For those interested in this continuing debate, Andrew Leigh and Justin Wolfers have a new paper (PDF) comparing the performance of polls and betting markets in predicting election outcomes.
For what it’s worth, I think the two are about equally good, at least when an election is about to happen. There’s no indication that markets have significant private information: for example, they react, and sometimes overreact to ‘news’ that turns out, in retrospect, to be misleading. But most of the time, they provide a pretty good summary of available public information.
This is not too surprising to me. Although I’m strongly of the view that financial markets are not fully efficient in the semi-strong sense of making optimal use of all public information, the violations are subtle (but important!). Tests of election markets simply don’t have the resolution to pick up subtle violations, as opposed to occasional single-point observations, for example, the collapse of the Bush bet when the first exit polls on election day suggested a Kerry win.