Question of the Day - 31 October 2025

Prediction markets, a.k.a. information markets, idea futures, or event futures, provide a platform for participants to trade contracts representing future (thus "prediction") events. They employ a continuous "double auction" to determine the probability of an event. The trading mechanism matches buyers and sellers, causing contract prices to rise or fall based on how likely the event seems to the participants to be at that moment in time. So the contract price fluctuates based on public sentiment and information and the price reflects "the crowd's" collective belief about the probability that the event will or won't happen. 

Is it gambling? We like how Andrew Tottenham, a British casino consultant with decades worth of experience, puts it. "When they first appeared, companies like Kalshi were quite open in their language, marketing their product as betting. But as the backlash mounted and lawsuits and cease-and-desist letters from several U.S. states began rolling in, the vocabulary shifted. Now, "gamblers" are "traders," “betting” has become “trading,” and “bets” have become “event contracts.” The rebranding may sound clever, but to my mind, semantics does not change the underlying activity." So yes, the trading is most definitely gambling.  

The contracts are worded so that they can be answered with "yes" or "no" and the bets are thus placed.

Examples of contracts might be, “Will Candidate X win the 2028 U.S. presidential election?” Yes or no.

“Will inflation exceed 3% in the fourth quarter of 2025?”

“Will a new iPhone model be released before March 2026?”

And of course, "Will the Las Vegas Raiders beat the Cleveland Browns in Week 11 of the 2025 season?"

The price of a contract is usually quoted between $0 and $1. If, for example, the price of the inflation proposition is 63 cents, it implies that the probability of inflation exceeding 3% in Q4 is a perceived 63%.

Prediction markets aggregate opinions, information, and incentives and as such often produce surprisingly accurate forecasts. They’ve been used by academics (for social science and economics research), businesses (to predict product launch success or sales), governments and think tanks (for policy forecasting), political junkies (for speculation), and gamblers (for betting and enterainment). 

As for their legality, it's complicated, to say the least. 

Prediction markets, unlike sports books, operate outside the reach of state regulators. They're considered financial markets and are regulated by the federal Commodity Futures Trading Commission, which under the Trump administration, according to a recent story in the New York Times, is taking a hands-off approach.

Kalshi calls itself "an exchange selling financial products tied to the outcome of sporting events" and is currently available everywhere in the country. Kalshi defends itself as "fundamentally different from sports books." Sports bettors place bets against the sports book itself, which pockets their losses. Prediction markets facilitate trading contracts between private parties and make their money by taking a service fee. They don't win when customers lose and, they argue, that creates a fair and transparent environment for people to "trade."

To be sure, the states don't like them and as of this writing, seven U.S. states — Nevada, Arizona, Illinois, Maryland, New Jersey, Montana, and Ohio — have issued cease-and-desist letters to Kalshi. The tribes especially don't like them, viewing them as a direct competitive threat to their exclusive gaming rights, sovereignty, and economic interests under (other) federal law.

But at least for now, Kalshi is rebuffing opposition, to the extent that it recently introduced parlays (“Will the Chiefs, Bills, and Ravens all win their next games?”). As we know, parlays are extremely profitable for the sports books -- and shares of FanDuel and DraftKings dropped more than 10% after Kalshi announced the availability of its parlays.

In fact, you can contrast prediction markets with the recent rise in sweepstakes casinos. More than 125 cease-and-desist letters have been sent to sweepstakes operators by regulators in 11 states. Not one, to our knowledge, has been challenged and they've been complied with. So far, however, these same letters to prediction markets have largely been defied or ignored or in some cases challenged in court.

As for how you make a bet -- rather, how you buy and sell contracts on sports betting futures, ahem -- we'll delve into those details tomorrow.