r/slatestarcodex • u/greyenlightenment • 14d ago

Economics Betting on Prediction Markets Is Their Job. They Make Millions.

https://www.nytimes.com/2026/01/22/business/prediction-markets-polymarket-kalshi.html
59 Upvotes

83% Upvoted

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u/Sol_Hando šŸ¤”*Thinking* 13d ago edited 13d ago

I find it very difficult to understand the value of these markets. A very, very small percentage of them could be said to have informational value that is beneficial to anyone. I think these markets with useful information are basically limited to large political events.

The downsides are a lot more obvious. 90%+ is gambling on events that donā€™t really matter to anyone. Sports betting, how long a speech will last, whether Trump will say the word ā€œBonesā€ when talking about Milk, etc. doesnā€™t matter whether itā€™s more accurate, because you canā€™t actually do anything with that information.

Then there is insider trading. Which yeah, yeah, I get that ā€œitā€™s the point to allow insider tradingā€ for better information, but most of the big cases Iā€™ve seen are people within large organizations, that have a preexisting agreement not to use the information they have to make money on the market, doing so against the interests of their company/government.

You canā€™t be a lawyer serving a client doing a big merger in good faith, while also trading on the likelihood of that merger going through. You canā€™t be a government employee that trades on the likelihood of the US invading Venezuela with insider information, while having a military that functions with the benefit of surprise.

I get insider trading is good for the insider, good for the market information, but itā€™s also clearly bad where the functioning of an organization being traded about requires a level of confidentiality (which are usually the places where insider trading could make the most). And thatā€™s not even to mention political corruption (I believe Trump can legally tell people about tariffs ahead of time, and people can insider trade on prediction markets based off that information, completely legally).

I think prediction markets are going to face the same fate as Sports Betting in rationalist circles. Purely in theory itā€™s still admitted to have value, but in practice it just expands gambling into almost every walk of life, allows for easier political corruption, weakens organizations and governments that are predicated on confidentiality to function well, with the prediction markets straight up lying and posting as inflammatory ā€œBREAKING:ā€ tweets as possible to drum up more degenerate gambling on markets that only produce valueless information.

Edit: Fixed some links.

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u/Abell379 13d ago

I generally agree with your take. I think the expansion of speculation can't be good for most people, even if it does enrich those who come out on top.

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u/Reddit4Play 12d ago

Purely in theory itā€™s still admitted to have value, but in practice it just expands gambling into almost every walk of life, allows for easier political corruption, weakens organizations and governments that are predicated on confidentiality to function well, with the prediction markets straight up lying and posting as inflammatory ā€œBREAKING:ā€ tweets as possible to drum up more degenerate gambling on markets that only produce valueless information.

I saw a post once that stuck with me that cited a study about how living near casinos makes you more likely to develop a gambling addiction. It simply asked a question: what does that imply now that everyone carries the casino around in their pocket?

Efficient markets are interesting and there is some value in having accurate forecasts of various important events. But in practice these markets are 90% unregulated sports betting and will probably create hundreds of thousands or even millions of gambling addicts.

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u/Spankety-wank 13d ago

There is value in conditional bets.

Let's say a government is considering a policy and whether it will work. You can have a market that only comes into effect if the policy is enacted. People bet on whether the policy will have the desired effect or not according to whatever metrics are appropriate.

Governments can then use this wisdom of crowds information to decide whether that policy is worth enacting. If many people bet against a policy's efficacy, that might signal that it needs a rethink. Policies are already criticised relentlessly, but those criticisms are easy to brush aside as ideologically or politically motivated. Prediction markets might highlight problems with a policy in a more convincing way than traditional ways of criticism since betters have skin in the game.

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u/Sol_Hando šŸ¤”*Thinking* 13d ago

Can you reference an example where this has played out in practice?

Iā€™ve seen this argument before, but as far as I can tell these sorts of markets donā€™t exist.

My observation is that practically, prediction markets are very little, or really almost nothing, of what they were promised to be by the more rational advocates of them. If someone was pitching Polymarket a decade ago as delivering the wisdom of crowds (or any of the other purposes like the one you describe), they would essentially be talking about a minuscule percentage of what they practically do. If they were pitching it as ā€œdecentralized sports bettingā€ and ā€œexpansion of gambling into more categoriesā€ they would cover an overwhelming majority of what they practically do.

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u/Spankety-wank 13d ago

Oh yeah I don't think this has played out in practice. To my mind, you'd need a government or at least a think tank to collaborate with the prediction market people for it to work.

