Why prediction markets failed to see the American pope coming
The wisdom of crowds is no match for the whims of the Holy Spirit.
This week, the ascension of the first American pope surprised many, including the theoretically neutral online betting sites Polymarket and Kalshi.
The sites, which allow people to wager on the outcomes of various events, brand themselves as 'prediction markets' on the theory that when there's money on the line, they are better, in aggregate, at anticipating results.
While they've had some successes — notably, they bested traditional polls at predicting Donald Trump's 2024 election win — the market for betting on the next pope was blindsided by the conclave's election of Chicago native Robert Prevost, now Pope Leo XIV.
Before the white smoke went up, Kalshi and Polymarket both cast Prevost as a long shot, with odds between 1% and 2%, which means a handful of gamblers who bet on Prevost won big. On Polymarket, one user turned a bet of a little over $1,000 into a $63,683 profit, according to the site's public ledger.
Betting markets allow you to wager on just about anything and have a mixed record of 'predicting' outcomes. While they called the 2024 election correctly, they notably fumbled in 2016, when the 'smart money' suggested British voters would reject 'Brexit' and that Hillary Clinton would defeat Donald Trump.
The conclave markets' big miss this week reflects the limits of their predictive powers.
In sports betting, you've got thousands of data points about individual athletes, team stats going back decades and any number of informed opinions from professional commentators. Political winds can be volatile, but polling and voter data are practically endless at the national level.
In pope betting, the data are far more scarce.
'The papal conclave markets are one of the ones that you'd expect to be the least well-calibrated since they only get a data point every decade or two,' Eric Zitzewitz, professor of economics at Dartmouth College, told CNN. 'And the process is much more opaque than almost any other political selection process… No tell-all memoirs, even well after the fact.'
Plenty of academics and journalists offered insights into who might be among the favorites based on their various CVs and reputations in the church. Pietro Parolin and Luis Antonio Tagle were among the favorites heading into the conclave on Wednesday. And, as election forecaster Nate Silver noted Friday, Parolin's chances shot up as the white smoke emerged, 'presumably on the assumption that the quick decision was good news for the frontrunners.'
Of course, the dynamics inside the Sistine Chapel were impossible for market participants to gauge from the outside. All any of us regular people could do was watch 'Conclave' and, based on the movie, assume there's plenty of drama and shifting allegiances.
Bottom line: Even in a highly liquid market, which crowd-wisdom theory holds should be more accurate, there are simply no tools to measure what Catholics believe is the spirit of God guiding the cardinals' choice.
'The Holy Spirit is indeed a wily one,' Zitzewitz said.
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