Polymarket gave Lula 20% odds. Lula won anyway—talk about a failed oracle ⛓️

Luiz Inácio Lula da Silva, commonly referred to as Lula, won Brazil’s presidential runoff on Sunday, defeating right-wing rival Flávio Bolsonaro and securing his fourth term as president after Polymarket placed Lula’s chances at 20% and Bolsonaro’s at 80% going into election day.

Bolsonaro led after the first round of voting at the start of October but had not reached a majority, requiring a second round that Lula won with a majority. Prediction markets settle at $1, with prices below that—such as $0.60 on a “yes” bet for Lula in Brazil’s election—providing implied odds of that event occurring.

Even once polls and results started rolling out, pseudonymous Polymarket whale FhantomBets told Decrypt that the market was slow to raise Lula’s odds. “Sharps [a term for professional, high-stakes predictors] knew the market was mispriced, probably closer to 30-40% on [event] day. Mispricing was most evident during live trading, Lula was nearly a lock by 6:15 pm ET when Lula ‘Yes’ was 60c,” FhantomBets said. “Retail traders were so against Lula that you could get unlimited size at 60-80c when Lula had [essentially] already won.”

FhantomBets said many whales, including himself, sold long-term positions to obtain liquid capital so they could add more size to the Brazil market. He attributed the inflated chances for Bolsonaro to retail traders with less prediction market experience.

Luke Nolan, senior researcher at CoinShares, pushed back on that explanation. “I don’t think more users are inherently a problem. They can bring liquidity and different perspectives, including local knowledge. What matters is whether participation brings different information, and whether traders can act on it,” Nolan told Decrypt. “I would be wary of explaining the result simply as professionals being right and retail being wrong.” Nolan suggested Brazil’s ban on prediction markets was likely a bigger reason the market was harshly mispriced, and Einar Knobel, CEO and co-founder of sportsbook and prediction market firm TxODDS, agreed.

Brazil’s stock market lost more than $200 billion in value at the open on Monday after President Luiz Inácio Lula da Silva beat Senator Flávio Bolsonaro in Sunday’s runoff, a result that prediction markets had priced at roughly a one in five chance. The iShares MSCI Brazil ETF, ticker EWZ, represents a basket of Brazilian stocks.