Prediction markets vs. polls: Election forecasting industry faces midterm test

Prediction markets and pollsters both say Democrats are favored to take both the US House and Senate in the midterms. Prediction markets have been a little less certain about it, though traders’ odds jumped on Tuesday on the chances of Democrats taking control of the Senate.

That’s setting up what could be another chapter in the burgeoning rivalry between prediction markets and polls following 2024’s closely watched results.

The differences have been most evident in the upper chamber. A small but consistent gap has been evident for months in the odds of Democrats winning control of the Senate. The gap has averaged about 7.3 percentage points since Sept. 1, according to a Yahoo Finance analysis.

But the gap has narrowed approaching Election Day, closing to 2.9 percentage points on Tuesday morning. Three prediction markets place a 77.3% chance of Democrats taking control, while two polling-based models put the chances a bit higher at 80.2%.

The odds have been a bit more evenly matched around the House of Representatives, with an average gap of less than a percentage point in recent months.

The latest read on Tuesday showed a 2.2-percentage-point gap, with prediction markets suggesting a 94% chance of Democrats flipping the chamber, versus 96.2% odds from polls.

This analysis was conducted by averaging the daily odds from three leading prediction markets, Kalshi, Polymarket, and PredictIt, to create one rolling prediction market measure. Those values were then compared to the average of two leading poll-focused models — one from statistician Nate Silver and another from Harvard called ElectIt.

These gaps have had an outsized effect on public perceptions in recent years. 

This was especially true in 2024, when a 10-percentage-point difference between prediction markets and polls led to some post-election analyses claiming that prediction markets had gotten the results right and polls had gotten them wrong.

The stakes for prediction market companies are high. Kalshi and Polymarket have long argued that their markets are more truthful than polls because market participants have money on the line. The markets also had a high-profile miss recently when the winner of Brazil’s presidential election was given just 20% odds before ultimately prevailing.

The scrutiny also comes as these markets continue to grow rapidly. Kalshi shared new data over the weekend that more than $1.2 billion has now been traded on midterm markets, surpassing the platform’s volume during the 2024 presidential election.