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In the letter
- Vitalik Buterin says forecasting markets were better indicators of the election than traditional polls this year.
- The Ethereum co-founder suggests that one reason for this is because prediction markets take election interference into account.
- Chris Hayes, host of MSNBC, also identified problems with traditional survey predictions.
Ethereum co-founder Vitalik Buterin said today that prediction markets are proving more reliable than traditional polls when it comes to predicting the current US election.
Traditional polls, which use statistical models to predict election results, have strongly favored Biden’s victory in this year’s presidential race. But the cryptocurrency prediction markets have been leaning mainly towards a tight 50:50 run. And with the election underway, Buterin argued that forecasting markets had the edge.
“Regardless of who wins from here, I think the forecasting markets have proven more accurate than the polls / models this time around,” Buterin said.
Prediction markets use Ethereum-based tokens to allow people to bet on the outcome of important events, such as elections. Tokens are on sale for between $ 0 and $ 1 and when the election is decided, the chips on the winning side are valued at $ 1, while those on the losing side are valued at $ 0. So if you make the right guess, you end up in profit: you make the wrong hypothesis and you don’t bring home anything.
The price of each token before the election is used to estimate who will win. If everyone thinks a candidate will win, the resulting demand makes their tokens more expensive, reducing the profitability of buying those tokens. This is somewhat similar to how the betting odds are worse for favored candidates.
Predicting a close race
Before the election, both tokens representing Biden and Trump were priced similarly across multiple crypto prediction platforms. This means that unlike traditional polls that predicted a likely Biden victory, they were more evenly matched.
Buterin said there is a “big difference” between prediction markets and traditional statistical models that try to predict the outcome of the elections. This difference, for Buterin, could be due to the notion that bets on prediction markets take into account the possibility of election interference and other negative influences.
“Prediction market bets correctly incorporate the possibility of greater election interference, voter suppression, etc. that affect the outcome, but the statistical models only assume that the voting process is fair.” She said in a tweet.
However, other possible explanations remain. For example, the fact that forecasting markets are inaccessible to political pundits, or perhaps simply that pundits are “incorrigibly stupid and simply have not learned their lesson on detecting surprise pro-Trump voters like they did in 2016,” Buterin added.
A balanced approach
A final benefit to forecasting markets is the fact that their methodology does not require the use of a single person model.
“The advantage of a prediction market is that, rather than relying on a person’s model, it allows the world to come together and essentially negotiate a hammer price – the point where people who think it’s too high and people who think it is too low balanced, “said Sam Bankman-Fried, CEO of FTX Decrypt.
It wasn’t just the crypto community that noticed the difference between the expected outcome and the current tight race.
“Once again, I urge people to see how this evening another example of some very important systematic polling errors on all types of domains rather than “poor performance”, “said Chris Hayes, host of MSNBC, adding that” literally everyone was working on the same data. The data was bad. “
Although, considering the same thing that happened in the last election, that excuse is starting to look a bit fragile.
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