This is a guest post by Oliver Strijbis, Sveinung Arnesen, Kjetil Thuen, and Lucas Rachow*
About one year ago we published on this blog for the first time predictions for direct democratic votes taken from our “prediction market”. Prediction markets are designed to aggregate information and produce predictions about future events. Prediction markets are markets for contracts that yield payments based on the outcome of an uncertain future event, such as an election or a referendum. A considerable bulk of literature has shown that prediction markets can easily compete with surveys in forecasting election outcomes. This has also been shown for the Swiss parliamentary elections in 2011 where the forecasts of the prediction markets were more accurate than those of the surveys (Tagesanzeiger online, 27th October 2011).
Predicting election results, however, is clearly easier than results from direct democratic votes. And indeed, the accuracy of our forecasts published one year ago were rather mixed. We identified several reasons why this might have been the case. One reason is that predictions are easier if there is abundant information, which is clearly more so for national elections than for initiatives and referenda. There is little to do about that and predictions on direct democratic votes might always be somewhat less precise than election forecasts.
However, as another major reason for the rather large variance in the accuracy of our predictions we hypothesized that the participants need to learn. As a consequence, we decided to further develop our prediction market and applied it to the ballots of May, September, and November 2012. This allowed us to maintain a rather small though faithful community of traders. In order to test our hypothesis that for the prediction of direct democratic votes the ability of the traders is particularly important, we also made use of the knowledge about their behavior in previous rounds. In order to give the best traders more influence, they could now keep playing with the raised overall amount of money from the previous prediction cycle (all participants would win between 20 and 150 Swiss francs). Hence, the ballots from March 3 will allow us to test how important the ability of the traders in the market actually is for the accuracy of our predictions.
What, then, does our market foresee for the ballot of March 3? Here are our predictions from February 22: 61.9% yes for the “Abzocker-Initiative”, 54.6% yes for the “Bundesbeschluss über die Familienpolitik”, and 59.7% yes for the “Änderung des Bundesgesetzes über die Raumplanung”. Hence, for all three proposals we anticipate a rather clear victory.
* Oliver Strijbis is a postdoctoral researcher at the University of Hamburg, Sveinung Arnesen is a postdoctoral researcher at the University of Bergen. Together with Kjetil Thuen and Lucas Rachow they are founders of politikprognosen.ch.