The Dark Side of Prediction Markets (& why they feel so compelling right now)

“How many beans are in this jar?”, we asked every year at our Lacrosse Christmas party.  Everybody would place a wager, and the person closest to the actual number would get all the money. 

Cool game. The person who won bought a lot of beers and shots, and everybody had a good time. 

I wish I would’ve calculated both average and median of the guesses. Likely, they would’ve been close to the actual number – because exactly that has been shown in several experiments (with the OG one being the weighing of an ox at a 1906 Plymoth county fair, and later replicated with a jar of jelly beans). 

In the instance of the ox, the median guess of the weight was within 1% of the weight; in the jelly bean study, the average was ~2% off. 

The “Wisdom of the Crowd” works. 

And that’s why for a long time, I thought prediction markets like Polymarket or Kalshi are one of the most elegant innovations we’ve seen in years: allow people to put real money on results, without the house taking a cut, and use that data to predict the future. You’d assume that people will only buy a share if they think it’s underpriced. Therefore, the predictions should be honest and accurate. 

I’m no longer sure. 

Fundamentally, they work like this: 

1. They create a “market” for a certain event (eg. “The Panthers will win against the Rams”, which unfortunately didn’t happen; the markets predicted this accurately at only 17%). 
2. You buy “shares” (or, as I call them, bets) in a certain outcome (in our instance, the Panthers winning). At 17% odds, this means that you pay 17 cents for the option to win $1. 
3. Once the market resolves (ie. the game is over), you get your payout or not. 

They create these markets for all sorts of things, such as NFL games, elections, or how long tomorrow’s White House press conference will be. 

So far, so good. 

But recently, I’ve found more and more reasons to change my mind (largely thanks to this article): 

1 – Self-propagating media loops 

Kalshi just announced a media partnership with CNN and days later with CNBC. Now, the odds from prediction markets will be featured on the news. Looks like this: 

This is problematic, because: 

1. They’re covering like it’s actual news. It’s not. These are merely odds; it’s like reporting on what the bookmakers are thinking about sports events.
2. Prediction markets are influenced by public opinion. If the public hears more reporting on a certain thing happening, they’ll believe it’s more likely, and 36% is still underpriced. Therefore buying more of it. CNN can then report more on it, and you end up in a vicious cycle, where whatever is being reported on eventually becomes a self-fulfilling prophecy. 
3. Take the Greenland example above: CNN is reporting on the development of the prediction market; this makes people believe that the event is more likely to happen. So they bet more on it. The “likelihood” goes up. Etc. 
4. Which leads to a weird timeline where prediction markets actively shape our geopolitics. 

At best, this blurs the line between information and speculation. At worst, it creates incentives that we don’t yet fully understand. 

But it gets worse: 

2 – Unfettered Insider Trading

Prediction markets aren’t regulated like financial markets; nor are they considered gambling due to precedent. From the Ringer article linked above: 

“Prediction markets aren’t new, and for years, their potential for wisdom-of-the-crowd accuracy was their primary reason to exist. The not-for-profit Iowa Electronic Markets, which is affiliated with the University of Iowa, was founded in 1988 as a means of studying whether betting patterns could predict the results of presidential elections, among other events, more accurately than traditional methods like polling. Because of the IEM’s research focus, and because bets were capped at small amounts, the Commodity Futures Trading Commission allowed it to operate without oversight. Unlike Kalshi and Polymarket, the IEM was never intended to operate as a big business, but it created a regulatory paradigm that its for-profit successors were eventually able to exploit under the generally anti-oversight and grift-tolerant Trump administrations.”

Here’s a deep dive on prediction market regulation (or lack thereof) if you’re curious. 

In unregulated markets, insider trading is ... well, unregulated. At Polymarket, you can even bet Crypto, meaning that not even the platform knows who’s betting. Children. Addicts. Employees of the government. 

