Alex Tabarrok has an excellent after at Marginal Revolution this morning, explaining why he had and has confidence in prediction markets. It is very difficult to argue against people who put their own money on their own predictions when forecasting.
Like Alex, I was watching those markets closely, which is why I told 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 telling me that Trump would win. Granted, it was after the polls closed in the Eastern Time Zone, but it was only a short time afterward.
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 it would be close, but we were also told it could take hours to count votes in Pennsylvania as was happening.
But New Jersey borders Pennsylvania. Why, I thought, not use New Jersey as a leading indicator of the mood in Pennsylvania? I told my wife, as we watched the results live, that if Donald Trump got at least four more points in the New Jersey popular vote than he got against Biden in 2020, he would win Pennsylvania. Why? Because Trump had lost Pennsylvania in 2020 only 1.2 percentage points. So with a gain of at least 4 points in New Jersey, compared to his 2020 share, he would likely gain a margin of at least 1 point in Pennsylvania. We found out early on that Trump beat his 2020 New Jersey rate by about 5 percentage points. He ended up getting one 2-point margin in Pennsylvania.
I’m not saying my method was better than the prediction markets: my method was clearly worse because I got results much later. But it was much better than sitting there in the early evening PST or late evening EDT and 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 two to three days before the election, and what gave me confidence were the prediction markets. This are the ones I followed.