The two big ones are probably: [1] The prices are misinterpreted, as if they were poll numbers. [2] They (rudely) shatter the layperson’s cherished delusions of relevance.

Today is Election Day in the United States. One way or another, it will be a disaster.

Historically, I found solace in the reliable data of’s ‘political event derivative contracts’. Unfortunately, the CFTC determined that these contracts were ‘contrary to the public interest’, and I’ve since had to get by with just .

Prediction Markets are inherently unpopular, but I find that many laypeople share the CFTC’s unease with ‘election betting’. Why?

To proceed, I must first review some basics.

Election Basics

Election outcomes are very fragile, driven by ‘electability’ (a self-fulfilling prophecy). Electability manifests itself capriciously, hinging on social fears about what rival voters will remember when looking at a ballot on election day (a precious few moments or images).

These conclusions will not surprise anyone with firsthand experience.

Much of the information is here, in television form.

Democratic Elections

Almost everyone would describe “elections” as being “democratic”. What else would they be?

The Athenian Greeks, however, would disagree:

"it is thought to be democratic for the offices to be assigned by lot, for them to be **elected is oligarchic**,"
-Aristotle, Politics 4.1294b

To Greeks, a “democracy” meant that, if someone had to do a job (ie, we needed someone to act as president), they would put everyone’s name into a jar, pick out a name at random (“assigned by lot”), and make That Guy do it.

This ‘Democracy Classic’ has many advantages over ‘elections’ (ie, voting).

Why Elections? Quick and Safe

Elections (ie “majority rule”), are a relatively efficient form of government.

Why is “majority rule” efficient? Mainly, because the switching costs are minimized. Speaking generally, a majority coalition will control more resources, and will win any type of contest (be it a war, a propaganda campaign, a labor strike, an appeal to sympathy, a research effort …). With voting, we get the same result that we would have gotten from a violent revolution, but without any of the ambiguity, bloodshed, property destruction, lingering blood feuds, etc.

Because there’s no violence involved, the populace is free to specialize in non-insurrectional, productive economic activity. Therefore, a country with quadrennial elections will tend to out-compete one which has quadrennial revolutions.


Why Elections Suck

The Hell is Going On?

Elections have some rather-overwhelming problems:

First, we reliably elect unpopular individuals.

How does this happen? Voting is literally a popularity contest – how are we often presented with two unpopular choices (and must then select the “lesser of two evils”)?

Secondly, the selection criteria appear to be quite bizarre. Elections favor those people with [1] name recognition, and [2] the ability to navigate life without accruing embarassing photos or soundbytes. Of all candidates for office I can recall, I have never seen a resume, CV, transcript, or test scores. Even the ‘recommendations’ amount to a precious few platitudinous sentences – mostly from vapid celebrities, always vague to the point of non-description.

From our behavior, one would think we elect whoever is really good at …putting out signs, or kissing babies?

No one would hires this way. Certainly, not for a leadership role such as CEO, doctor, military general, univerisity professor, NFL quarterback, etc.

Third, no one seems to care about the election results. Turnout is usually <50% (ie, the true ‘winner’ of the election is always ‘nobody’), and when people do vote, the re-elect the incumbent Q% of the time! More absurdly, most (77%) don’t care enough even to learn even the name of either one of their senators. Most (64%) do not know which party (of 2) is currently controlling either chamber of Congress.

Everyone seems to be aware of these facts, and that they are problematic. Yet the problem goes unsolved, year after year.

The apathy (and meta-apathy) is overpowering. Why have people given up?

Let’s unravel these mysteries!

Voting: Rule of the Uninformed

For many reasons, each individual voter cares very little about his or her vote. The aggregate of these poorly-thought-out decision is a single large poorly-thought-out decision.

1. Condorcet and Ken Arrow

Believe it or not, mathematicians discovered long ago, that modern voting (one-person one-vote) doesn’t work.

