Competing Approaches to Forecasting Elections: Economic Models, Opinion Polling and Prediction Markets

35 Pages Posted: 26 Jun 2006

See all articles by Justin Wolfers

Justin Wolfers

University of Michigan at Ann Arbor - Department of Economics; University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; The University of Sydney - Discipline of Economics; Brookings Institution - Economic Studies Program; Peterson Institute for International Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Kiel Institute for the World Economy

Andrew Leigh

Australian House of Representatives Parliament House

Multiple version iconThere are 3 versions of this paper

Date Written: March 2006

Abstract

We review the efficacy of three approaches to forecasting elections: econometric models that project outcomes on the basis of the state of the economy; public opinion polls; and election betting (prediction markets). We assess the efficacy of each in light of the 2004 Australian election. This election is particularly interesting both because of innovations in each forecasting technology, and also because the increased majority achieved by the Coalition surprised most pundits. While the evidence for economic voting has historically been weak for Australia, the 2004 election suggests an increasingly important role for these models. The performance of polls was quite uneven, and predictions both across pollsters, and through time, vary too much to be particularly useful. Betting markets provide an interesting contrast, and a slew of data from various betting agencies suggests a more reasonable degree of volatility, and useful forecasting performance both throughout the election cycle and across individual electorates.

Keywords: Voting, elections, prediction markets, opinion polling, macroeconomic voting

JEL Classification: D72, D84

Suggested Citation

Wolfers, Justin and Leigh, Andrew, Competing Approaches to Forecasting Elections: Economic Models, Opinion Polling and Prediction Markets (March 2006). CEPR Discussion Paper No. 5555, Available at SSRN: https://ssrn.com/abstract=912247

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Andrew Leigh

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