Will Prediction Markets Incentivize Billionaires to Buy More Elections?

We can probably bet on it.

If last week you had money to burn and were feeling clairvoyant, you could’ve placed a trade on Kalshi, the prediction market site, about whether Sam Altman – the co-founder and CEO of the OpenAI, which is valued at over $800 billion – would say the term “data center” during his approaching interview with CNBC: Squawk. If that wasn’t dystopian enough for you, you can put money on whether President of Cuba Miguel Diaz-Canel will be dispossessed of his office before this August or September; Kalshi users have “invested” over $900,000 on that question, as Cubans are subsiding on an average of a few dollars per day. And that’s nothing compared to the $18 million Kalshi users have on whether and when there’ll be an U.S.-Iran nuclear deal.

It probably won’t come as a surprise that after the Trump Administration retook the reins of the Department of Justice, the agency dropped its inquiries into whether prediction market sites like Kalshi and Polymarket are facilitating illegal gambling. These markets are largely unregulated. And, they’re growing rapidly. So, before our eyes, prediction markets are emerging as yet another force that enables political corruption – with, forgive the pun, too many potential threats to democracy to predict.

For those of you, like me, who haven’t waded a toe into the proliferating prediction markets, here are the basics: In 2019, the website Polymarket launched as a platform where users could place money on the outcome of future events, including political events. For better or worse, many political observers now consider the platform’s wagers a benchmark for whether a campaign is viable. Polymarket’s valuation has been estimated to be $15 billion. Kalshi, launched in 2021, is a similar platform, where you can buy “yes” or “no” positions on future events ranging from whether the movie Moana will be reviewed favorably on Rotten Tomatoes to whether members of Congress will be reelected. This May, Kalshi’s valuation was $22 billion.

So, what’s the problem? If someone wants to put $5,000 on whether Sam Altman will say “data center” during an upcoming TV interview, what’s it to the rest of us? Isn’t this just like other forms of risk-taking like legalized gambling, sports betting, the lottery, or, hey, the stock market?

No, these prediction markets are different. Sure, sports rely on referees’ subjective calls, and FIFA has once again disillusioned us all, but it’s pretty hard for someone to know with near certainty which team is going to win and still turn a hefty profit on an unlikely bet.

In contrast, many prediction markets are highly controllable events. Altman, for example, can decide how to phrase a response to an interviewer’s question. If a public figure knows that a close friend has wagered thousands of dollars on him saying, “data center,” he can throw the term “data center” into his response, even if it takes some word salad. The same principle applies to lots of future events and therefore lots of prediction markets trades.

So, these markets are ripe for insider trading. Elected officials can easily profit from having insider information about all manner of government decisions. They’re already profiting from trading stocks while having inside information. Rep. Rob Bresnahan (PA-8) dumped stocks in Medicaid providers valued at roughly $130,000 while having access to privileged information about the Republicans’ mega-bill that slashed Medicaid spending. But prediction markets create another venue for that kind of blatant corruption.

If that seems far-fetched, consider that campaign staffers told NPR that they’d placed thousands of dollars on bets on their own candidates with insider information. In one instance, a staffer working on a statewide campaign had access to polling data before it was made publicly available. “Myself and others started placing bets before that poll came out,” the staffer explained to NPR. “And then, sure enough as soon as that poll came out, the stock went up and everybody made money.” The staffer said that this was commonplace.

Another wrinkle: Because prediction markets are considered indicators of how a campaign will fare, a sudden surge of money can also distort public opinion about the campaigns’ viability, which can set in motion different types of media attention, donations, and so forth, potentially changing the outcome. Prediction markets can easily end up influencing future events in other ways, too. Potential windfalls can encourage public figures to take specific actions to enrich themselves or people close to them.

Saying “data center” during an interview is one thing. What if Kalshi users have wagered millions of dollars on whether, say, the governor of Ohio will sign off on increased tax breaks for data centers? And what if the governor is being lobbied by their biggest donor, or their son, or their next-door neighbor, who wants to win a million bucks on their latest bet? The prediction market is then a factor in a government official’s decision, with implications for public welfare.

In a different reality, we could dismiss as ridiculous the notion of the president of the United States setting the terms of a nuclear deal with a foreign adversary to help his kids or golfing buddies win millions of dollars. But now, we’ve seen a lot, and honestly it doesn’t seem out of character.

This spring, U.S. Senators Jeff Merkley (OR) and Amy Klobuchar (MN) introduced legislation that would ban the President, Vice President, members of Congress and other public officials from trading event contracts on prediction markets. The goal of the bill is to limit the possibility of insider trading by federal officials. Merkley has previously sponsored legislation to crack down on election gambling, Congressional stock trading, and crypto-currency corruption.

“There shouldn’t be any bets placed on acts of government,” Merkley said. “There are just too many people who know what the strategy is. There should be nothing placed on acts of war, nothing placed on terrorism, and nothing on assassinations, and nothing on elections.”

Prediction markets have the potential to supercharge the problems with Big Money in politics. If watching billionaires and corporations buy off politicians to get their preferred policies enacted was starting to feel a little repetitive, we may soon see billionaires buying off elections so they can win back even larger piles of money from their elections prediction trades. If you’re a billionaire who stands to win tens of millions on a prediction market, spending another few million to flip an election seems like a great return on investment.

Here’s yet another way that the richest people in the country can have outsized influence:

“The most dangerous aspect of the prediction markets is the corruption of our elections,” Merkley said. “We have, under Citizens United, the ability of affluent people or corporations to put unlimited sums in massive smear campaigns at the last minute.” With the advent of prediction markets, the incentives are totally distorted. “The election isn’t about who represents my views or who will take our nation forward. It’s about ‘How do I win this bet?’ That’s a fundamental rot at the core of our democratic republic.” So, if we’re going to address the problems with money in politics, we should address prediction markets, too.