Original Author: Haseeb ＞|＜, Dragonfly Managing Partner
Original Compilation: TechFlow
As the dust settles on the election, there is a story that The Wall Street Journal and The New York Times have not reported. While the mainstream media was busy with the spectacle on television and hesitantly predicting the results of the key swing states, the world's largest prediction market, Polymarket, had already made a judgment before midnight Eastern Time on election night, saying that Trump had a 97% chance of winning. This was even before the media announced the results of any swing state.
1. Polymarket has been ahead of the curve throughout the election process
I want to explain why this is the case, because based on the feedback I've received on Twitter last night, most people have a deep misunderstanding of this.
Polymarket has outperformed the media in two fundamental ways.
First, Polymarket's pre-election predictions were more accurate. Let's look at the pollsters and analysts. The election models based on polls claimed the race was a toss-up, while Polymarket gave Trump a clear advantage - his win probability was set at around 62% before the election started.
If you recall, the mainstream media mocked Polymarket's dissenting opinion. They thought Polymarket should align with the views of those model makers! Clearly, this disagreement meant that Polymarket was not to be trusted. They thought Polymarket's pricing was different because its user base included many crypto enthusiasts who supported Trump. It was invested in by Peter Thiel, and only foreigners traded on it. Since it's unregulated, they thought it must be manipulated, with big money pushing up Trump's prices. Such criticisms were endless.
Implicit in these criticisms is a deep distrust of markets. As if markets can't be trusted unless there's clear evidence of their reliability. Of course, if you really trust markets, you might not trust the media anymore. And the media's business model is built on making you distrust other sources of information - otherwise, why would you keep clicking on their endless attention-grabbing articles?
But anyone with market experience knows: the composition of the market doesn't matter, whether it's Republicans, Democrats, foreigners, or others. In fact, we know that JP Morgan uses Polymarket, and some of the world's largest hedge funds are using it (most have non-US subsidiaries). It's integrated into the Bloomberg Terminal and quoted on CNN. Yet the media, when talking about Polymarket, act as if it's just some 4chan-like platform.
You need to know that Polymarket's trading volume in the presidential election reached $3.6 billion. This is the largest election betting market in history, an order of magnitude higher than any other election market. In comparison, this is far more significant than the professional prospects of any individual forecasting model maker.
The so-called biases - like crypto enthusiasts supporting Trump or non-Americans - did not affect the accuracy of the market. (In hindsight, non-Americans may have been able to predict the election results more dispassionately.)
But the identities of the participants don't matter. Prediction markets aggregate information from many different participants to arrive at prices that transcend biases. The markets don't care about ideology, they only care about whether the outcome is correct.
The fact is, Polymarket was more accurate than any pollster or model maker.
Now, I want to be clear: the difference between 60/40 and 50/50 sounds large, but it really isn't. Elections are inherently uncertain. According to high school statistics, if you want to determine if a coin is biased to 60/40 rather than 50/50, you need to do over 100 coin flips to have a 90% confidence. The "Trump wins this election" outcome doesn't tell you whether the coin is 60/40 or 50/50.
My point is not that Polymarket is completely right and the forecasting models are completely wrong. In fact, the differences between them are not that large. What I want to emphasize is: the market has consistently priced Trump's win probability higher than the poll results. Keep in mind, the market is aware of the conclusions of the polls and analysts. The market has integrated all the available information, yet Polymarket's pricing has differed from the pollsters. The only explanation the analysts could come up with is that Polymarket is biased.
They didn't have the humility to consider that perhaps Polymarket might have access to some information that the polls failed to capture.
The accuracy of polls has deteriorated significantly. This is now very clear. Before the internet era, polls were much more accurate. Back then, landline poll response rates were often over 60%. Now, it's only around 5%. This means polling organizations face massive sampling biases that can't be simply statistically corrected. (Additionally, polling organizations - as product vendors who need to maintain their reputations - often tend to converge on their forecasts to avoid being outliers, which affects the overall poll results.)
Furthermore, Trump is a particularly divisive figure in American politics. So in the last three consecutive elections, we've seen serious underestimates of support for him, the so-called "shy Trump voter" effect.
