The Problems With Prediction Markets

0:07Prediction markets have experienced explosive growth over the last 12 months. They're online platforms where people can bet on everything from election outcomes to sporting events to economic data. Nearly$12 billion was traded on sites like CalShe and Polymarket in December 2025. That's a 400 percent increase year over year. Supporters argue these markets can produce surprisingly accurate and useful forecasts. Critics say this is just gambling by another name, raising serious questions about regulation, risk, and who's in charge of oversight. Those tensions escalated this week when Mike Selig, he's chair of the Commodity Futures Trading Commission, argued that the platform should be seen as federally regulated financial markets, not betting sites under the jurisdiction of state-level regulators.

0:55To those who seek to challenge our authority in this space, let me be clear. We will see you in court. I'm Jen White, and you're listening to the 1A Podcast. We'll be back with our guests to help us understand how these markets work and why they're suddenly at the center of a regulatory fight right after this. Stay with us.

1:20Let's get into the conversation with Bobby Allen. He's a technology correspondent for NPR, and he joins us from Los Angeles. Bobby, welcome back to the program. Hey, Jen. So, Bobby, before we get into this fight over who should regulate prediction markets and how, I just want you to lay out some of the basics for us. For those of us who haven't been following this, how would you define a prediction market? Sure. So prediction markets are booming right now. The two big ones are Kaushy and Polymarket, and they are apps where you can open them up and place a bet on virtually anything. So if you're wondering if Eric Adams will be on the next season of Dancing with the Stars, you can place money on that.

2:00If you're wondering if President Trump will say, drill, baby, drill at his next Oval Office appearance, you could put money on that. You could place money on whether a world leader will be toppled, how much famine there'll be in Gaza. Anything you can think of is basically casino-ified, right? So – and these apps – worth pointing out, they're mostly sports betting apps. So sports is the number one category. But they really just unleash betting on the entire world. Well, and who decides what you're betting on? Do I, as a user of the platform, say, hey, I want to make a prediction on X, or are there established guidelines around what you can bet on or not?

2:39So both of these companies take user input. So if you want a market on, say, what will we hear on NPR today, you can propose it. But a user cannot create one. The staff of both of these companies are in charge of coming up with the markets and coming up with, say, the strikes is what they call it. So will you say this word? Will you not say this other word? And then it is live, right? And then there's a contract that has sort of the terms of the market, and then money starts rolling in. And some of these markets, Jen, are quite liquid. I mean, we're talking many millions of dollars. The Super Bowl alone saw billions of dollars.

3:18And not just on, you know, will a pass be completed? Will someone score a touchdown? But things like, will we see Cardi B perform at the Super Bowl? How many times will the announcers mention a certain player's name or say fumble or say touchdown? It's really just head spinning, the number of things that are now basically turned into a wager. So it can get pretty granular. You hear two different ways of describing what's happening on these platforms. Some people call it betting. Others say it's forecasting. How much does that distinction matter? Right. So when you talk to these companies, they say, we are not like a traditional sports book.

3:57We are not like a casino because there is no house. And there is some truths there. So a typical sports betting app like DraftKings or like a physical casino, the house sets the odds. You're betting against the house. And as the saying goes, the house always wins. The way these apps are different is that it's you versus me. It's every trader versus another trader. And there's a key difference there in terms of how they make money. Every single transaction that is made, so every single bet, there is a fee on the trade. So that's how they're raking in tons and tons of revenue as opposed to traditional casinos or sports books.

4:37They're making money when you lose. So there's a key incentive difference there. But I will say, Jen, you know, the company like Kalshi also has a separate entity that is putting up money on the opposite sides of bets. So critics of the app say, yeah, they say that there's no house, but they certainly do have sort of an edge over many traders because they have a separate entity that's betting against the everyday trader. How does a price get set on one of these markets? It's all by the odds. So as soon as a market opens and say, like I just saw one that was created recently, who will win Survivor Season 50?

