The rise of prediction markets goes hand in hand with the rise of mainstream wagering on political outcomes. Regulatory scrutiny is also increasing on said markets, with several high-profile arrests for insider trading and market manipulation in recent weeks. This has led to questions about whether prediction markets are providing accurate odds or being manipulated. Richard Warr, a professor of finance and associate dean for faculty and research at Poole College, provided his expertise on the matter to DeFi Rate. 

“Research has shown that peoples’ predictions tend to be more accurate when they have to ‘put their money where their mouth is,’” Warr told DeFi Rate. That said, he also notes that sample size affects the reliability of market odds: “For a large national election, where the volume of contracts traded is high, then I think they are probably about as good as we could get … But for smaller races, where the volume is low, the opportunity for manipulation is much greater and so I would put a lot less stock in them.”

Warr also talked about the issue of voter perception, specifically of who benefits from the markets. “Most of the reputable polling companies don’t post polls in the final stretches of the election, particularly on the voting day,” he said. “But prediction markets follow no such rules.” He acknowledged that “second-by-second predictions” after some polls closed while others remained open “could change voting behavior.”

Read the full article on defirate.com.