In fact, this seems to happen in plain sight: Karoline Leavitt (White House press secretary) was observed ending a press conference early after taking a glance at her clock. Prediction markets hat 98% odds of the conference running longer; there’s lots of speculation online that the abrupt ending was due to a prediction market bet. While Kalshi stated that this wasn’t insider trading due to low market volume, it’s easy to imagine a scenario in which this becomes possible. 

Insider Trading means: the rich become richer, and the poor become poorer. 

And this is terrible, because: 

3 – Finding Agency in the Casino 

"The traditional path to wealth accumulation is closed. Not difficult. Closed. When boomers hold ~50% of national wealth while comprising 20% of the population, and millennials hold ~10% despite being the same share, the game reveals itself to be fundamentally broken."

(From this Twitter blog post, highly encourage reading it)

It’s harder to become wealthy than ever before, and the advice your parents and grandparents give you sucks.

What worked for them simply isn't viable anymore: staying at companies leads to significantly lower wage increases than switching companies every few years; and even if you work hard in a job, you might just never be able to afford an apartment, let alone a house, in your city. 

Yet at the same time, living in our social media feeds, we believe that everybody is successful but us. 

F**k, whenever I open LinkedIn, everybody’s hitting milestones, raising funds, exiting their company … and I’m just sitting here grinding away at my laptop, not making meaningful progress. While everybody else is succeeding.

Consuming social media makes you feel like you’re missing your timeline, like you’re behind. 

Whereas in reality, the only timeline you should be competing on is yours. Not somebody else’s. 

So we feel like we’re behind, but at the same time, we can’t follow the traditional path anymore. Which will only get worse, with AI rendering many jobs redundant. 

“When these paths close AND the timeline to achieve them shrinks, the pressure has to go somewhere. These prisoners need a way out, and BY GOD they need a way out NOW.”

This way out is the prediction market. It’s one of the few places you feel agency. You can’t control being promoted, or which job AI will take, you feel powerless. 

But, in a prediction market, you can research your own convictions, bet on them, and have agency over the money that you make. (Or so It seems.) 

None of this makes prediction markets evil by default. But it does explain why they’re so psychologically attractive right now. 

So you have desperate people betting their money on markets that are likely subject to insider trading. 

How can this possibly be good? 

This paints a dire picture. How do we get out of it as individuals (besides regulating prediction markets)? 

My money’s on two things (pun not intended): 

1 – Media 

Now more than ever, it’s important to carefully curate the media outlets one reads – and to write publicly about unpopular opinions, to speak up about things that might not be going right. Worst case, this will lead to proper discussion (something I’m also trying to provoke with this post). 

Particularly, this should be what I call “artisanal writing”.

Writing done by humans, for humans.

Sharing your thinking publicly makes it better, not worse; as long as we have discussions at a high intellectual level, and don’t use it to employ personal attacks (which is also why newsletters, I believe, are particularly well-suited for this). 

2 – Entrepreneurship

If the only way to make it out of the “9-5 trap” is to take asymmetric bets (like you would on a prediction market), we should take bets on ourselves.

That’s where we have agency. 

So f**k betting on things outside of your control; take back your agency. (I’m aware I’m writing this from the privileged position of already having a somewhat functional business.) 

I believe everybody has a superpower. It’s up to you to find it, train it, monetize it. 

And make a meaningful difference in the world, not just hoarding cash by making educated guesses. 

Both media (curation and publishing) and entrepreneurship do the same thing prediction markets promise: restoring agency.

Just without turning your entire life over to the casino. 

This post is somewhat of an experiment. I wanna share an unfiltered opinion, to sharpen it, to see points of view I’m currently missing. 

I believe that public discourse is important. We can't hide away our opinions for fear of being censored, canceled, or attacked on the internet. If we never engage in proper discussions to hone our thinking, we'll eventually end up in a world where the extremes win.

What’s your take on prediction markets? This article? The ones I’ve shared?

Email me; I read every single one. 

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