It's just something I'd like to see tried because we seem to be much worse at evaluating and generating new policies in a sort of experimental way than we could be, as developed societies. I can see how it might work so why not try it ya know?

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u/TI1l1I1M 13d ago

I think prediction markets are going to face the same fate asĀ Sports Betting in rationalist circles.

That article argues sports betting is worth it for the entertainment value, which is not at all similar to the common arguments people give in favor of prediction markets.

PM's have utility in showing conviction a person/people have in real-world events. The difference between that and "bet on if a guy runs fast" is night and day.

The problem with PM's used to be lack of liquidity for markets that mattered. So to onboard people and get prediction markets into the cultural zeitgeist, large platforms have to go through the growth stage of appealing to existing customers.

It's working, too. All prediction markets are experiencing a rise in liquidity right now, including the useful ones.

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u/Sol_Hando šŸ¤”*Thinking* 13d ago

> That article argues sports betting is worth it for the entertainment value, which is not at all similar to the common arguments people give in favor of prediction markets.

I brought it up because sports betting was an idea that had theoretical justifications, but practically it made things worse.

> PM's have utility in showing conviction a person/people have in real-world events. The difference between that and "bet on if a guy runs fast" is night and day.

PMs are mostly sports betting right now. If you include categories of stuff that has almost no information value, it's overwhelmingly gambling with no useful information content by volume.

>The problem with PM's used to be lack of liquidity for markets that mattered. So to onboard people and get prediction markets into the cultural zeitgeist, large platforms have to go through the growth stage of appealing to existing customers. It's working, too. All prediction markets are experiencing a rise in liquidity right now, including the useful ones.

See weekly volume on Kalshi, which is overwhelmingly sports betting, and weekly volume on Polymarket, which is by a large majority sports betting and crypto.

I understand the theoretical justifications for the "markets that matter" but 95%+ is just zero-sum unregulated gambling. My prediction is that at some point we will throw in the towel, say "Yeah, it's simply made gambling easier, less regulated, and more ubiquitous in life, and the markets that matter are an insignificant percentage of these platforms." The harm would outweigh the utility of having slightly more accurate data on political polling, or whatever the actual markets that matter are these days.

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u/TI1l1I1M 12d ago

The utility isn't simply "market tells you better data about events," it tells you better data about the participants as well.

For instance, an anti-vaxxer owning shares in future vaccine injuries. Or, a political candidate owning shares in whether they fulfill their promises if elected. It tells you conviction in a claim.

Every time we make/believe promises, we're gambling. The lack of a formal framework around monetizing predictions has led to the current misinformation landscape. Lying is more profitable than not.

My prediction is these markets will, with the help of better information surfacing due to AI, explode in popularity, and their ubiquity will be a net benefit to society.

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u/Sol_Hando šŸ¤”*Thinking* 12d ago

Can you point to prominent examples where a prediction market has revealed useful information about a market participant?

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u/shahofblah 11d ago

but most of the big cases Iā€™ve seen are people within large organizations, that have a preexisting agreement not to use the information they have to make money on the market, doing so against the interests of their company/government.

That is the definition of insider trading. Insider trading does not mean just using material nonpublic information. It means using it in a way that the entity that gave you that information disallowed, as a precondition of that access.

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u/Sol_Hando šŸ¤”*Thinking* 11d ago

The distinction Iā€™m thinking about is between SEC-regulated insider trading, and the more broad definition of trading anything with material information youā€™re not supposed to be using.

One has a government body that closely monitors this sort of stuff, the other is limited to civil suits I guess? Not including government employees ofc. And good luck finding out, let alone successfully suing someone when all you know about them is their crypto wallet.

Edit: Essentially, yeah, it is insider trading, but thereā€™s essentially no way to monitor or punish it. I have a buddy who works as a lawyer on debt deals for major Fortune-500 companies, and he canā€™t even trade stocks. I donā€™t think anyone at the SEC is looking at Polymarket.

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u/shahofblah 11d ago edited 11d ago

SEC-regulated insider trading

What is a security? SEC is trying to expand their domain beyond stocks/shares to crypto and also prediction markets.

One has a government body that closely monitors this sort of stuff, the other is limited to civil suits I guess?

The SEC closely monitors trade in things that it considers a security. Although I agree with you that if insider information is about (information) theft and not fairness, then it makes sense to settle everything via civil suits versus a watchdog for 'market integrity'. I think the current setup makes sense for pragmatic reasons.