5:17And there's a list of people. The odds are set by how much money is rolling in and those probabilities are set by simply that, by is it more money towards this person, more money towards this other person? And if you think about that, it's just pure speculation. So if I had enough money, I could dump it into one person winning Survivor Season 50. They'll rise to the top. That might garner attention. Oh, wow, maybe this person will win. Well, what is that based on? I mean, people say, yeah, you're putting your money where your mouth is, but it's also open to so much manipulation. But the odds are set by how much money is being traded.

5:52I should add that we reached out to Polymarket and Cal Shea for the show, but we didn't hear back. Bobby, why has there been such explosive growth over the last year or so? It's really because of the Trump administration. I mean, in Trump's second term, the barriers that were once erected around this industry have been completely bulldozed. In the past, you know, Cauchy and Polymarket were able to offer markets for like really specialized sort of niche ideas, you know, things like commodity futures and what will the Fed's interest rate be. There was maybe a couple dozen of these markets a year, and now just Cauchy alone has more than 400 ,000 markets.

6:37People quite cynical of the Trump administration say there might be some self-interest propelling this because Donald Trump Jr., the president's son, is an advisor of both Polymarket and Cauchy. And he's a partner at this venture capital firm that is pumping$10 million into Polymarket. So the Trump family does stand here to financially gain in terms of having this industry utterly flourish. But yes, the administration is basically saying clear the lanes, let this industry thrive. We believe in it. And it truly just has exploded. Shane Copeland is the founder of Polymarket. He calls his platform a global truth machine.

7:21Here he is on 60 Minutes with Anderson Cooper in November 2025. It's a site where you can basically bet on current events, some sort of question about the future, like an election. And as a result, when a ton of people are betting, you get the betting odds, which basically tell you how likely each outcome is. And how accurate is it? It's the most accurate thing we have as mankind right now, until someone else creates some sort of super crystal ball. Now, these markets have gotten several things right over the last few years. They accurately predicted that Joe Biden would drop out of the presidential race after his disastrous debate performance, that Donald Trump would win the 2024 election.

8:01And new research shows bettors on Kalshi have proved as accurate as highly trained forecasters are predicting certain economic indicators. Tarek Mansour is Kalshi's co-founder and CEO, and he says it's precisely because money is involved that these markets are so accurate. So the thing here is, and the reason why the markets work so well, is one, they aggregate the crowd wisdom. But number two, which is critical, it's people that have skin in the game. People don't lie when they have money on the line. They're not pundits. They're not subjective. You know, they're thinking about what they're predicting because they're putting money where their mouth is.

8:36And that's a very critical piece here. Bobby, how do you assess these truth machine claims and how these companies say they can be applied? Yeah, true believers in prediction markets like talking about the wisdom of the crowd, right? And they see these prediction markets not just as a get-rich-quick scheme, but almost in these kind of lofty terms that we could sort of discern the future through these prediction markets in a way more accurate than, say, the mainstream media or polls or sort of punditry. And yes, there have been a number of elections and a number of instances in which these markets have had correct predictions.

9:16But people who study this industry say that might be true, that it does sometimes point in the right direction. But we just don't know who these traders are sometimes and what their motivations are. Foreign money can pour in. You could put money down on elections. You can have sort of partisan backers of one candidate artificially inflate someone's odds. So again, they can be sort of a truth machine, as Tarek Mansour of Kalshi says, but they also just can be absolutely rife with insider trading. We also got this question from Richard who says, why aren't the platforms forced to give the prediction results?

9:54Number correct, number incorrect. I mean, how much do you learn about these predictions on the back end? Well, again, I've talked to a lot of the young men, and it's mostly young men, who are part of this prediction market boom. And they are voracious consumers of the news. Some of them are, you know, sort of popping Zins and chugging Monster Energy drinks and pulling these marathon 12, 13, 14-hour days and jumping from one market to another. They're the ones who are really kind of making this prediction market industry what it is right now. And I think they are just interested on finding edge, on making money, and not so interested in sort of analyzing the odds on any given market once it's over.

