Gambling Futures: how prediction exchanges conquered the world
The prediction market industry, which began as a modest academic experiment several decades ago, has transformed into a multibillion-dollar business. Today, everything is traded on specialized "exchanges": from the outcome of the US-Iranian negotiations to the number of goals scored at the World Cup. For economists, these platforms have become an ideal information aggregation mechanism that surpasses classical analytics in accuracy. For regulators and public health professionals, it is an uncontrolled zone of excitement masquerading as investment. Izvestia investigated the benefits and threats of "reality futures."
Non-bookmakers
The prediction market is confused with the betting business, but despite certain external similarities, there is little in common between them. A traditional bookmaker acts as a financial counterparty: it sets odds, puts its margin in them and plays against the client. The prediction market operates according to the laws of the stock exchange. The platform does not accept bets, it only provides an order book where participants trade binary contracts with each other on the occurrence of a certain event (yes/no). The cost of one "share" ranges from $0 to $1.
If the contract for the Fed to cut the rate in September is trading at 30 cents, it means that the collective mind of the betting men estimates the probability of this event at exactly 30%. In the event of an event, the share is expired at a face value of $1, bringing the owner 70 cents of net profit. The platform earns exclusively on microscopic transaction fees. American legislation interprets such transactions as trading in derivative financial instruments (derivatives), removing them from the strict restrictions of the gambling business and opening access to terminals to all persons over the age of 18.
Two platforms have become the undisputed leaders of this market in our time: the Polymarket decentralized crypto exchange (which dominates the international arena) and the Kalshi platform regulated by the US Commodity Futures Trading Commission (CFTC). The scale of their operations today is comparable to the turnover of average stock exchanges. Against the background of the World Cup, Kalshi CEO Tarek Mansour stated the first in the company's history a series of three consecutive days with a daily trading volume of over $1 billion.
The Wisdom of the Crowd
The main argument of the apologists of prediction markets remains their phenomenal accuracy. The concept of "wisdom of crowds" works flawlessly when participants risk their own money. The threat of capital loss forces people to turn off political sympathies and rely solely on cold calculation and facts.
The industry's finest hour was the US presidential election in 2024. While opinion polls showed a minimal gap between the candidates within the statistical margin of error, Polymarket confidently predicted Donald Trump's victory long before election day with a probability above 60%. The market turned out to be more accurate than any expert panels.
These sites demonstrated even more serious potential in the spring of 2026 during the US-Israeli air campaign against Iran. Prediction markets have become an ideal indicator of insider information. On the eve of the closure of the Strait of Hormuz and subsequent missile strikes, the quotes of the relevant Polymarket contracts began to move sharply 12-24 hours before the first official media reports appeared.
Officials, military personnel, or logisticians with access to classified information monetize their awareness by anonymously buying contracts on the stock exchange. The platform instantly digests these capital flows, changing the contract price and giving an external observer the most accurate probabilistic forecast of the upcoming event. Similarly, the markets are now accurately anticipating the publication of inflation data (CPI) in the United States and Kevin Warsh's decision on the Fed rate, ahead of investment bank forecasts.
Casino Economics
Initially, the concept of prediction markets was developed by economists as a tool for insuring (hedging) commercial risks. In a landmark 2008 article, a group of 19 scientists proposed legalizing contracts for macroeconomic indicators, but strictly limiting investment limits (up to $2,000 per year) and completely eliminating sporting events.
But in fact, the industry has taken the path of least resistance, monetizing human excitement. Statistics from research firm TickerTracker show a frightening skew: over the past month, sports markets and express contracts accounted for 84% of the total trading volume on Kalshi ($18.5 billion). In the American segment of Polymarket, the share of sports reaches 99% ($2.1 billion). Traders operate with millions of sums: an unsuccessful bet on the victory of the Belgian national team at the current World Cup cost one of the Polymarket users $ 9 million.
The lack of an upper threshold for transactions and aggressive advertising have turned the innovative financial instrument into a legal substitute for betting shops. A March study by the Federal Reserve Bank of New York recorded a sharp spike in loan delinquencies among people under 40 in those states where access to event contracts was open.
Balancing costs and benefits
When assessing the macroeconomic effect of this industry, it is necessary to separate speculative noise from structural benefits. From an economic point of view, prediction markets offer businesses an ideal tool for hedging intangible risks. A farmer can buy a drought contract, compensating for the loss of the crop. The logistics company can insure against losses by acquiring a share in the contract for the extension of the blocking of the Strait of Hormuz. The owner of the bar, who has announced a free beer promotion in the event of a victory for the local team, can bet on the opponent's win, completely covering his costs in any outcome of the match.
However, the social cost of this efficiency is high. As noted by Justin Wolfers, one of the co-authors of the 2008 concept, the current market structure maximizes harm. The industry is generating an epidemic of addiction among the young population, disguising gambling as intelligent trading. Statistics show that long-term retail investors are steadily losing capital, providing liquidity to large market makers and insiders.
In general, we can say that the global financial system has at its disposal a perfect information aggregator capable of digitizing any uncertainty and providing an accurate forecast before the events begin. The economy pays for this knowledge by creating a trillion-dollar zero-sum market that takes capital from the real sector, converting global crises and sports tournaments into profitability for the lucky ones. Most likely, stricter regulation of this market is just around the corner, as it is slowly happening with cryptocurrency.
Переведено сервисом «Яндекс Переводчик»