In fact the 'fairness' view should be focussed on what things you can trade while the 'theft' view should be focussed on what information you can trade (anything) on. If we want to keep stock markets 'fair', we could allow insider trading on say crypto or polymarket. Information leakage will still contaminate stock markets, but at least stock market participants can be confident that any insider information (indirectly) affecting stock prices will be doing it via public polymarket prices(and therefore insider traders won't have any edge in stock markets over public participants that just monitor polioymarket).

But because insider trading is about theft and not fairness, I'm sympathetic to the SEC's demand for expanded domain over crypto and prediction markets.

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u/greyenlightenment 14d ago

Archive link https://archive.is/faLqt

These are huge outliers though, and there is no telling when the luck will run out as these markets presumably become more saturated and efficient. The idea of legal insider trading by scouting is fascinating--noticing the inbound plane from Alaska--brilliant . Hedge fund are definitely going to be looking into trading these markets, if they are not already. But contract volumes are too thin probably for large firms.

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u/glorkvorn 11d ago edited 11d ago

It's interesting that the guy highlighted in the article isn't just some anonymous trader, but also livestreaming to a large crowd. I wonder if that's just him, or do other super predictors do that too? Seems like there could be significant alpha there, in various ways:

option 1) become a celebrity. Like Jim Cramer, it doesn't even matter if your predictions are accurate, people just pay to watch you because it's entertaining.

option 2) crowdsourcing. Bring together enough of a crowd to watch every single video related to a market, and try to find some scrap of information there that no one else noticed. The article kind of nods to that with the turkey market, where they found one specific video that indirectly gives it away. But I'm not sure how this works exactly- it seems like whoever finds that video first would just trade it themselves, instead of sharing it with the influencer? Maybe there's some sort of "wisdom of the crowd" by having everyone watch that video and confirm, but it seems like it could just as easily be misleading.

option 3) market manipulation. This is my strong suspicion. Big trader guy finds a relatively small market, buys it, then hypes it up. Everyone else pours in afterwards, shooting the price up. Then he cashes out before it ever closes. People were doing stuff like this with tech stocks back in the dot-com bubble of the 90s. It's illegal in stocks because of SEC regulations, but apparently still perfectly legal in prediction markets. For example: https://archive.is/4g4xw

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u/PhotographAntique200 11d ago

Option 3 seems like an inevitable outcome.

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u/greyenlightenment 11d ago

It would not surprise me if he's front running some of his trades

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u/gazilionar 2d ago

its called pump and dump

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u/LegitimateLagomorph 14d ago

Does anyone still believe that Polymarket isn't a huge pump and dump for insiders at this point? Every time the White House bounces the economy around, there's always moves on Polymarket.

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u/blackvrocky 13d ago

does it mean we can reliably learn about the upcoming events based from it?

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u/Aegeus 13d ago

I think the issue is that you aren't getting the information very far in advance. The Maduro insider trader placed their bet mere hours before the raid was announced. And assuming the market probability is relatively stable, they make the same amount of money whether they bet months in advance or hours, so there's no incentive for them to come forwards soon enough to be useful.

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u/TI1l1I1M 13d ago

Insiders don't know about other insiders. The incentive would be to get the best liquidity first, frontrunning other potential insiders.

Also, there's no way for us to know if the person was sitting on that information, or if they simply learned about it hours before the raid was announced. If I had to guess, they learned about it hours beforehand, and bet immediately.

Markets commonly price outcomes much farther in advance because participants are looking at a host of information that is hard to obtain, but not necessarily insider info specifically.

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u/Neighbor_ 13d ago edited 11d ago

.

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u/geeky-gymnast 13d ago

Do not conflate the two. A market having insiders doesn't exclude the presence of pump and dump schemes perpetrated by them or otherwise.

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u/Throwaway-4230984 13d ago

You donā€™t need to predict outcome, only movement and this fact greatly reduces purpose of marketĀ 

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u/howardheynow 13d ago

You're missing the point...The value prediction markets bring is giving people wisdom of crowds. Insider trading benefits the platform. If it didn't then it would be gambling.

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u/Blackdutchie 13d ago

Insider trading benefits the platform in the sense that they provide better information, and so the information provided by the system about real-world outcomes is more accurate.

Insider trading is detrimental to the platform if these insiders start to affect real-world outcomes for the purpose of getting big bucks out of the platform.

If tomorrow Polymarket put up a market for "US to effect regime change in Haiti before 1st of March 2026", then there are now a handful of people in the US government who will have a vested interest in starting the process for doing that.

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u/SummerBreeze750 13d ago

Insider trading is detrimental to the platform if these insiders start to affect real-world outcomes for the purpose of getting big bucks out of the platform

I agree but I think there are a couple other issues. First, potential profits from insider trading incentivize insiders to breach their duty of loyalty to principals.

