Author: Omera Goldberg, Founder of Chaos Labs
Compiled by Pzai, Foresight News
Within just a few days, Trump's winning probability on Polymarket has soared to 52.6%, while Harris has dropped to 46.7%. However, mainstream polls show Harris leading by a slim margin, resulting in a 6% discrepancy between the two. Is this a true reflection of a shift in public opinion, or has the market been manipulated?
As of September 23, it is estimated that reversing the odds of Trump/Harris from 47%/51% to 51%/47% would require $40 million. This suggests that a wealthy campaign team or actor can easily sway voter sentiment, especially in the critical weeks leading up to an election.
The FiveThirtyEight poll shows Kamala Harris maintaining a slim lead, in stark contrast to the odds on Polymarket.
Election Prediction Markets
Platforms like Polymarket allow people to bet on the outcomes of elections, sports, and even cryptocurrency prices. Prediction markets have recently gained widespread attention, especially during the US presidential campaigns. The premise is simple: the more money bet on a candidate, the more likely they are to win. These platforms are often seen as real-time barometers of public sentiment, with billions of dollars in bets playing a role during major elections. However, unlike traditional opinion polls that aim to fairly reflect voter sentiment, prediction markets are easily swayed by economic influences - raising serious concerns about manipulation, particularly by political candidates who want to improve their odds.
How Polymarket Works
In prediction markets, users buy shares corresponding to the likelihood of an event occurring, such as whether a candidate will win or lose. The prices of these shares reflect the market's collective judgment at any given time. For example, if the "Trump will win" share is trading at $0.52, the market is indicating a 52% probability of Trump winning.
Driven by supply and demand, prediction markets can respond quickly to news events, making them more dynamic than traditional opinion polls. It is this responsiveness that often leads platforms like Polymarket to be seen as real-time indicators of voter sentiment, with their large trading volumes reflecting users' assessments of candidates' chances in a fluid political environment.
Manipulation Potential
While prediction markets provide valuable insights into political sentiment, their structure makes them highly susceptible to financial manipulation. Wealthy individuals or organizations (such as political campaign teams) can inject large sums of money into the market to skew the odds in favor of their desired outcome. For example, if the Trump or Harris team wanted to boost their candidate's support, they could buy large quantities of "support" shares, artificially inflating the price and creating the illusion of rising support.
This manipulation is particularly concerning because prediction markets are often viewed as accurate reflections of public opinion. Biased odds not only mislead the media and voters, but also misinform political insiders who rely on these markets to gauge campaign momentum, perpetuating false narratives.
Political ad spending in the US is expected to reach a record $15.9 billion in 2024, while Polymarket's trading volumes are orders of magnitude lower, highlighting the vast disparity between traditional political influence budgets and prediction market positions and trading volumes.
Why Is Market Manipulation Easier Than Opinion Polls?
Traditional opinion polls are based on scientific sampling and rigorous methods to minimize bias. In contrast, prediction markets are driven by the flow of capital, meaning that money can be used to influence the outcome. Directly injecting funds into opinion polls does not change their results, but injecting funds into prediction markets can.
This makes prediction markets more susceptible to manipulation. Well-funded political campaign teams can simply bet large sums of money on their candidate, causing the odds to shift in their favor. This creates a misleading narrative that can influence public perception and even trigger a feedback loop, where undecided voters may support a candidate because they perceive them as the likely winner.
While traditional opinion polls are not without flaws - often exhibiting errors - the key distinction of platforms like Polymarket is their permissionless nature. Here, we can easily quantify the cost of market manipulation, making it more transparent, but also more vulnerable to financial interference.
What Is the Cost of Guiding the Market?
The cost of manipulating a prediction market depends on factors such as market size, liquidity, and the current stability of the odds. In highly liquid markets where large sums are already bet, it would take a significant amount of money to noticeably shift the odds. However, in less liquid markets, even relatively small amounts of capital can dramatically alter the odds.
Polymarket's 2024 US Presidential Election market launched on September 23
To estimate the cost of manipulation, let's look at Polymarket's 2024 US Presidential Election market, where billions of dollars are at stake. As of September 23, reversing the odds of Trump/Harris from 47%/51% to 51%/47% is estimated to require $40 million. This suggests that a wealthy campaign team or actor can easily sway voter sentiment, especially in the critical weeks leading up to an election.
With the massive spending in US presidential campaigns, the economic incentive to manipulate these markets is evident. While such behavior could be characterized as illegal market manipulation, the anonymity provided by blockchain wallets makes it difficult to track the manipulators, further complicating enforcement.
Is the Current Outcome Manipulated?
Polymarket's election market is its largest single prediction market to date, and trading volumes have recently seen a significant surge. Over the past five days, its daily trading volume has skyrocketed to $54.5 million, more than quadrupling the previous three-month average of $12.5 million. This spike coincides with the growing divergence between Polymarket and traditional polls.
While this may highlight the market's responsiveness to new information, the stark difference with poll data also raises concerns about potential manipulation. The timing and scale of the trading volume increase suggest that financial influences may be at play, shifting market sentiment in a way that is inconsistent with broader public opinion.
Note the sharp spike in trading volume on October 3, which coincides with the sudden change in Polymarket's odds.
Election poll results Source: 270towin.com
Risks of Market Manipulation
Manipulating prediction markets poses several risks:
Creating Illusions: By distorting market odds, campaign teams can create the illusion of a candidate being more popular than they actually are, influencing media coverage and voter sentiment.
Feedback Loops: Seeing a candidate with higher odds of winning may make voters more inclined to support them, believing they are more likely to prevail. This can distort the democratic process.
Undermining Market Credibility: If manipulation becomes more widespread, prediction markets will lose their credibility as accurate predictors of events. This will diminish their role in forecasting political outcomes and providing real-time insights into public sentiment.