Polymarket may have believed the polls were missing some important information. The pollsters claim they've updated their models and made adjustments. Polymarket's response is: I don't believe you. And events have proven Polymarket right.
Let me emphasize again! Polymarket did not claim Trump had a 90% chance of winning. 62% is not an absolute number, because elections are inherently uncertain. What confuses me is that the media have shown no curiosity about this difference. Maybe Polymarket knows something we don't? Or perhaps there is information that we've overlooked, which isn't reflected in the polls?
Remember, Trump's performance nationwide far exceeded poll expectations, in both Republican and Democratic states. He won every swing state, and even the popular vote, which was unthinkable for most people.
Do you really have confidence that there is no other way to discover the true sentiments of tens of millions of Americans, other than relying on those traditional pollsters and outdated internet surveys?
This is what the markets are teaching us. Markets are smart, but they don't explain the reasons - they just show the results.
2. This leads to the second way Polymarket has outperformed the media
Polymarket predicted the election outcome in real-time, ahead of the media. On election night, the unpredictability of the markets was fully on display. Polymarket reacted quickly and aggressively before any swing state results were announced. According to Polymarket's assessment, the election was settled by midnight, while the mainstream media didn't officially call the result until 6 AM the next morning. Why is this?
First, Polymarket identified an important correlation that the mainstream media was unwilling to explain to their audience. Polling errors are rarely random; they tend to be correlated across states. So when traders saw Trump significantly outperforming the polls in some non-competitive states, like New York City (a typical Democratic state) or Florida (a typical Republican state), it signaled that the nationwide polling error could be large.
Polymarket quickly picked up on this, realizing that the swing states were no longer competitive. By 11:30 PM, Polymarket had put Trump's chances of winning Pennsylvania at 90%, even though only a small fraction of Pennsylvania's votes had been counted at that point.
Prediction markets don't wait for formalities or commentator analysis. They don't care about breaking the traditional ritual of waiting for vote counting. Remember the outrage when Fox News called Arizona early in 2020 (which ultimately proved correct)? Trump even threatened to boycott the channel. This reinforced a lesson - the major media outlets must dutifully count the votes, without getting too clever.
However, the market does not care about the dramatized process, they only care about the result. Clearly, it is very difficult to explain to CNN's audience that the election is over, the polling error in non-competitive states is too large, Kamala's prospects are worrying, and you should go to sleep instead of waiting for the results of the swing states, as this contradicts the narrative that the media has been reinforcing for months. The public needs a simple, understandable story, where everyone is clear about the development of the story - you have to wait until the results of the swing states come out, until a color bar crosses the 270-vote threshold. At 12:51 am, the New York Times was still displaying dramatic charts and headlines. At this time, Polymarket had already set Trump's odds of winning at 98%. Therefore, election observers have been waiting all night just to let the media complete their meaningless coloring ritual. Polymarket traders are not constrained by the narrative and have no motivation to hype up the drama for ratings - they simply provide a direct judgment. @shayne_coplan, the founder of Polymarket, said that Trump's campaign team is focusing on Polymarket in an attempt to better understand how to interpret the odds. The media even dared to complain that Trump declared victory when the vote reached 267 - at that time, Polymarket's odds had already dropped to 100%. The charm of the markets lies in their ability to respond quickly to new information. The traders who can integrate information the fastest will be rewarded - with profits. This is something traditional media cannot do, as they need to go through multiple layers of explanation, narrative construction, and internal politics (such as Murdoch's interference in the 2020 Arizona results) to handle events. Polymarket's decentralized nature bypasses all these formalities, allowing information to flow freely and without interference. Last night's events are worth deep reflection. This election is a strong warning to the Democratic Party, a denial of the expert class, and an immune reaction to the arrogant media. However, for Polymarket, this night was the perfect proof of its value. For me, the lesson learned is: when there are important events happening in the world, you can skip those opinion pieces and just check Polymarket's odds. I should disclose that I am an investor in Polymarket. I have always been passionate about prediction markets, and now that their value has finally been recognized, I feel very gratified. Also, since I am quite tired now, there may be some inaccuracies in the details, but you should be able to understand the gist of what I'm saying.
