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Prediction markets, once a niche part of the betting world, have evolved to become a multi-billion-dollar marketplace where users can bet on anything from draft picks to drone strikes.
During the 2024 US presidential elections, $3.3 billion in election bets were traded on Polymarket. It is also estimated that bets concerning Joe Biden’s political career amounted to $80 million. Prediction markets, once a niche part of the betting world, have evolved to become a multi-billion-dollar marketplace where users can bet on anything from draft picks to drone strikes.
Prediction markets like ‘Kalshi’ and ‘Polymarket’ are gaining traction because they allow users to place bets on real-world outcomes. Unlike traditional betting, there is no ‘house’; users buy and sell depending on whether they think an event will occur.
From whom Bad Bunny will bring out at the Super Bowl, to what word Kamala Harris will use on Jimmy Kimmel Live, prediction markets offer vast opportunities. Whilst many of the bets are trivial, others are far darker. Polymarket offers users the chance to bet on the next date that Israel will strike Gaza or where the US may launch military action. The suffering of real people becomes monetised, and global crises are reconstructed into assets that can be traded.
Morality is not the only concern.
Issues with regulations have also been consistent. Under the Biden administration, Polymarket was banned, and Kalshi was restricted as it made electoral outcomes vulnerable to manipulation. Since Trump has come into office, these sorts of markets have excelled. With “the total value of bets bought on the sites in just the month of December [surpassing] $8.3bn”.
There is debate as to whether these market types should face the same regulations and tax laws as traditional betting arenas. Kalshi and Polymarket argue that they are financial exchanges and should not be regulated by state gambling commissions. Prediction markets are regulated by the Commodity Futures Trading Commission (CFTC), meaning they can operate in states where traditional gambling is illegal because they are not state-regulated. States including Nevada, Arizona and Illinois have sent cease and desist letters to Kalshi, but it still maintains that it is not a gambling platform.
Alongside the exploitation of violence and warfare, these platforms run the risk of undermining electoral integrity. There is a worry that wealthy donors could “artificially inflate one candidate’s odds”. A candidate with more bets placed on them will have a higher perceived chance of winning. This could generate momentum for the candidate, potentially swaying news coverage and voter opinion. In the digital age, online narratives are crucial for elections. Markets don’t just reflect opinion; they can shape it too.
Prediction markets may also make voters vulnerable to the ‘bandwagon effect’, whereby people adopt the behaviour of others. Seeing others predict an election outcome in a certain way may sway undecided voters. Voters may also be discouraged from participating if they believe the election has already been decided.
Some economists suggest that prediction markets are better at reflecting consensus than polling data. With money at stake and masses of investors involved, the market may be more accurate. Sites like Polymarket and Kalshi can react in real time to election events, whereas polling data takes time to gather. This element of reactivity means markets can effectively reflect the ever-changing information that is available to the general public. However, polls are based on sampled voters while prediction markets are weighted by capital. This means disproportionate influence can be exerted. In October 2024, $30 million in bets “of mysterious origin” boosted Trump’s odds of winning the election, demonstrating the malleability of the market.
Prediction markets are an effective way of gauging real time opinions on important events. However, these markets could also mean democratic outcomes are at risk of being shaped by financial power, instead of the opinions of the people.
Edited by Kira Purewal
‘Technical Analysis 1 – Intro & Overview’ by Institute of Investing & Financial Trading, 2018 // CC BY-ND
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