Can We Trust Election Prediction Markets?

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2:07On Polymarket, which is the preeminent political prediction market in the world, There's suddenly a trade for$44 ,000 that comes into that market to back Matt Mahan's candidacy. That's Liam Vaughn, a reporter and editor on Bloomberg's investigations team based in London. He's been covering prediction markets, which allow users to bet on the outcomes of real-world events. Suddenly his odds go from the low teens all the way up to 96%. You see this huge spike. If you bet 96 cents that Mahan would win, you'd get paid out a dollar if he did. But before that big bet, you only needed to bet about 12 cents for the same payout.

2:52And essentially, the price fluctuates between zero and 100. And that reflects the apparent odds, you know, according to that market of an event happening. So when Matt Mahan's odds go from like 12 % to 96%, at least for a few moments, what that market's saying is there's a 96 % chance that he's going to be the governor of America's largest state. Quickly, other traders on Polymarket saw an opportunity to make money. They started taking the other side of the bet, wagering that Mahan would lose. That started pushing his odds back down. But the interesting thing about this market is it doesn't bring it back anywhere close to where it started.

3:37It goes to 36%, which is still very high for this guy who hasn't got much name recognition in a market full of like, you know, very big, big names. And so immediately you start to see press coverage. For example, in the New York Post, there's a piece that runs that afternoon that says the smart money is backing Matt Mahan for California governor. Mahan did not respond to requests for comment. Ultimately, his polymarket bump wasn't enough to win him the primary. But eventually, kind of gravity caught up. Other candidates with more money and more name recognition prevailed. And ultimately, Mahan kind of quietly exited stage left.

4:20But the$44 ,000 question remained. Who had made the bet? We don't know very much. And I think that that's telling in and of itself because Polymarket is crypto-based, so the authorities don't know who it is. And unless this individual comes forward, nobody else knows who it is. Whoever it was had shaped the conversation around a major primary race with one big Polymarket bet. And with the U.S. midterms fast approaching, it's just one example of how prediction markets could be gamed in elections. What's fascinating to me about this incident is that it highlights the inherent vulnerability of some of these markets to manipulation.

5:01And so the questions that I was keen to explore were like, well, how is that able to happen? What safeguards are in place to stop it happening? And as we go into the midterms and elections globally, is this something that we're going to see much more of?

5:22I'm Sarah Holder, and this is The Big Take from Bloomberg News. Today on the show, the dangers of mixing prediction markets with politics.

5:35Until relatively recently, gambling on politics wasn't allowed in the U.S. Previously, there was only a couple of forums that were allowing political gambling, and they were associated with universities. And so it was, you know, studied, like, can these things reveal good information and are they useful forecasting tools? For years, that restriction on political betting was enforced by the Commodity Futures Trading Commission, the federal agency responsible for regulating derivatives markets in the U.S. But in 2023, Calci, the largest prediction market platform in the U.S. and Polymarket's chief competitor, pushed for those restrictions to be loosened.

6:15The CFTC undertakes a review and ultimately it concludes, as its predecessors had, that this is a bad idea, that it's against the public interest, that it's going to potentially encourage people to either try and make money from democracy or try and influence the outcome of elections. and therefore it should be banned. That then goes before a judge, but ultimately the judge decided betting on politics is not gambling or it's not gaming as it's written in the statute. So it's a kind of nuanced argument, but ultimately it means that Kaoshi and its competitors are allowed, for the time being at least, to allow mass-scale gambling on US politics.

6:59That opened the floodgates right before the U.S. presidential election. And so in the presidential election of 2024, I think it's like$4 billion is traded. And when both Cauchy and Polymarket predict that Trump is going to get in, and the polls again are sort of prevaricating in some sense a tie, and the prediction markets perform much better in that question, That kind of adds to this sense that this is a good thing and this is something that should be embraced. To prediction markets and their boosters, this outcome seemed to confirm something important. That by harnessing the wisdom of the crowds, crowds with real money on the line, these markets can predict the future more accurately than traditional polling can.