10:38We have to take a quick break here. But coming up, the fight over whether prediction markets are simply gambling by another name. Back in just a moment.

10:50Let's get back into the conversation with this message we got from one of you. Dan in New Hampshire writes, There is a mass incentive for criminal behavior in prediction markets. Just recently, there was the case of an Israeli reservist wagering on military operations based on inside knowledge. Combine this with the anonymity of crypto and what's to stop a heart surgeon from betting their patient is going to die, a juror from betting on the outcome of a case they're impaneled on, or law enforcement betting how many people will be arrested in an immigration sweep. The implications are terrifying.

11:21And we also heard from Amy who wonders, given what people are betting on, how can regulators ensure against insider trading and corruption? So, Bobby, how big of a concern is insider trading on these platforms? It's a huge, huge worry. And that example that one of the callers mentioned about, you know, the arrests in Israel over the suspicion that a number of, you know, individuals who have access to military information use that to make money on polymarket really sort of put that into stark relief here, right? That if somebody has classified information or private confidential information or has even told someone from a friend or family member something that is non-public, Like what is stopping them from immediately cashing in on that information?

12:11Now, again, when you talk to these companies, they will say they employ all sorts of kinds of surveillance technology and they have staff that's monitoring for anomalous trades and keeping an eye out when things are looking a little fishy on the app. But, I mean, for instance, Jen, I have a friend who works in the music industry and works closely with artist Charlie XCX. And he told me recently, hey, I actually know how many album sales she's going to announce soon. And I went on to Kalshi, and that is a market. And I thought, wow, I even know of an instance in which insider trading can occur.

12:47Would Kalshi know if I made a bet based on that info? I don't think so. So I don't really know how you fully sort of root this out. But if the companies are to be believed, they say they're taking it quite seriously. Well, the Commodity Futures Trading Commission currently regulates these prediction markets. What kind of oversight do they provide? They do, but I've talked to several former CFTC commissioners who say they do not have the resources to adequately police this industry. Not to mention that the commission typically has five people on its board, and now there is just the chair and there are four empty seats.

13:32And then another fact that's worth considering is they have about one-sixth of the staff of the SEC, which regulates Wall Street. So, yes, in theory, they are federally regulated. These prediction markets are supposed to be held to account by the CFTC. But in past years, like I mentioned, only a few dozen markets were being listed and approved and vetted every year. And now we have more than 400 ,000. So just given that volume, I think it's fair to say regulators are a little in over their head. Well, and we should note that the CFTC is also facing a critical staffing shortage. Its workforce was cut by nearly 22 percent between fiscal year 2024 and 2025.

14:14This is related to layoffs by the Trump administration and voluntary retirement. But meanwhile, Bobby, the agency faces increased responsibilities in areas like crypto regulation. So it seems like there's a bunch of things maybe converging all at the same time. And the CFTC, to your point, just isn't well positioned to handle it all. Yeah. And Mike Selig, who is the chair of the CFTC, he recently said in a video address that he plans to challenge states that are invoking their rights to regulate sports gambling. There's this huge battle now happening between tribes and states and these companies over who should be able to regulate sports gambling.

14:59And now the federal government says they want to throw their weight into this fight, push states out of the way, and let the CFTC be the sole regulator of this nascent and utterly thriving prediction market industry. Well, at least 20 federal lawsuits have been filed nationwide by gambling regulators and state lawmakers. And they're questioning whether these prediction market platforms should be treated as financial exchanges that are federally regulated or as gambling operations. So let's hear two different perspectives on whether these platforms should be considered gambling. First, here's Tarek Mansoor.

