Democrats fared better on election night than expected. Republicans are still expected to retake the House of Representatives, but Democrats have a chance to hold onto the Senate. PredictIt prices flipped on election night, and the balance of power market’s overround hit a high of 13 cents. Small changes in Election Night expectations have resulted in fundamental changes in PredictIt users’ expectations.
PredictIt users now favor a Republican House and Democratic Senate outcome, which is priced at 64 cents, a 40-cent increase from the day before. The price of a Republican House and Senate dropped from 74 cents to 19 cents. This drop doesn’t mean that Republicans can no longer capture the Senate. It just means that PredictIt users were surprised that Democrats weren’t roundly defeated on Election Night.
The price of a Democratic House and Senate increased from 11 cents to 27 cents, too. However, this is an unlikely outcome. Kevin McCarthy is on track to become the Speaker of the House, even if it’s only by a four to six-seat margin. This seems to be noise in the midst of an Election Night panic rather than analysis with predictive value.
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Trade Volumes & Midterm Election Forecast
PredictIt balance of power trade volumes reached 1.1 million on Election Night, up from over 412,000 the previous day. It’s a testament to the frantic trading activity that a change in expectations causes.
Leading up to the midterms, political analysts remarked that Republicans were poised to retake both chambers of Congress. That remains possible, although by a single-state margin that was closer than previously predicted.
Pennsylvania’s Senate race was called for Democrat John Fetterman on Election Night. That was an important victory for Democrats because it flipped a Republican Senate seat. However, Nevada’s Senate race is leaning toward the Republican candidate, which would flip a Democratic seat. Wisconsin is likely to be called for Republican, Ron Johnson, and Alaska’s Senate race is between two Republicans. That’s three Senate seats that Republicans could win to bring their total number of Senate seats to 50.
Democrats are leading in Arizona, which could be the Democrats’ 47th Senate seat. The Senate’s two Independents, Bernie Sanders and Angus King, caucus with Democrats. So, a Democratic victory in Arizona would effectively give Democrats 49 Senate votes.
That leaves Senate control hinging on what will likely be a runoff election in Georgia, which would get Democrats to 50 Senate seats plus the Democratic Vice President’s tie-breaking vote.
Georgia Runoff Election Possibility
A runoff election occurs when no candidate gets at least 50% of the vote. When that happens, the top two candidates from the election go into a runoff election. The winner between those two candidates will win the Senate seat.
(Alaska uses ranked-choice voting, which will realistically be a contest between the top two candidates, Kelly Tshibaka and Lisa Murkowski. Both captured more than 40% of the vote, and they’re both Republicans. So, Alaska’s Republican Senate seat is a given and won’t have a runoff like Georgia.)
However, Georgia is different. Democrat Raphael Warnock has 49.4% of the vote. Republican Herschel Walker has 48.5% of the vote. The Libertarian candidate, Chase Oliver, has 2.1% of the vote. With 98% of the votes reported according to the Associated Press, there’s still a slim chance that Warnock could reach 50% and end the race.
That seems unlikely, so the runoff election is already being predicted. Georgia’s runoff election would be on December 6 without the Libertarian candidate. However, not all the Libertarians will go for Walker.
Libertarianism doesn’t only include voters on the right end of the political horseshoe. Libertarianism also attracts anarchists, who are historically on the left side of the political horseshoe. In 2016 after Sanders lost the Democratic nomination, the Libertarian Party courted his supporters to support Gary Johnson.
Oliver’s total vote is 81,173, which is more than double Warnock’s lead over Walker of 35,083 votes. Third-party voters will make the difference in a runoff election between Warnock and Walker, but they won’t follow a predictable pattern. Either party could win Georgia’s Senate seat, and therefore the Senate.
PredictIt Prices and Questionable Predictive Value
On Election Night, PredictIt users panicked. Republicans didn’t dominate House races or State Governors races as predicted. PredictIt prices flipped when PredictIt users lost confidence in their original predictions. However, Democrats are still on track to lose the House and Walker still has a chance to win Georgia’s Senate seat.
There’s not really a 27% chance of a Democratic House and Senate as PredictIt prices imply. As of this writing, Democrats have lost six seats in the House, and Republicans have gained three. The Republicans are on track to 218 seats in the House.
The polls that offered 45/55 forecasts on which party would control Congress may not have divined the future. But, those uncertain forecasts were more honest than the PredictIt forecasts that took a position strongly then abandoned it in a panic.
In reality, the odds of Democratic Senate control are about 50-50. Senate control will likely come down to a close runoff election in one state.
In what is likely PredictIt’s final midterms, its users’ market behavior has shown that they’re reacting to public polling and news just like the rest of us. PredictIt users have undermined whatever argument that PredictIt could make for consistent predictive value.
Consequently, PredictIt’s Election Night performance could make it more difficult for future election markets to become legalized in the United States. As Kalshi’s attempt to offer election markets has shown, the CFTC won’t legalize a futures market without predictive value.
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