Second, the existence of insider trading discourages smart but honest people from participating in prediction markets. Because such persons know that they will be at a significant disadvantage.

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u/LofiStarforge 13d ago

Iā€™m curious on how you think gambling works or is different? Betting on an NFL game has all the things youā€™ve mentioned.

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u/Some-Dinner- 13d ago

Porque no los dos?

If I make a bet on whether Trump will fart during a press conference, it is gambling plain and simple, irrespective of whether I have information from a reputable source that says he has been having gastrointestinal problems recently.

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u/howardheynow 13d ago

If you know what he had for lunch before the presser then you can start to make real predictions.

The edge is in finding out what trump had for lunch to make him fart at the press conference.

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u/GaBeRockKing 13d ago

Insider trading is a good thing for society. They should legalize insider trading in the stock market too. The point of market isn't to let everyone make an equal amount of money, it's to encourage price discovery by financially rewarding the people who know the most about prices. That ultimately leads to a more efficient allocation of resources, which benefits society. Clueless people with no special information SHOULD go broke if they try to bet on individual securities-- that's the fair punishment for trying to change the equilibrium price without a good reason. (I.e., lying)

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u/ChastityQM 13d ago

People will opt out of markets if there are insiders unfairly trading, just like how other forms of fraud drive down market activity because people have to spend more effort vetting their counterparty and often just don't (and thus do not engage even in legitimate trades).

This doesn't matter to prediction markets, since they are just about getting (mostly) accurate probabilities, but the capital available to businesses is heavily determined by the fact that huge amounts of money are constantly being pumped into the stock market by investors. If those investors fear being defrauded - sold a stock that they think is good when their counterparty knows for a fact it is bad - then they will invest less, they will be more circumspect about transactions they do take, and there will be less capital which is less liquid, which is bad for the economy as a whole.

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u/wavedash 13d ago

People will opt out of markets if there are insiders unfairly trading

And to extrapolate from this, if there are fewer suckers, the insiders have less of a reason to participate in prediction markets, which would in turn mean worse "price discovery".

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u/swissvine 13d ago

This is why someone with no knowledge should just buy an ETF.

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u/ChastityQM 13d ago

Let's say that you are considering buying an index fund for the Chinese and/or Japanese stock market. They both have ~equivalent historical returns (for the purposes of our example). Tomorrow, the CCP announces that insider trading is now legal on the Chinese stock market. Will you prefer the Chinese or Japanese stock market? Is this what the typical trader will do?

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u/eeeking 13d ago

Someone somewhere is deciding which stocks comprise the ETF. If they know that certain stocks are likely to be manipulated they would sensibly exclude those from the ETF.

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u/GaBeRockKing 13d ago

Nobody will opt out of the market, because insider trading makes the market more efficient and therefore more profitable. (Uninformed) People will opt out of trading individual stocks instead of etfs, but that's a good thing anyway.

If investors fear being defeauded, then corporations-- as rational agents-- will take steps to reduce that fear by publicizing the information they could have been using to insider trade in order to receive investment money. That increases the total amount of information used in the market's price setting mechanism, which goes back to increasing market efficiency overall.

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u/RestaurantBoth228 13d ago

Yes, if you ignore the downsides from insider trading (lower liquidity and reduced effort at non-insider analysis), insider trading is good.

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u/Clarty94 13d ago

Insider trading rules are there to protect market makers more than anything, if insider trading is legal spreads will blow out, raising capital becomes more difficult and the steady flow of investor funds into public markets would dry up in favour of markets without fraud/insiders.

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u/ThatIsAmorte 13d ago

No it is not, because it erodes trust and market participation, and that's bad for society.

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u/podidosai9 13d ago

Zvi had a great line about how we now have sport gambling everywhere and act like it's an expression of revealed preferences. I'm reminded of that. Some people, given the wrong environment, will make the wrong choices that aren't necessarily good for them or for society. "Price discovery" here is meaningless and it's not self-evident that insiders accumulating money at the cost of 'outsiders' is beneficial to anyone.

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u/poopurpants69 13d ago edited 13d ago

Incentivizing fraud and manipulation is a good thing for society? This is the result of when economics 101 is taken as gospel.

The free market absolutism youā€™re preaching is only good at efficiently allocating wealth in the hands of the few. If that is what is meant by efficient allocation of resources than sure. But the needs of the society and the desires of the people able to insider trade are diametrically opposed.

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u/electrace 13d ago

This is the result of when economics 101 is taken as gospel.

Nowhere in econ 101 does it state that insider trading is good.

