Israeli Election Market Manipulated by Small Number of Traders

A study by Israeli and American academics has revealed that the "Polymarket" prediction market, where users bet on election outcomes, is highly susceptible to manipulation by a small number of traders. The research, conducted by Professors Moran Ofer and Joshua Mitts, along with Dan Zimmerman, analyzed millions of transactions and found that significant price shifts can be caused by very small investments.

One instance highlighted involved Ofer Winter, who was falsely reported to be leading Prime Minister Avigdor Lieberman in the race for prime minister based on Polymarket odds. This surge was orchestrated by just two wallets, potentially a single individual, investing $3,200. This artificially inflated Winter's odds from 0.7 cents to 6.65 cents, leading to widespread media reports, despite the minimal actual investment.

Similarly, on September 29, a single account, "Outlandish-Boxspring," made two large bets totaling $155,000 on Netanyahu, causing his chances to jump from 29.5% to 36%. While this effect was temporary, it was sufficient to generate significant media attention. The study also noted that even a $152 transaction on July 12 altered the odds between Netanyahu and another candidate, who then maintained the lead.

The research further identified a high concentration of market control, with just seven accounts holding $607,000 in bets against Netanyahu becoming prime minister, representing 29% of all anti-Netanyahu funds. One account, "wan123," alone held a $230,000 position against him. Professor Ofer stated that the market, intended to reflect collective wisdom, is instead dominated by sophisticated actors strategically influencing prices, often during low-liquidity periods to maximize impact.

Moreover, the study found a strong correlation between election market traders and those betting on wars in Israel and the Middle East. Approximately 82% of election market accounts also traded on war outcomes, contributing 93% of the funds in election markets. Some war market participants are suspected of having had prior information on major decisions, such as U.S. ceasefires with Iran, which they leveraged for significant profits before investing in election markets.

Ultimately, the study advises against over-reliance on Polymarket data, emphasizing the prevalence of manipulation. The Central Elections Committee in Israel even prohibited the publication of Polymarket results shortly before elections due to their potential influence. Further analysis by the Wall Street Journal indicates that a mere 0.1% of accounts generate 67% of the profits on Polymarket and its competitor Kalshi, with nearly 70% of users losing money.