GHP: Prediction Markets

Are prediction markets a tool that will be a better way to understand what’s happening around the world? Or, is it gambling on everything in an unstable world?

Against: It’s Legalized Insider Trading

Prediction markets are the SEC’s worst nightmare. If a congressional staffer trades stocks on non-public information about upcoming legislation, that’s a federal crime. If they bet on Kalshi that the bill passes, that’s price discovery. The information advantage is identical. The profit motive is identical. The only difference is which regulatory framework applies, and prediction markets have spent millions in legal fees making sure it’s the friendliest one possible. Calling that the wisdom of the crowd is generous. It’s the wisdom of whoever happens to have insider information AKA Insider Trading.

For: They’re the Most Honest Signal We Have

Every other forecasting tool is compromised. Polls are gamed, or the sample size isn’t large enough. Pundits have incentives to be interesting rather than accurate, and media coverage mistakes volume for signal. Prediction markets are different because they require participants to put money behind their beliefs, which filters out noise fast. When Polymarket had Trump winning in October 2024 while every mainstream outlet called it a tossup, the market was right. You can argue about who’s betting and why, but the output has a track record that polls and pundits don’t. Skin in the game produces better predictions than hot takes do.