15:34Again, he's co-founder and CEO of Kalshi. He's talking here to Jim Cramer on CNBC's Mad Money in December of last year. It is not a secret that financial markets pretty consistently throughout history, and you might know this, Jim, there's always this tension. People call it gambling. Our people are speculating what's going on here. But there's a few things that are important here. So we're regulated by the federal government because we're a neutral, transparent financial market. We're like the New York Stock Exchange right here. People are trading against each other. So it's Jim against your friend or your friend against Jim.

16:04There is no house. And that's very critical. In traditional gambling model, there is a house. And the house always wins. On Cal sheet, there's no house. And here's Benjamin Schifrin. He's director of securities policy at Better Markets. That's a nonprofit advocating for consumer protections and greater accountability for financial institutions. We asked him to send us his perspective and what concerns these platforms raise for him. Prediction markets look like gambling because they allow people to place bets on either win or lose money. People can bet that a candidate is going to win an election.

16:34If the candidate wins, the better wins money. If the candidate loses, the better loses their money. People can bet on the Super Bowl. If the team they bet on wins, they win money. If the team they bet on loses, they lose their money. That's gambling. What worries me most from a public interest perspective is that these markets can be used to manipulate our elections. In many races, there won't be much betting activity, so small bets will move the odds significantly. Users could place bets to give the false impression that a candidate has increasing support. That leads to all sorts of ramifications for things like campaign contributions and media attention.

17:08Outside actors are already trying to influence our elections, and prediction markets will make it much easier for them to do so. I'm also worried about allowing nationwide unregulated sports betting. Safe gambling laws have things like age restrictions, wagering limits, and addiction treatment resources. Prediction markets want to have sports betting that is entirely unregulated. We already have an epidemic of sports betting addiction, and unregulated prediction markets that have gamified platforms will make it even worse. So a lot to unpack there, Bobby, but at its core, I think the arguments have been laid out pretty plainly in those two clips.

17:47Which arguments are gaining traction at this point, not just in the courts, but among the public? Yeah, hard to say exactly how the public is leaning. But what I can say about this huge fight is it is pitting states, both Republican and Democratic states, against the federal government and mostly because of sports betting, right? Remember, after a 2018 Supreme Court decision, sports betting became a state-by-state issue. Right now, 11 states completely outlaw sports betting, so it's illegal. And when CalShe was really ramping up, they ran a nationwide ad campaign saying, download CalShe, sports betting is now legal in all 50 states, right?

18:35That was like what they were telling people in order to get them to download the app. and you have to be 18 to use Kaoshi, not 21, which is how old you have to be to engage in sports betting. Not to mention there are no protections in place, as we just heard, to prevent gambling addiction and to allow people to sort of self-ban themselves from apps, which many states require. And then also, Jen, there's no tax revenue being generated. A lot of states rely on this source of tax revenue for very important services statewide. So this is why states are going to the mat and fighting hard because they say what these apps essentially are doing are making an end run around state gaming commissions, which for years have regulated sports gambling.

19:23Well, Bobby, we've also seen this boom in sports betting platforms in recent years. But it seems like these prediction markets are in direct competition with them. So are the sports betting platforms weighing in? Yeah, so FanDuel and DraftKings, You know, you would think they would be directly in competition with Kalshi and Polly Market, and they are. But what they're doing instead of fighting these companies is joining the movement. So FanDuel, DraftKings, Robinhood, the retail trading app, and even President Trump's social media site, Truth Social, have all announced their own prediction markets.

19:56So we have the incumbents, Kaushy and Polymarket, but every day it seems there's another app that's announcing that we want to get into this prediction market mania. We want to be part of this craze. It seems like the federal government has given it its full blessing, full speed ahead. So this is going to get even more crazy than it is now given the number of rivals there's going to be in this space in the coming months. Lewis says, is it correct that if someone places a large wager on a particular person to win, it can intentionally or unintentionally shift the odds? Bobby? Yes. It depends on how much liquidity is in the market.