7:47What happens next when the Trump administration takes office? How does the regulatory approach to these markets change? I mean, it's a complete 180. Essentially, the Trump administration comes in, they put their own people in charge of the various regulators. And at the CFTC, they get rid of all the Democrats and essentially put in some conservative commissioners who are predisposed to and are supporters of prediction markets. You know, essentially you see a real kind of shift in the administration's attitude towards these markets. And as a result, they explode. In December 2024, the monthly trading volume on Calci was$226 million.

8:30A year later, it was$6.4 billion. At this point, how do Calci and Polymarket's approaches to political wagering differ? Yeah, they're kind of the yin and yang of approaches. Kaoshi has spent a huge amount of time and energy trying to position itself as the official market. It does KYC, know your customer. So anyone that signs up has to provide details of who they are, where they live. And so anything that goes wrong or any sort of attempts at manipulation, Kaoshi should, in theory, know who's behind that. Polymarket is crypto first, and you don't need to provide your bank details. And essentially, you could do it all anonymously.

9:17You could see via sort of a numerical or a kind of username what that account is up to on a kind of rolling basis. But you just don't know who it is. So, Liam, there was another moment that really marked the entrance of prediction markets into sort of the polling mainstream after the election, after the shifted regulatory approach, Polymarket and Calci made a string of deals with major news outlets. Yeah, so I would describe it as a kind of feeding frenzy of deal making between Calci and Polymarket and the mainstream media companies. So Calci have done deals with CNN, with CNBC, with Fox, and several others.

10:01Polymarket have done deals with the Wall Street Journal, with Dow Jones, X, Substack. So there was a real strong financial incentive for some of these media companies to be citing these prediction market odds. And that's a kind of contrast with polls because even though they carry polls, they're not getting paid by the polls to carry them. We don't know the details of all of these deals, but in the agreement between CNBC and Kalshi, CNBC can earn a fee every time someone signs up for Kalshi from its website. The other criticism, which we get into in the piece, is that quite often, because these markets aren't very big, outside of the major political events, they're easy to manipulate, and yet they're still cited regularly.

10:49Just to give one example, but they're far from alone, but CNN has got this show called The Odds, and they will regularly use Kalshi Odds as a sort of frame to talk about current political events. but often they cite markets that are very small so you know there's a discussion around who's going to be the next speaker of the house and we looked and at the time it had like a total of 16 ,000 betting across its lifetime so you're sort of talking about a market where every day there's like you know a couple of hundred or few hundred people amounts being traded so the question is like is that a market that's robust enough to really be cited by mainstream media organizations And there's some people that argue, no, absolutely not.

11:35Yeah, I mean, it's like the Matt Mahan example. The Matt Mahan market was vulnerable to being moved by this one big bet. Some major outlets ran that story about Mahan's polymarket odds and the governor's race without additional context. Does that happen a lot? I mean, it happens more than you'd think, definitely. And it's not helped by the fact that because they've done these deals, they're sort of obliged to consistently refer to these polls. CNN says that, quote, prediction markets offer just one source of data that journalists can use in telling a story, unquote, and that CNN staff are prohibited from trading.

12:11A Calci spokesperson says that its media partners have, quote, full control over what and how they report, and we don't tell them which markets to cite, unquote. CNN and Calci both declined to comment on how much Calci pays CNN to cite its data. Bloomberg LP, the parent of Bloomberg News, provides Polymarket and Calci data as part of its broader data offering for clients. What do prediction markets themselves say about their utility as forecasters of election results and these risks that they pose? So in terms of their ability to forecast events, Calci and Polymarket point to research that suggests that they are consistently very good.

12:55They are at pains to say that they should be viewed as additive to existing forms of forecasting, whether that's polls or reporting or whatever else. In terms of the issues that we raise in the piece around the vulnerability of these markets to manipulation, Cauchy would say we are not the same as Polymarket. And, you know, we take our responsibilities to identify our customers and monitor what they're doing very carefully. And if there is anything untoward going on, then we will find it. Polymarket would say a couple of things. One is that in terms of market manipulation, these markets have a sort of degree of ability to self-correct, which is demonstrated.

13:45And so even if there are attempts at manipulation, they'll be quickly remedied. And so they would say, I think, that the Mahan example is testament to that, because ultimately, whilst his odds did move, they did also come back as the market kind of responded to that. Coming up, how prediction markets can be used to help spread misinformation and sow doubt in election results.

