Academic Paper Shows Unrepresentative Bettors Still Yield Efficient Political Prediction Markets
Crane and Strumpf's paper shows political bettors are consistently unrepresentative across eras yet produce efficient prices because heavy traders prioritize profit over bias. Kalshi beat major pollsters in the 2024 presidential and Senate races but lagged in low-volume House contests. The study underscores incentives and liquidity as drivers of market accuracy.
SCCG Take — Sufficient volume from profit-driven traders can neutralize demographic skew in prediction markets. Regulators and operators should track liquidity thresholds to assess reliability in lower-profile races.
A new working paper finds that political prediction markets produce accurate probabilities despite participants who differ sharply from the voting population. Harry Crane of Rutgers University and Koleman Strumpf of Wake Forest University reviewed more than 100 years of such markets and concluded that financial incentives lead traders to bet on outcomes rather than preferences.
The researchers identified consistent demographic gaps. On Kalshi in 2024, 86% of election traders were male and more than half were under 30. On PredictIt in 2016, men accounted for 92% of presidential traders. Census records for 80 bettors in the 1900 New York election showed every participant was male, 44% were bankers or brokers, and the group was older than the city average for men.
2024 Kalshi Trading Data
Kalshi records from Oct. 4 to Nov. 5, 2024, showed ZIP codes that voted 28% for Trump still directed 60% of volume toward Republican positions. Single-trade bettors placed 73% of their money on Kamala Harris. Among people who made more than 100 trades in the last month of the 2024 election cycle — and this is 93% of the entire volume over that time — ZIP-code politics had no measurable effect on positions taken.
Strumpf told InGame, “Every market I’ve ever looked at, the people who trade in them are totally unrepresentative of voters.” He added, “Their demographics don’t seem to impact how they trade. And I should say this is disproportionately true for heavy traders.” Strumpf also stated, “To me, ‘dumb’ money is actually essential for these markets to work. They’re the chum providing the profitable trading opportunities for the ‘smart’ people.”
Kalshi prices outperformed Silver Bulletin, FiveThirtyEight, and The Economist in the Trump-Harris contest and every battleground state plus 19 Senate races. In 24 House district markets opened six days before the election, total volume reached only $236,000; FiveThirtyEight performed better in 20 of those contests. The authors noted the sample is too small to determine whether the shortfall stemmed from insufficient liquidity or other factors.
Volume Requirements for Congressional Races
Strumpf said, “I guess I won’t go to the mat to say markets are going to work great. But I guess I’m very curious to see.” The paper leaves open the precise trading volume needed for congressional races to serve as reliable probability measures.
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