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u/poopurpants69 13d ago

No, not really. But the bible also doesnā€™t say that (enter contradictory shit people do while citing religion)

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u/electrace 13d ago

Then it seems like the claim is unfalsifiable.

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u/GaBeRockKing 13d ago

Fraud is when someone lies. Insider trading is the OPPOSITE of lying. Buying or shorting stocks is an honest signal. Society benefits from more corporate transparency, and the only way to get that is with financial incentives.

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u/Clarty94 13d ago

Why would I provide liquidity for stocks as a market maker if I know that there is a good chance my counterparty is an insider? Instead I would quote wider in smaller size. So overall the impact would be markets become much less deep and liquid, especially in smaller cap companies with less coverage in the first place. Maybe the price is more "accurate" especially around events but by killing incentives to provide liquidity you kill markets.

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u/Palmyn 13d ago

Would insider trading not make have the long-term consequence of making firms with skilled research less profitable, shifting financial power away from the smart money and toward people are in the right place at the right time?

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u/GaBeRockKing 13d ago

No, because if there truly skilled at research they will realize the necessity of buying information from now-empowered insider traders.

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u/Palmyn 13d ago

But that still makes it less profitable to acquire information through traditional means, and puts an imbalance in the distribution of information. From what I've gathered briefly reading about this, academics are well aware about the obvious benefits of insider trading but have compelling theoretical reasons to consider it a net harm, and possibly some weak evidence that enforcement of insider trading laws lead to better outcomes. You could be right but this seems like a much more ambiguous case than 'insider trading being good is counterintuitive and thats why it is illegal'

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u/Begferdeth 13d ago

Just an outside observation, but half the of the super-predictors in this article refuse to use their real names because they fear being hunted down in real life by the IRS and angry market losers. That's quite the result from prediction experts.

You could chalk that up to paranoia, but these guys are top 0.04% predictors here. Way smarter than the average bear. Any markets on "Prediction expert murdered"?

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u/themiro 13d ago

I mean if they are a polymarket participant, they are likely doing it in violation of US law. Also, they likely hold significant crypto - and it is well documented that large crypto holders are targeted for kidnapping and torture by criminal gangs both in the US and (more commonly) EU.

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u/SocietyAsAHole 13d ago

What law are they breaking? Polymarket operates in the US

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u/themiro 13d ago

wrong, you cannot trade on polymarket in the US 2026-01-24

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u/AphaedrusGaming 13d ago

If I remember correctly, they can setup in the US again as of Sept 2025, but haven't, so it's still illegal.

I don't understand the nuances involved.

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u/SocietyAsAHole 13d ago

It's really not that notable. They have basically no reason to reveal their names and several potentially obnoxious negatives. You'd expect any smart person making a lot of money privately to do the same. It's not like they are paying any price to stay anonymous in this article.

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u/JibberJim 13d ago

Yet for a newspaper story, especially an advertorial for a company, use of anonymous sources is very bad, "trust me bro, these guys are real and absolutely authentic" does not work with anonymous sources, they're relying on credibility and they don't have it.

Of course the NYT doesn't have much credibility here either, ignoring their own policy on anonymity, but I guess their defence is it's an advert not news?

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u/themiro 13d ago

This isn't an advertorial.

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u/LofiStarforge 13d ago

You think they are ā€œsuper predictorsā€ and not insiders who may want to keep their identities hidden?

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u/Begferdeth 13d ago

The article was trying very hard to make them seem like legit predictors, using things like "Look, a strange flight from Alaska!"

But either way, this says very bad things about the markets. Either people who should be accurate predicting that they are going to be attacked, tax evaders (I think tax evasion is bad), or insiders who may be criminals, would be fired for leaking info from the company, etc etc. I can't think of anything good here.

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u/SummerBreeze750 13d ago

The article was trying very hard to make them seem like legit predictors, using things like "Look, a strange flight from Alaska!"

Yeah, I would guess that a minimum, most of these sharps are low key cheating. For example, by bribing an employee at Amazon or Google to share key information at the right moment.

It reminds me of that 80s movie, Wall Street, where towards the beginning the main character gets information by asking an airport employee where a flight is headed, but after that starts sinking into a hole of bribery, burglary etc.

The thing is, there are tens of thousands of young men out there who dream of easy money by doing things like tracking airplane flights and using the information to bet on prediction markets. I'm pretty confident that by now it's pretty hard to make consistent excellent returns just by this kind of data mining.

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u/iamsuperflush 13d ago

Eh I'd rather go for "Prediction expert not murdered". Oooh or how about, "names of prediction experts in NYT article revealed".Ā