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Predicting Politics: Prediction Markets Out-Predict Political Pollsters

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Executive Summary

Political prediction markets - in which participants buy and sell "Contracts" based on who they think, will win an election - accurately predicted Barack Obama's 2008 victory. New research shows that these markets behave similar to financial markets, except when traders' partisan feelings get in the way. That was the case in the 2000 presidential election, where the researchers found that partisan feeling was so strong that it influenced trading. Nevertheless, the team has created a model of how prices fluctuate in these prediction markets - a model that could eventually be used to tell how certain events affect the outcomes of elections.

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