The Central Lie of Prediction Markets ⇥ theatlantic.com

Charlie Warzel, the Atlantic (gift link):

Prediction markets claim to harness the wisdom of crowds to provide reliable public data: Because people are putting real money behind their opinions, they are expressing what they actually believe is most likely to happen, which, according to the reasoning of these platforms, means that events will unfold accordingly. Many news organizations, and Substack, now have partnerships with prediction markets — the subtext being that they provide some kind of news-gathering function. Some users who distrust mainstream media turn to the markets in place of traditional journalism.

But in reality, prediction markets produce the opposite of accurate, unbiased information. They encourage anyone with an informational edge to use their knowledge for personal financial gain. In this way, prediction markets are the perfect technology for a low-trust society, simultaneously exploiting and reifying an environment in which believing the motives behind any person or action becomes harder.

I had no idea so-called “prediction markets” like Kalshi and Polymarket were promoting themselves as forecasters of real information, let alone that anyone believed them. I always assumed “prediction markets” was a euphemism.

A spokesperson for Kalshi told Warzel that betting on current events is a way to “create accurate, unbiased forecasts”, and that is something we can verify. If this were true, bettors should have been able to forecast, for example, the popular vote split of the 2024 U.S. presidential election. Polls had Harris and Trump neck and neck, but on election day, 75.8% of Kalshi bettors believed Harris would prevail. There is not much granularity to Kalshi’s charts, but the forecast on Polymarket was favourable to Harris at 5:00 PM on November 5 — election day — and it flips to a Trump lead at the next available data point, 5:00 AM the following day, and well after it was obvious Trump won the popular vote.

This is just a way to gamble on current events, which is tragic and pathetic. We do not need to pretend these sites are anything more substantial than that.