Namely, any candidate can win, regardless of how popular/unpopular they are. All that is required is that someone manipulate the order in which ‘primary candidates’ are eliminated.

Voting doesn’t guarantee that the most popular person will get elected.

I’ll just let that sink in.

2. Voting is Inherently Circular

How People Decide

Two observations: this year, many people said they were backing Hillary Clinton because she was quote elect-able unquote, and many Republican opponents repeated, over and over, that they were “the only candidate who can beat Hillary Clinton”.

Why are these statements persuasive? The first is trivial (Clinton is over 35, a natural born citizen, etc), and the second painly false. But even if they were substantive – would you hire a car mechanic because (s)he was “hire-able”? Would you go to Burger King because it was the “(only) candidate that could beat” McDonald’s, for your sale?

It’s flabbergasting.

Divide and Conquer

So, why do voters concentrate their efforts on someone who “can win” (the so-called ‘strategic voting’)?

Because, of course, any who do no use ‘strategic voting’ are in danger of ‘throwing their vote away’, via the phenomenon of ‘vote splitting’. If a vote is currently (A=40%, B=60%), and a near-copy of B, B’, is introduced as a third option, B’s votes may be split amonst B and B’, leading to (A=40%, B=30%, B’=30%) and A’s victory.

Hence, the ‘unstrategic’ B’ voters “threw away” their vote. A vote for B’ did precisely as well, as a vote “thrown away” into the trash.


The Circle of Electability

Consider two observations:

  1. Someone with more supporters is more likely to win an election (by definition).
  2. The ‘need for electability’ (above) means that you should vote for someone who is likely to win.

Restated compactly:

  1. Vote for X –> X “can win”
  2. X “can win” –> Vote for X

They form a logical circle, and can therefore be arbitrarily set to “both TRUE” or “both FALSE”, based on circumstances irrelevant to civic merit. This is why something as trivial as ‘name recognition’ can translate directly to political power.


(How else do you describe these willfully-anti-intellectual signs…that only have a name on them.)

But that is only half of the circle! In fact, the circumstances do not need to be “relevant” to anything. The definition of ‘electability’ is itself based, 100%, on the moment-to-moment perceptions of ‘the crowd’. Therefore, anyone who can stand out, in any clear way, can enter the feedback loop and ride it to victory.

3. Voting Doesn’t Scale

Ideal Conditions

Let us assume that the problems of #1 and #2 (above) are solved, using magic. You and N friends, have magically narrowed your decision down to the two “best” choices (‘Up’, and ‘Down’). There is now no ‘agenda setting’, no spoilers, and no need for strategic voting.

Let us also assume total non-influence: you have no idea how your friends plan to vote, no binding vote-commitments, no pre-votes, no campaigning (in fact, no talking at all). Votes will be cast with perfect privacy, and the answer will be revealed to all parties simultaneously.

With all outside influences removed, and no others present, it seems we must have reached a situation of ‘majority rule’. Right?


One Final Problem

To send this system to it’s doom, we merely retain one assumption: that ‘the act of Voting’ costs a tiny amount of private ‘effort’.

This cost is constant, but your ‘benefit’ (your voting influence) falls as N increases. By my calculations, your vote is likely to be meaningless at N=8. At N=40, each of the individual 41 votes matters not at all – as if a bright red ballon were inflated with air to such a degree, that the stretched plastic suddenly vanished altogether.

At this point, the most rational voters will simply decline to participate (knowing that they will simply lose a kind of “Effort Prisoner’s Dilemma”). We have therefore achieved, through scale alone, a “rule of the irrational”.


( Our presidential election has an N of 150,000,000. )

The final puzzle piece is to ‘get out the vote’, selectively, and thus manipulate the outcome.

4. Evo-Psych Predates the Secret Ballot

The human brain ships preloaded with a ton of software.

