Emotions and the status quo: the anti-incumbency bias in political prediction markets

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Karimi Motahhar, Vahid and Gruca, Thomas S. and Tavakoli, Mohammad Hosein (2024) Emotions and the status quo: the anti-incumbency bias in political prediction markets. International Journal of Forecasting . ISSN 0169-2070 Published Online First https://dx.doi.org/10.1016/j.ijforecast.2024.06.003

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Abstract

Emotions are often associated with politics, with new research confirming this connection. There is a link between negative emotions and political actions that oppose an incumbent candidate or party. We examine whether this “anti-incumbency” bias extends to political prediction markets, where such emotions can conflict with economic rationality. We analyze unique data from Media Predict, a commercial prediction market. Before a trade is executed, participants are asked to write a justification for their actions. Using text analysis, we measure the emotional sentiment of the justifications of traders buying contracts predicting a change in the incumbent candidate or party. Consistent with anti-incumbency bias, the justifications of buyers of a challenger contract had significantly more negative emotional sentiment scores. We document this finding in prediction markets associated with the 2012 US Presidential Election and the 2015 UK General Election. We conclude that, despite incentives to the contrary, traders’ actions in political stock markets are associated with strong emotions tied to incumbency status.
Item Type: Article
Uncontrolled Keywords: Anti-incumbency; Emotions; Politics; Prediction markets; Status quo; Text analysis
Divisions: Sabancı Business School
Depositing User: Vahid Karimi Motahhar
Date Deposited: 02 Aug 2024 10:46
Last Modified: 02 Aug 2024 10:46
URI: https://research.sabanciuniv.edu/id/eprint/49566

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