Are prediction markets accurate compared to polls or expert forecasts?

Prediction markets are often as accurate as polls and expert forecasts, especially close to resolution. Their strength comes from incentives, real-time updates, and the ability to aggregate diverse information into a single probability.

Detailed Explanation

1. Incentive alignment: Traders have money at stake, which punishes overconfidence and rewards calibrated forecasts.
2. Real-time updates: Unlike polls (which may be days old) or forecasts (which update infrequently), markets react instantly to new data.
3. Information aggregation: Markets synthesize inputs from insiders, domain experts, quants, and casual observers into one price.
4. Calibration over time: Events priced at 70% should happen roughly 70% of the time—markets that fail this test lose credibility.

Common Scenarios

• Comparing election market odds vs polling averages weeks before an election
• Using market prices to cross-check your own model or expert panel
• Watching for divergence between markets and polls as a signal of hidden information
• Tracking market accuracy post-event to build intuition for when to trust them

Exceptions & Edge Cases

• If the market is thin or has few participants, then prices may be noisy and less reliable than polls.
• If the contract is poorly specified, then ambiguity can distort prices.
• If participants have non-financial motives (e.g., hedging, signaling), then prices may deviate from true probabilities.

Practical Examples

An election market shows 58% for Candidate A, while polling averages show 52%.

• The market may be incorporating turnout models, late-breaking news, or private polling
• Alternatively, the market may be biased by a few large traders
• Check liquidity and participant diversity before trusting the divergence

Actionable Takeaways

• ✅ Discount thin or poorly specified markets
• ✅ Trust markets more as resolution approaches
• ✅ Compare market probabilities vs poll averages for divergence
• ✅ Use markets as a probability layer, not a crystal ball