Prediction Markets: Do They Predict the Polls or the Election Results? The Case of the Israeli Elections in April 2019

Rachel Calipha and Itzhak Venezia

Chapter 1 in Behavioral Finance:A Novel Approach, 2020, pp 3-17 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Prediction markets have been found to provide relatively accurate and inexpensive means for forecasting various events including elections results. However, since in most political elections, there exist public polls that predict the results as well as betting houses that publish odds on the various candidates and since voters obtain information from these sources, the marginal contribution of prediction markets is uncertain and needs to be assessed empirically. In this chapter, we investigate the correlations between poll results and prediction markets results throughout the election campaign in Israel prior to the April 2019 elections and compare their accuracy. We show that although correlated and influenced by the polls, prediction markets have some value. Given their minimal costs of operation, such markets are worthwhile.

Keywords: Analysts Recommendations; Behavioral Biases; Behavioral Economics; Behavioral Finance; Board of Directors; Compensation; Compensation Committee; Control; Coronavirus; Corporate Governance; COVID-19; Decision Making; Disposition Effect; Earnings Management; Elections; Emotions; Financial Crises; Financial Market Anomalies; Financial Markets; Forecast-Accuracy; Gender Differences; Heuristics; Interval Forecasting; Investment; Investor Horizon; Investors' Beliefs; IPO Under-Pricing; Life Expectancy; Myopia; Overconfidence; Pensions Industry; Policy Reforms; Polls; Portfolio Risk; Prediction Markets; Regulation; Stock Price Drifts; Time Preferences (search for similar items in EconPapers)
JEL-codes: G3 G30 G4 G41 (search for similar items in EconPapers)
Date: 2020
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