate finance, industrial organization, and health economics. He currently teaches Advanced Financial Management and Business Finance, and is the Faculty Champion for the Accelerated Finance Fellows. Prior to joining the faculty of the Smith School in 2004, he held senior positions with the Federal Government (Federal Trade Commission, General Accounting Office, Department of Defense, and the Bureau of Economic Analysis). Dr. Kass has recently appeared on Bloomberg TV, CNBC, PBS Nightly Business Report, Maryland Public Television, Business News Network TV (Canada), Fox TV, American Public Media's Marketplace Radio, and WYPR Radio (Baltimore), and has been quoted on numerous occasions by Bloomberg News and The Wall Street Journal, where he has primarily discussed Warren Buffett and Berkshire Hathaway. He has also launched a Smith School “Warren Buffett” blog. Dr. Kass has accompanied MBA students on trips to Omaha for private meetings with Warren Buffett, and Finance Fellows to Berkshire Hathaway’s annual meetings. He is an officer of the Harvard Business School Club of Washington, DC, and is a member of the investment and budget committees of a local nonprofit organization. Dr. Kass received a Smith School “Top 15% Teaching Award” for the 2009-2010 academic year.