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On the eve of the 2022 U.S. elections, the odds of a “red wave” seemed pretty favorable.
The Republicans were given a 65.2% chance of flipping the Senate on Oddschecker.com. On PredictIt.com, Dr. Mehmet Oz was a 63% favorite to defeat Democratic Lt. Gov. John Fetterman in the Pennsylvania Senate race and had been in that territory since Oct. 24 when stroke survivor Fetterman’s debate performance raised questions about his health. The smart money at PolyMarket gave Arizona’s GOP gubernatorial candidate Kari Lake 80% to win.
None of that happened. The Senate will remain in Democratic control next year. Oz lost by 5 points. And, despite Lake’s claims of voter fraud for which she’s produced no evidence, the former TV anchor will not be running Arizona any time soon.
Other similar bets – that the Republicans would have 53 seats in the Senate or would win dozens of House seats rather than the handful they did – also turned out to be losers.
So what happened? Fans and purveyors of the political betting markets, who have long touted them as having the potential to be more predictive of election outcomes than polling or punditry, are facing a reflective moment as they dissect why the odds veered so far away from reality.
“This midterm cycle is the election where the markets were more off-base than in any other cycle I can think of,” says Pratik Chougule, the Yale-educated co-host of the Star Spangled Gamblers podcast. “At a moment where a lot of people were really looking to political prediction markets as being the antidote or the solution to the crisis in forecasting, precisely the opposite happened. What it showed at a very minimum is that these markets have real limitations.”
What actually happened at the polls
In the final few weeks before the November 8 elections, the narrative among political insiders, pundits, some pollsters and the betting markets turned sharply toward an expectation of a wipeout for Democratic candidates. POLITICO, for instance, ran a headline on November 7 that read: “Voters appear ready to blame Democrats for economy, inflation.” Similarly, an Axios headline on November 7 proclaimed, “Scoop: Top Dems warn party is seen as extreme on eve of midterms.” Also, a web post from National Review, as the votes were being cast on Election Day, blared: “Democrat Blame Game in Full Swing as GOP Poised for Midterm Gains.”
Yet when the dust cleared, Democrats still had 50 seats in the Senate, enough for control with Democratic Vice President Kamala Harris’ tie-breaking vote. The possibility of a 51st seat depends on the outcome of a runoff in Georgia on Dec. 6 between Democratic Sen. Rafael Warnock and Donald Trump-endorsed former football star Herschel Walker.
In the House, Republicans are poised to take control come January, but just barely. They needed to pick up six seats; at best, it appears, they will gain 10. Democrats also flipped governorships in three states – Arizona, Maryland and Massachusetts – and lost only the one they had held in Nevada. Given that the party that controls the White House typically loses an average of 28 House seats and four Senate seats in mid-term elections, these outcomes are well short of a wave of any kind.
Republican bias becomes a Republican bubble
One prominent theory about why the betting markets failed is that the population of people putting money into these sites are white men who veer conservative and support Trump’s Make America Great Again (MAGA) movement. As the hype grew of a possible red wave cresting, they invested with their emotions, says Anthony Pickles, an anthropologist from the University of East Anglia in Norwich, England, who studies the political prediction markets.
“The political markets in the U.S. tend to have quite a lot of Republican partisan money, MAGA money, in them anyway,” Pickles says. “There’s a notorious amount of money that thinks it’s being smart by assuming that Republicans are always underrepresented in the polls.”
The notion of conservative bias among political bettors isn’t new, even if no published research exists. Pickles and others say many bettors were rewarded for favoring Trump to win the presidency in 2016 when nobody else expected that to happen. The surprise shock when he did so continues to fuel overconfidence among conservative bettors that they knew more than the polls or analysts.
On the pre-election episode of Star Spangled Gamblers, for example, a well-known political bettor named Zoltar, whose Twitter feed overflows with pro-MAGA election and medical conspiracy chatter, foresaw “a red tsunami” and “a brutality like we’ve never seen before.” Among his predictions was that the Georgia Senate race was “not going to be close at all” because incumbent Gov. Brian Kemp, a Republican, was poised to win his race by a landslide. “The question I have is, who in the world is going to vote for Kemp as governor and not also vote for Herschel Walker?” he asked. “All the polls are saying it’s about tied. Uh uh uh. Walker’s going to win.”
