Prediction Markets Now
I’ve been asked: what do I think of Kalshi and Polymarket, the suddenly big prediction markets.
These are still very early days. My vision, which I started to articulate ~1990, is of a world very different from both the world of then, and the world of today. A world where such markets are accepted as offering more accurate estimates on far more useful topics. So I’m mostly interested in the potential of stuff today to enable and cause that future vision.
The politics/policy questions on Polymarket and Kalshi trending now seem plausibly like topics where some people might find their estimate useful in making personal or collective choices. But I don’t have great confidence in that, or know who those people are.
However, if these systems continue to grow in size, and to attract users and competitors, they could lower the many costs of creating and managing such markets, allowing a lot more experimentation with markets like those I find more promising re my long term vision.
Or course if these systems induce a backlash that gets them outlawed or drastically shrunk, that may plausibly block or at least long delay my vision. I don’t personally mind people having fun knowingly betting on sports, on actions that celebrities can influence, or on topics where insiders have big info advantages. But I see many people complaining about these things, and I fear a new prudish temperance movement may shut them down, and as a side effect shut down the more promising markets that I’ve envisioned.
The biggest enemy of prediction markets is the market itself. That is, unless you have inside information or are in the far right tail of market participants, you have a negative expected value betting in an efficient market.
So then it makes sense that sports and entertainment are where the preponderance of dumb money goes. Many people are happy to lose money betting for entertainment value. Compare that to betting on the date OpenAI’s next AI model gets released, with OpenAI employees as your counterparty.
Political markets are the unique crossover where people want to bet for entertainment value (attracts enough dumb money to also attract smart money), and there is a valuable signal to observe (accurate sports betting lines aren’t *valuable* signals), and the value isn’t merely the leaking of inside information (is culture drifting towards “insider trading is good actually”? I think not).
Totally agreed that this is just the beginning of things to come as long as prediction markets avoid shooting themselves in the foot with exposure to controversial markets.
For what it's worth, I think they make much more sense and are less scummy than betting on sports through sportsbooks since the business model profits off volume, not setting profitable odds.
Wrote a pretty long deep dive on Kalshi's history, how it works, and what it could enable this week if anyone wants to check it out!
https://open.substack.com/pub/theuncredentialed/p/kalshi-building-a-truth-machine?r=26ya72&utm_campaign=post&utm_medium=web