Unfortunately, that software was calibrated during a time before the ‘secret ballot’ was invented. As such, the human brain suspects that it will be killed, if it does not swiftly (and loyally, and loudly…) join a popular cause. Your brain might be ‘aware’ that you get to vote in private (in the same sense that you are ‘aware’ that these two lines are the same length) but this awareness does not prevent your biologic hardware from operating. It will faithfully continue to filter your perceptions and memories – it’s just safer, for you to be as deluded as possible…an earnest supporter of today’s hegemon.

More information:

This self-imposed brainwashing is very powerful. Once an individual chooses a side (ie, Democrat or Republican), the choice is usually permanent. These loyalist partisans are, henceforth, as good as enslaved.


We have therefore transformed ‘rule of the majority’ to to ‘rule of the uninformed’ to ‘rule of the irrational’ and now finally to ‘rule of the manipulative’.

Voting Review: Conclusion

Voting is a very fragile process, which mostly doesn’t work. In particular, it is characterized by a need to create self-fulfilling prophesies of “electability”.

This need to create “electability” expectations (NCEE) is, I believe, the key to public mistrust of Prediction Markets when they are applied to elections.

Why Election Markets are Unpopular

Voters may misinterpret the PM-prices as polling figures, leading to confusion and frustration. PMs also challenge voter’s assumptions of self-importance.

1. Voting is Important / PMs are New

If someone is going to boss us around, we want a say in it! Hence the vote – people don’t like to be bullied. It is, therefore, natural for citizens to be wary of anything which affects the electoral process. (After all, we can’t have it getting any worse!)

Also, a ‘good citizen’ is supposed to care about elections. When people try to imagine what they think ‘a good citizen’ looks like, so that they can put on the appropriate appearances, it usually involves a lot of loud “caring” about election outcomes. One guy burdening everyone’s minds with nuanced arguments and equations, messing with the cooridors of power. Another guy is serving as The Protector and Guardian of Democracy by Purging all of the Manipulative Threats. That first guy is probably going to get himself killed; the second guy might get laid tonight.

Therefore, professed suspicion and mistrust is understandable.

And, this veneer is removed very early on (immediately, in fact). This is perceived as unfair. Candidates can be effectively eliminated, before they have the change to pitch their ideas to the public!

Because we pretend to actually care about candidates ideas (ie, FactCheck), we must pretend loudly to be bothered by this.

Otherwise we’d look foolish!

The reality, of course, is that these candidates are almost-certainly doomed anyway.

Simple Misunderstanding

In my observation, PM-complainers often (mis)interpret the prices as poll results.

For example, consider this heuristic for optimizing ‘strategic voting’:

  1. Check if the poll is “real”. (Will rival voters interpret it as credible?)
  2. Is my preferred candidate (MFC) in the top two? If So, support MFC. If Not, vote is spoiling. Abandon MFC for “the lesser of two evils”.

This heuristic works pretty well, even if the poll data is totally fabricated. (As we discussed above, even fabricated data can reliably create an illusion of electability which can translate to actual, non-illusory, victory.)

Consider this data:

Candidate Result
John 40%
Rachel 30%
Blake 20%
Ted 10%

If it describes a poll, then the likelihood of Blake winning would be 0% (same for Ted). Blake’s supporters will strategically abandon Blake (in order to influence the John <–> Rachel decision). Same for Ted’s supporters. Therefore, the poll is dangerous to the campaigns of Blake and Ted. Just looking at it, would be agonizing to a Ted supporter (psychologically, to the point of mortal peril).

However, if these numbers described PM-prices, it would mean that the likelihood of Blake winning would NOT be 0%, it would instead be 20%. Similarly, Ted would be 10%, not 0%. The PM result is not fatal, to Ted. Quite the reverse…it guarantees that Ted does, in fact, have a chance!

( Of course, Ted-supporters may worry that other Ted supporters will see this PM-result, and misinterpret it as a poll-result (ie, as a 0% win-likelihood). They might then abandon Ted. )

Whereas a 40% plurality, in a poll, virtually guarantees that John will win, an equivalent 40% from a prediction market would suggest that, actually, the winner will probably (60%) not be John.

