- Prediction markets have been rising in popularity in recent years
- The ways to make money are by placing bets on different events and seeing how successful one is
- Prediction markets are used in many different areas, ranging from the classroom to the workplace
From two friends predicting the outcome of a test to shoppers guessing how many people will be in the line at the supermarket, small bets have always found their way into everyday life. Today, similar predictions are appearing online, but with much higher stakes: prediction markets like Kalshi and Polymarket allow users to wager on virtually any event, from sports games to elections.
Polymarket defines a prediction market as a platform where people can bet on the outcome of future events — similar to traditional betting mediums, but with a wider range of topics and flexible wager sizes. Though prediction markets may appear simple in theory, their structure is more complex than traditional betting.
Participants of prediction markets trade specific contracts that function as assets, with payoffs determined at the end of the event. For example, if a contract predicting that a candidate will win an election is trading at 50 cents, the market interprets this as approximately a 50% chance that the candidate will win. The success probability from these contracts is based on what users themselves believe.
The concept of wagering money on high-stakes events has existed long before the internet. Even in the 1880s, it was considered a common pastime to bet on big political and sporting events. In 1988, the Iowa Electronic Market experiment showed that prediction markets could forecast elections more accurately than traditional polling methods. This led to an increasing number of people using an exchange-based market to forecast outcomes, and eventually resulted in the creation of prediction markets in the early 2010s.
In 2018, the landmark Supreme Court case Murphy v. NCAA allowed companies like Kalshi to operate in the United States with less regulation than before. Recently, prediction markets have exploded into mainstream media through endorsements from athletes, celebrities and even billion-dollar sports leagues. Their broad scope and accessibility appeal to users, who are drawn to the ability to wager on a wide range of outcomes.
“There’s this newfound fascination with prediction markets,” sophomore Adam Salme said, “Recently, there’s been a destigmatization and normalization of gambling-adjacent activities due to their associations with popular figures and organizations.”
Companies like Kalshi and Polymarket coordinate betting markets among users and corporations, then create the initial contracts. They profit by simply charging a fee both to enter a bet into the market and to make contract trades.
Due to its accessibility and perceived accuracy, information taken from prediction markets is also valued by other organizations, who use certain event statistics to gain insight into consumer sentiment or to evaluate future risk. For example, companies like Google and Microsoft use them to forecast changes in demand for their products. As a result, prediction market companies allow different organizations to use their data for a fee. A major concern about traditional polling is the risk of inaccuracy or bias. On the other hand, prediction markets use data-based statistics with objective probabilities for each event. In the 2024 presidential election, polls like Gallup and CNN indicated that the lead between the two candidates was almost even. However, Polymarket assigned a value of 60 cents per wager to Donald Trump winning the election, predicting an approximately 60% chance of victory for him.
“I don’t think prediction markets are going to replace traditional polling,” Santa Clara University professor of finance Hersh Shefrin said. “Polling industries will push polls, even as prediction markets do a better job of forecasting election outcomes. However, as the popularity of prediction markets grows, the influence of traditional polling methods will wane.”
Although supporters argue that prediction markets offer valuable insights, critics raise ethical concerns. They warn that betting on important topics such as political elections can undermine the legitimacy of important issues, while betting on life-threatening events like wars and national disasters can be dehumanizing and minimize human suffering for the sake of profit.
“The stock market has the SEC that has many safeguards for insider trading, whereas I feel like there aren’t many safeguards for these prediction markets,” math teacher Norman Tsai said. “Insider trading could be a big problem, as it could be disadvantageous to the normal trader.”
Their legality is also widely debated: some argue that, although they are not classified as such, prediction markets are merely another form of gambling, which is either heavily regulated or completely banned in many parts of the United States. In comparison, platforms like Kalshi operate in a legal gray area under loose oversight from the Commodity Futures Trading Commission, though they are facing increasing scrutiny from regulators in different jurisdictions. Its similarity to gambling, along with its easy accessibility, has led many to view prediction markets as dangerously addictive, especially among younger generations, as 18 to 20-year-olds are contributing most to the rapid growth of prediction markets.
“The percentage of people who become gambling addicts is three times higher in Gen Z than the rest of the population,” Shefrin said. “The result of growing up with social media as the first generation to really do so makes it more extreme.”
Industry data suggests that global prediction market volume has increased by more than 400% in the last two years alone, reflecting broader interest in alternative forecasting tools. Whether prediction markets become a widely accepted format for forecasting events or remain a controversial medium of online wagering will likely depend on how the public eye and policymakers respond to these concerns in the years ahead.