20:35If it's not very liquid, if so, not a lot of people are betting, a small bet can significantly move the odds. And then there's this sort of societal and public policy question of, well, how does that potentially affect reality, this whole idea of perception affecting reality? And worth noting that these prediction markets, Polymarket and Calci, are partnering with major news organizations like Dow Jones, which owns the Wall Street Journal, and CNN and CNBC. So news coverage is now including the odds from these prediction markets. So just think about that. Somebody comes in, is aligned with a candidate, wants to manipulate the markets by making their candidate look like They're number one, and then that is incorporated into news coverage, which gives the impression that the candidate has more momentum than they have.

21:25I mean, election integrity experts are really, really nervous about this. Doug in Pittsburgh writes, what's to keep incredibly wealthy and influential individuals from putting money on a prediction of something they already know they're going to do, thereby increasing their own wealth while simultaneously manipulating our world financially and otherwise? We also heard from Neil, who says,

22:00We also heard from Kathy, who's a member of the 1A Tech Club. Kathy writes, as a mental health therapist, I believe these markets should be regulated as a form of gambling. Bobby, on a practical level, what would it mean to have state-level gambling regulators oversee these markets? How would that regulation look different from what exists now? The age limit would change. The number of anti-gambling addiction mitigation measures would change. It would really be sort of a whole new world for these apps. And they don't want to have to deal with a patchwork of 50 regulatory frameworks. And frankly, they don't have to have to comply with a whole sea of rules and regulations which would make it hard to stay in business and be a pain for the traders on all of these apps.

22:53One thing that I'd like to add, Jen, going off of what one of the listeners chimed in about is, yeah, every time there's a big win, I mean, because of how these work and how gambling works, there's somebody losing on the other side of that. And increasingly, Wall Street, so hedge funds and big banks are getting in on this too, and they are putting up the money on the opposite side of some of these trades. It's called being a market maker. And in exchange for that, they get access to all kinds of data on the app that nobody else has, which gives them an edge. And so, yeah, Wall Street is here also trying to cash in on this prediction market craze.

23:33If regulation of these markets returned to states, if they were considered gambling entities and states took over, what would that mean for individual states? I'm thinking of places like Texas and California. there would be some limitations on who could access these apps, right? Yeah, we're seeing that get pretty heated in a number of places. There was just a big court ruling in Nevada, for instance, that might just push Kalshi out of the state. And how that would work is they would be forced to sort of geofence around the state so that if you're in that, within the borders of the state, you wouldn't be able to access the app.

24:12Massachusetts is also attempting to do this now. Now, there's more than 20 lawsuits that are over this question. Can these apps legally exist in this state or not? If states had their way, these apps would just go out of business overnight. But since that's not going to happen, I think these cases are going to come to a head eventually. In federal appeals courts, there may be, say, a split in decisions in how judges are sort of viewing this industry. And it might eventually go before the U.S. Supreme Court. But until we get there, Jen, it's really going to be one of these situations where the laws in one state might differ drastically from the laws in another state.

24:50Well, it seems like there's a big picture question, Bobby, that we have to ask. And I'm curious to hear your perspective as someone who's covering these markets closely. What does it mean for us that we live in a world now where we can bet on anything? Yeah. One of the things really driving this is this feeling that we're in this sort of post-truth, post-expert reality. When you talk to the traders who are the most diehard Kalshi and Polymarket users, not only are they trying to make this into a living, you know, they want to do this, you know, and have no other job, but they increasingly don't trust institutions.

25:30They don't trust what they see as the elite. And this is a way of sort of sticking it to the man in their eyes, right? And this is a feeling that I think is becoming more and more prevalent. It's not just left. It's not just right. There's a lot of people who feel disenchanted with a number of institutions. And this is a way to sort of crowdsource what we think might happen in the future, you know, turning everything into an oracle, turning everything into a casino. So, I mean, what that says is just really declining trust in, you know, typical, you know, mainstream legacy societal institutions.