As I write these words, Donald J Trump stands a 17.6% chance of being elected 2016 US President. This figure (18%) is perfectly compatible with roughly 50-50 figures from national polls…because they are measuring different things! No way is someone-polling-at-18 ever going to win, but someone priced at 18 will be winning roughly 1 in 5 times (ie, if an election of equivalent-circumstances were repeated each weekday, the candidate would win precisely 1 of the 5 and lose precisely 4 of the 5).

The two data-sources yield different and potentially opposite interpretations. However, it is easy to see how people would respond to them similarly. And, even, be angry at the unexpected results, or behavior of the data.

3. Cherished Delusions

People believe that they are important, and that they “choose”, in an election.

But look at this graph of the ‘08 Election:


The blue line was always above the red line. During some times it narrowed, and at others it widened, but the PMs seemed to think that the Democratic candidate would win, as early as June 2006.

How did the market know who is going to win, before you, the Oh So Important One, even knew the names of who was running!?

And, how dare these markets imply, in September, two months before My Special Day to cast My Sovereign and Important Vote, that Obama has a ~90% chance of winning. I mean, I haven’t even voted yet! What about me, Dad!!

Sadly, this data paints a (brutally honest) picture of a world where you don’t matter. Instead, we prefer to think that we matter. We like it when the media flatters us, and brings info to us so that we can Decide (in reality, the media tells us an entertaining story that we want to hear, so that we keep watching through the next commercial break). We like to pretend that “every vote counts”, and that these high-and-mighty politicians are humbly begging us for our almighty vote (in reality, most votes do not matter).

And, even though most people know to be distrustful of the media, and most people know that their vote is unimportant, it is still important to pretend that that stuff doesn’t bother you. You are, after all, an important person. You vote because that’s what the elites do, they decide things – and you’re one of them. You’re in charge around here – we, the people. Those …others, who do nothing but complain, all the time, about how elections don’t work…no one cares about what they think. Certainly no politicians do, anyway. And, those whiners are making you look bad, humiliating you for no reason! Bunch of riff-raff!

Someone ought to do something…

4. PMs are Continuous

A poll is over quickly – like ripping off a band-aid. When a new poll “comes out”, an audience member must [1] brace himself for the poll data, [2] observe the result, and [3] quickly prepare the appropriate excuses or gloating. After the S&M session is over, there’s a refractory period so that everyone can recover.

A prediction market just hangs there, as if a new poll were performed every second of every day. Glaring at you malevolently. You don’t know who is ‘behind’ these numbers, or why. Yet, these unseen assailants, demand that you be prepared, at a moment’s notice, to explain-this or explain-that on behalf of “your” candidate. The nerve! Can’t we get any peace around here!

It almost hushes the laypeople of the audience – they would wonder: ‘When is my turn to speak?’. The answer –that their input is not a required part of this Accuracy-Based Ceremony– is a rather off-putting one.

5. Bets Look Bad / Regular PM Discomfort

The layperson may ask ‘Who participated in this poll?’, or ‘How can I participate?’. This is yet another unwelcome answer: they can participate as soon as they put up some money).

In general, a political prediction market may be the first prediction market that a layperson has ever encountered. Therefore, the usual warnings about inherent unpopularity apply.

Note: A common (and false) objection is that PMs can be “manipulated” with cash. Then, mean evil rich people would control our democracy!! Even if this objection were true, it would be one that is shared by all non-PM media.

And, of course, if ‘election betting’ reveals that Your Favorite Candidate is probably going to lose, you shouldn’t “like” ‘election betting’.


Elections are fragile, and especially sensitive to the circular phenomenon of ‘electability’.

In this way, they are easily influenced by all sorts of ‘media’ (ie, the many medium-s through which information spreads), and this includes Prediction Markets.

Prediction markets may be especially unpopular, among voters who misinterpret the prices as polling figures. PMs also challenge voter’s assumptions of self-importance.

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