Political polls vs betting markets: Here's why they conflict

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The news media increasingly rely on political betting odds for predicting everything from elections for political office to major referendums.

The problem: Those odds often conflict with polling.

Leading up to the U.K.'s "Brexit" referendum on the European Union last month, traditional opinion polls showed the race was extremely close, fluctuating between remaining in the EU and leaving up until votes were cast. The political betting markets were far less equivocal, showing a wide lead for remain. In the end, the polling proved more accurate than the political bettors.

With the U.S. presidential election coming up in November, a similar discrepancy exists between the most recent polling and betting markets.

The RealClearPolitics polling average currently has Donald Trump and Hillary Clinton separated by less than a point, while betting markets PredictIt and the Iowa Electronic Markets give Clinton a nearly two-thirds chance of winning the presidency and the popular vote, respectively.

Brandi Travis, a spokesperson for PredictIt, said the betting website's markets were accurate most of the time. She described prediction markets more generally as an important data point for people to consider.

PredictIt currently offers a number of betting opportunities from whether the U.K. will announce another Brexit referendum this year (with just 4 percent betting the answer is yes), to if Jeb Bush will endorse Trump before Election Day (the markets say there's a 90 percent chance he won't).

"It usually doesn't get a lot of press when we're right," Travis said. "We don't think that we compete with polls."

To be sure, traditional polling itself faces growing skepticism. The industry badly whiffed on the 2014 U.S. midterm elections, for example, failing to predict the GOP's strong results in both the House and the Senate. Polling is only as reliable as the quality of its sampling, and it's more difficult than it once was for polling firms to reach a representative population because more Americans are going cellphone-only or flatly refusing to take surveys.

However, there is still reason to trust polls ahead of betting, according to Michael Traugott, a former president of the American Association for Public Opinion Research. While polls must be taken with caveats, including the fact that they represent a snapshot of public opinion at a specific time, and include a margin of error, they reflect a more representative sample and are less susceptible to manipulation than markets, Traugott said.

"Its the difference between, first of all, mass opinion and elite opinion," said Traugott, a professor at the University of Michigan. "The best [estimates] come from the data aggregators because they take information and combine it from multiple polls, which is a way of reducing chance and other kinds of variations."

Traugott added that polls and betting markets reflect different results: the balance of public opinion at a specific time versus the odds of a given outcome eventually prevailing. Both are continuing to improve their accuracy, he said.

Several betting companies allowed wagering on the Brexit, and they've since opened a bevy of new markets and odds in the vote's aftermath. From bets on who will leave British Prime Minister Theresa May's Cabinet first, or whether the Scottish Parliament will call for an independence referendum this year, the markets and oddsmakers thrive on.

The Brexit misfire, however, may have exposed issues with the markets.

Andrew Gelman, a Columbia University statistics and political science professor, said political betting markets provide information that should not be ignored, but he added that the low volume of trading on some bets is one among many issues they face.

Gelman also said that part of the betting markets' resilience to budging from the Brexit "remain" vote may have been "circular reasoning," whereby the markets were self-reinforcing.

Another issue that may have contributed to the miss is the relatively similar mindset among bettors generally, according to Joe Crilly, a press officer for bookmaker William Hill.

"They're all of a very small niche," Crilly said of political bettors. He added that betting has grown in popularity in recent years, and he does not think the Brexit miss "really changes anything," though people may be more cautious.