Warnock finished first with 49.4% to Walker’s 48.5%, forcing a runoff because Georgia requires the winner to clear 50% of the vote. In other words, contrary to Zoltar’s theory, there were quite a lot of Kemp-Warnock voters and, in fact, the polls were dead-on that the race was a toss-up. Several other of Zoltar’s predictions, including that Democrats would lose the Senate and the Arizona governor race, failed to materialize, too.
“The best evidence of the MAGA bias was that you were able to buy Donald Trump to win in 2020 for like 10 cents even after the election had been called for Joe Biden,” Pickles says. “There were enough people who believed the talk about Trump being reinstated” to keep the Trump-to-win market from completely collapsing even after he lost.
Betting markets “highly reactive” to news, disinformation
In late October, Republican sources – right-wing media outlets, candidates and pro-GOP groups – flooded social media with polls that seemed to indicate the public souring on Democrats as gas prices soared and inflation and the stock market struggled.
“That caused a shift in the betting and pretty much every Republican candidate was getting flooded with bets,” says Kyle Newman, spokesman for Oddschecker, a site that aggregates the political odds posted at seven U.K.-based sports books. “That caused all of those swing races to turn and the Republicans ended up being the favorites.”
“People seem to take their information and extrapolate a little bit too much,” says Koleman Strumpf, an economics professor at Wake Forest University in North Carolina.
Some bettors profit handsomely from anticipating this overreactive response of the market to events. Chougule, for instance, plunked down a big wager on Oz winning in Pennsylvania back in October in advance of the October 24 debate with Fetterman. He didn’t think Oz would win, but he believed the market would think so after a debate if Fetterman, recovering from a stroke, seemed unwell next to Oz, who built his fame on his comfort on television.
“When Fetterman came into that debate and, within the first few minutes, it was clear that he was barely able to speak coherently, the markets kind of panic,” Chougule says. “But it wasn’t just panic that was moving the price. It was also people like me who were just in that market with no intention of holding. I just wanted to get a quick profit.”
Different political gambling models yielded similar results
The models for PredictIt and PolyMarket differ significantly from overseas betting on politics. Betting against the house on politics in the U.S. is technically illegal but the Commodity Futures Trading Commission has generally laid off sites like PredictIt that function as “trading markets.” That is, users don’t take a bet with odds about, say, whether Oz will beat Fetterman, so much as they buy and sell “shares” in, say, Oz winning. The price of those shares rises and falls depending on what other people are willing to pay for them – and that is often dictated by events in the news and polling data.
Meanwhile, sportsbooks overseas do set odds on outcomes, often with “points” akin to football. Those bets remain frozen until the outcome is definitively known. Still, the odds can shift suddenly and erratically, as seen on Oddschecker in the weeks before the election. The site touted on Election Day that Republican Adam Laxalt had a 69.2% chance of winning the Senate seat in Nevada from incumbent Sen. Catherine Cortez Masto, a Democrat.
“Sportsbooks are increasingly confident that 2022 is going to be a Red Wave election,” Newman wrote in a press release on November 8. “Of the 12 races to watch today, the only one that’s looked good for Democrats on the betting market is New Hampshire, where Maggie Hassan has stretched her lead over Don Bolduc.”
One big problem with the political betting markets, Chougule says, is that there’s not enough money in them to balance out political bias and not enough expertise among the bettors on how to judge information from the news cycle and polling.
“The thing that’s going to actually drive the prices to more efficient markets is much more training and education of elite forecasters,” he says “We need to identify the people in these markets were consistently profitable and put them through training and coaching. … This game of political forecasting is so new that I have no doubt that even the people who are relatively good today are going to end up being pretty average when you look at the quality of forecasts 10 or 20 years down the line. If the top traders really level up skillwise and are betting much more money in these markets, that may get us closer to a market that can tell us something real.”
Bettors remain bullish on Republicans despite 2022
Even as bettors who favored Republicans went unrewarded, the markets nonetheless continue to place their faith and funds into the GOP and Trump. Newman reported that, on Oddschecker, 50.4% of the money in the 12 hours after Trump’s much-panned Nov. 15 announcement that he’s running for president in 2024 went to Trump winning back the White House two years from now. Another 20.8% of bets went to Florida Gov. Ron DeSantis, who won a landslide re-election this month and immediately became a leading 2024 GOP nomination contender.
Just 7.9% of bets in that span went for Democratic President Joe Biden, the incumbent.
