Jeremiah Johnson at Asterisk:
Some of the largest and most notable prediction markets to date have been around elections. The only problem? Prediction markets simply aren’t very good at political predictions. Markets for major U.S. elections are some of the deepest prediction markets anywhere: billions of dollars bet, millions of daily trades, and huge amounts of press. In theory, the larger the market, the more accurate the predictions. But in the markets with the biggest spotlight, we see a lot of strange stuff. Predictions that don’t line up with common sense. Odds that seem to defy reality. Obviously noncredible market movements. To figure out why, we’ll have to explore the underlying mechanisms that make markets work, and why the typical user of political prediction markets may not behave in the ways we expect.
More here. Scott Alexander’s comments on this article here.