If you’re an American looking to make some money betting on future elections, I have some bad news.
The Commodities Futures Trading Commission, the federal agency charged with regulating financial products such as derivatives, voted 3-2 for a Proposal to ban “event contracts” on elections, but also at sports and events like the Oscars. By targeting rules Forecast marketLike the site predict or Kalshi Which allows you to place real money on future events. It probably won’t come into effect until after November, but if you want to bet on the 2026 midterms, you might be out of luck.
The The case for the forecast market Simple: they give observers valuable information about the future. The information may seem less demanding than in the case of the Oscars or sports, but clearly who controls the presidency is of public interest, and Voting is getting harder and harderWe need all the help we can get to predict and understand the election results.
I find these arguments quite persuasive, and the arguments raised against legally allowing prediction markets are frankly silly. Sports betting now Legal in 38 states and DC. It seems incredibly perverse that bets on the Knicks and Pacers would be legal but bets on Senate races that actually provide citizens with useful information such as polls would be banned.
At the same time, I am skeptical that a bad legal regime is actually holding back the prediction market. Nick Whitaker and J. Zachary Mazlish have one This smart article is in progress Outline a theory I find persuasive: Prediction markets aren’t working because they don’t provide enough value to the people you need to make the market work.
Who puts money in a prediction market?
Although the proposed CFTC ban is very broad, prediction markets for matters other than elections are generally illegal. Right now in Kalshi, you can bet What will the Rotten Tomatoes score be? For Francis Ford Coppola’s comeback movie Megapolis (Bet is currently hovering around 50), Should the Fed cut interest rates? Before the end of July, and How thin the Arctic sea ice will be next summer.
But these markets haven’t exactly taken the world by storm. only 14 markets in Kalshi $100,000 or more bet on them. That may seem like a lot, but it’s a pittance compared to the stock market or sports betting. What’s more, about the top four market Fed interest rates, which, as Whittaker and Majlish note, you already can. Bet through many major futures markets. The prediction market offers novel opportunities, such as betting MegapolisIts Rotten Tomatoes score, is used less.
In a world where markets are efficient and reasonably well-functioning, there are strong theoretical reasons to believe that the prices they produce will be correct. if they was not If it were accurate, and it was possible to know, one could make a ton of money betting otherwise. And once they make that bet, the market will move and become more accurate.
For prediction markets to be obviously wrong, someone has to leave easy money on the table, and that usually doesn’t happen in a capitalist society.
But when they are not used well, this logic does not follow. The price may be wrong because the amount of money at stake is too small for people who know well to bother betting, because the amount they can win is not worth the trouble.
This is the heart of Whittaker and Majlish’s field. They divide betting market participants into three types: savers, who try to increase their wealth; Gamblers, for whom they are entertainment; and “Sharps,” who try to make money by understanding the market better than others.
Prediction markets are not very useful for any of these groups. You absolutely should not invest your 401(k) in a prediction market; Whereas the total value of the stock market increases over time, the forecast market is zero-sum. If you take your savings out of the S&P 500 and “willingly” buy both “yes” and “no” Persecuted poets category Stay at the top of the Billboard charts for more than 10 weeks” deal, you absolutely lose money. Savers are out.
Gambling is a more plausible case for prediction markets. But Whittaker and Majlish note that in the UK, where it is much less regulated, the popularity of sports betting far outpaces any other type of contract. Yes, people like to gamble — but only about sports.
This means: the games happen in real time, where the odds are constantly fluctuating and where betting in real time can give you a certain rush. In-game betting, for example, is Especially popular. Other types of questions prediction markets can help us understand — who is going to be the next president of Iran? Will China attack Taiwan? Will bird flu become a pandemic? – This is not dynamic. They are not exciting.
“Simply put,” as Whittaker and Mizlash write, “most things we want to know about the future aren’t very fun to bet on.”
that leaves the sharp (the shark?), who are trying to make money by being more accurate than the next guy. The prediction market will be great for them … if they have someone to bet against. But for savers and profitless gamblers, the sharps’ gains are limited. And if everyone else investing is reasonably smart, isn’t that a signal that they’re probably right, and You will probably lose the bet against them?
There isn’t much to offer the sharper, saver, or gambler, left with the prediction market… none.
No harm in trying
The main legal prediction market in the US, Kalshi, is quite small Its predictive record is still decent. The point is, limits on the power of prediction markets are not a good reason to ban them, as the CFTC is trying to do. In fact, it’s hard to find any good reason to ban them.
Six Democratic senators wrote told the CFTC last year that “billionaires can expand their already outsized influence in politics by placing extraordinary bets while simultaneously contributing to a particular candidate or party.” But billionaires are already able to place unlimited bets on stocks in the industry clean energy or firearm Whose fate depends on who is in charge of the government? Prediction markets will make that betting information easier for the rest of us to access.
This is the idea of billionaires swing Elections to make money just by betting are similarly far-fetched, as the author Maxim Lott mentioned: “The thing about election rigging is that even the most powerful people are rarely in a position to advise an election. Flipping an election is much harder than a sports match, because of the number of people involved.”
More empirically, Britain has a tradition of electoral betting Dating before Magna Carta And there has been a legal market since 1961, without the horror stories that senators urged to pass. They did one Decent job of predicting election winnersAnd you won’t get any wild stories about how Tony Blair won in 1997 because Lord Sainsbury really wanted to make sure his “Labour won” deals cashed in.
But I agree with Whitaker and Mazlish that the real-money prediction market needs a better value proposition to succeed, even with more reasonable regulation.
I was surprised by its vibrancy various, a prediction market that uses only play money. The whole point of prediction markets is that they give you “skin in the game” to lose if you make a mistake. What you lose in Manifold is “value”, a fake currency.
But the triviality may be part of the point. Precisely because you don’t deposit real money, it’s easy for people to make stupid markets and have fun betting on stupid things. It’s a free form of social media engagement, like arguing on Twitter or Reddit.
Maybe the more important thing is to keep things simple and fun.
