The surge in prediction markets has sparked new bipartisan legislation aimed at curbing sports betting and insider trading on the platforms.
Nearly $64 billion was spent on prediction markets last year. Users are betting on the outcomes of future events, ranging from the winner of the NCAA basketball tournament to the weather in New York and when Taylor Swift will get married.
"A prediction market is a federally regulated exchange that allows people to buy contracts, yes or no, tied to certain event outcomes," Geoff Zochodne said.
Zochodne, a senior news analyst at Covers.com, noted that unlike traditional betting, users buy and sell contracts tied to an outcome. If the event happens, the contract pays out. Prices on sites like Polymarket and Kalshi fluctuate in real time, reflecting what users think the probability of an event is.
Proponents argue the platforms serve as a valuable forecasting tool.
"They tell you the truth when a lot of people maybe don’t want to tell you the truth," Alex Tabarrok said.
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Tabarrok, an economics professor at George Mason University, added that the financial stakes drive accuracy.
"In a prediction market, you’re putting your money where your mouth is," Tabarrok said.
As the markets become more popular, experts are raising concerns about addiction. Prediction markets are regulated differently than traditional sports betting, making them accessible to 18- to 20-year-olds who are banned from sports gambling in most states.
"Whether I’m sports betting or whether I’m doing prediction markets, I am still wagering something because I think I’m going to get something better in return," Christine Reeves said.
Reeves, a behavioral health specialist, warned about the psychological impacts of the platforms.
"Now we’re introducing something that floods the pleasure center of the brain that teaches the brain to want to do that more," Reeves said.
Earlier this week, two senators introduced a bipartisan bill to ban sports betting on prediction markets.
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"For sports event contracts, if they were suddenly wiped out for them you're talking about a huge hole in the business of these prediction markets," Zochodne said.
Legislation has also been introduced to ban federal election officials from insider trading. An intelligence firm found six suspected insiders made more than $1 million last month betting on a U.S. strike on Iran, with some bets placed just hours before the attack.
"The future of prediction markets is one of great uncertainty, I think. There is a ton of litigation going on. There are a bunch of attempts to try to legislate further restrictions on them or conditions on how they do business. And all of this is going to be fought over in the courts for the foreseeable future," Zochodne said.
