“Prediction is very difficult, especially about the future.” -Niels Bohr.
In 2026, it’s a fantastic time to be a gambler. We can wager on anything. Will U.S. gas prices go up this week? Or will there be another American Civil War before 2027? The platforms that enable this are called prediction markets. Even David Solomon, the CEO of Goldman Sachs, has stated that the bank is exploring opportunities in prediction markets, indicating a growing interest from Wall Street. But how do these sites work, and what do they mean for how information is priced and regulated in modern markets?
Instead of betting against a centralized house, as in a casino, prediction markets operate as exchanges between participants on opposing sides of an outcome. Users choose between two options, yes or no, based on whether they believe an event will occur For example, traders could wager on whether Zohran Mamdani will win the New York City mayoral elections. On Polymarket, one of the largest prediction sites, more than $140 million was wagered on his victory, and he did indeed win. This process works like a stock market, where people can buy shares of the outcome of an event. For example, “yes” shares could be 70 cents while “no” shares could be 25 cents. If the outcome occurs, each “yes” share pays out 1 dollar; If it does not, each share becomes worthless. Like a stock market, the prices do change in real time, where the shares start at 50 cents, then drop to 20 cents when new information comes out.
Prediction markets use the wisdom of the crowd and are often said to be more accurate than traditional polls because the people who wager have skin in the game. For example, Polymarket signaled Mamdani’s impending victory before traditional news outlets or polling data acknowledged the shift. These markets can be extremely profitable if someone has specialized knowledge in certain industries or events. It rewards people who do their research and bet on their beliefs. However, we must talk about the elephant in the room: what about insider trading?
Hours before the U.S. military’s kidnapping of Venezuelan President Nicolás Maduro, a user placed $20,000 worth of bets on Polymarket and raked in $400,000 after the operation. Another user made $1 million by correctly forecasting 22 out of Google’s 23 most popular searches for 2025 before the company’s official release. This resulted in Rep. Ritchie Torres proposing a bill that would bar certain government employees and elected officials from making trades on prediction markets. The bill has seen support by major players in the prediction market, including Tarek Mansour, cofounder of Kalshi, one of Polymarket’s major competitors. He said on LinkedIn that since prediction markets are governed by the Commodity Futures Trading Commission, much like financial exchanges, Kalshi supports the bill and forbids insider trading. It would therefore constitute a violation of the Commodity Exchange Act and CFTC regulations if someone committed fraud by misappropriating material non-public information to gain an advantage. However, Mansour has argued that Kalshi should not be treated as a gambling site because the company doesn’t profit from users’ losing bets:
“I just don’t really know what this has to do with gambling. If we are gambling, then I think you’re basically calling the entire financial market gambling.”
Financial markets function on the fact that everyone has access to the same information. Trust in the financial market is crucial, and regulating insider trading is necessary to maintain that trust. However, Shayne Coplan, Polymarket’s founder, has publicly endorsed using insider information to trade in prediction markets, saying that the inside knowledge could benefit the common people by giving them accurate information more quickly. In another sense, bettors get paid for the information they contribute by making trades with that insider information. For example, suppose you have inside information about whether there will be military conflict between Taiwan and China by 2027. You bet heavily on the outcome you know will occur, shifting the implied odds in its favor. That shift signals to the public that a well-informed bettor is confident, effectively rewarding you for bringing valuable information into the market.
The economist known as the “godfather of modern prediction markets,” Robin Hanson, thinks that insider information is necessary for these markets to function, making insider trading a feature. He argues that these prediction markets function as sources of information, much like news outlets. Instead of journalists and analysts obtaining knowledge, anyone can gather information, and it is reflected in their trades.
Recently, prediction market platforms have been putting themselves out into the public spotlight. Kalshi set up ads in Times Square to show election odds, and Polymarket’s predictions for the winner of the best original song and other categories were shown during the live telecast of the Golden Globe Awards.
Despite ongoing concerns about insider trading and regulatory oversight, prediction markets are clearly emerging as a powerful force in modern information systems.
In the coming years, we will see how Wall Street and companies leverage these platforms as the industry is rapidly expanding and gaining relevance.