14:46Thank you.

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16:34Around the time Matt Mahan was surging on polymarket in the California governor's race, another candidate was riding his own wave of prediction market hype in the Los Angeles mayoral primary. Republican former reality TV star Spencer Pratt. Kalshi prediction markets are showing a 59 % chance that Spencer Pratt finishes second place in the first round of the L.A. mayoral election. What if he clears 51 % tonight? Kalshi's saying he's going to go. When the votes finally rolled in, Pratt came in third, failing to qualify for the November runoff. But not everyone was willing to accept that the prediction markets had been wrong.

17:11You saw lots of right-wing supporters of Pratt coming forward and saying, this is ridiculous, the race was rigged, like there must be an issue here. Some of the posts came from influencers who were being paid by Calci and Polymarket to cite their odds. According to Semaphore, after paid influencers for Calci questioned the integrity of the LA mayoral election on X, Calci asked them to take the post down. So Trump wrote on Truth Social, this is an outrage. Essentially, Spencer was robbed. And he's kind of citing how well he was doing in the race up until that point. And so the concern is that ultimately, these markets kind of present themselves as truth machines, but they can also be utilized by people that are looking to spread mistruths.

17:59In the past year, the platforms have missed the mark in high-profile races like in Argentina, India and New York City. And one election in Romania showed they can also be vulnerable to potential influence from bad actors. There was an election in 2024 that was actually annulled because there was found to have been Russian disinformation campaign that was enacted on TikTok and YouTube. It was so bad that they ended up cancelling the election. They held another election, and that election was subject to a lot of speculation around whether the polymarket numbers for the kind of nationalist candidate who was supported by the Kremlin were being manipulated because there was such a big divergence between what the polls said and what the odds were on this political candidate.

18:49And there were lots of people that kind of suggested that this was like Russia cottoning on to the potential opportunity to mess with people's perceptions of reality by targeting prediction markets alongside TikTok or YouTube or other forms of disinformation. An active disinformation campaign. Yeah. A firm Bloomberg asked to view the trades found that a few recently created accounts were driving a lot of the trading. Liam says maybe that was a coincidence. But for supporters of the right-wing candidate, George Simeon, the bets helped create the expectation that he'd win. When this guy Simeon lost, again, you had all these people coming forward and saying, look, this is ridiculous.

19:33On Polymarket, he was, you know, a dead sir. And now you expect us to believe that he lost. So it's almost like there's damage either way, even if ultimately it doesn't succeed, or even if ultimately it's not manipulation. If everyone is suggesting it, then it kind of degrades the sanctity and faith in the democratic process. I'm wondering, given all this potential for manipulation and just the rise of these prediction markets, importance and reach, do you see the risks of this becoming more severe moving forward? Are we at an inflection point? I think so. I think that essentially, you can have a situation where something that's quite cheap to move can have a huge amount of traction, both in social media and in the media.

20:17And so I do think that the risks are increasing, that people will try and manipulate these markets for kind of political ends. Having said that, I do think there's fairly easy solutions to some of these issues. A lot of the issues around Polymarket could be fairly easily remedied if it kind of emulated its rival, Cauchy, and started getting the identification of its users. Another thing that could minimize the risk of manipulation would actually be to increase the number of people placing bets, boosting the trading volume on the platforms. More gambling carries its own downsides, but more heavily traded markets are harder and more expensive to manipulate.

21:00I think that if you talk to Calci and Polymarket, they kind of hope that one day everyone's going to be sitting there watching television betting on everything and everyone's going to want to bet on the local mayoral race in Sacramento. I'm not sure that that's going to happen. Liam, the midterms are coming up in the US. We're going to be seeing a lot more polls, a lot more prediction market election odds being reported. How should the public and the media be reading these results? What the media companies could do, and this is something that a professor at Stanford called Andy Hall, he's done a lot of work on.

21:39And essentially he sort of suggests a charter for the media where they only cite markets of a certain size. they just do some basic interrogation of like, is this price being determined by one or two wallets? Or is there a real diverse number of trades that have come to this price? He also suggests, rather than taking like a price at a set moment in time, which can be pushed around, that you actually take some kind of average over the course of a day. So it's different things that the media companies could do fairly easily that wouldn't really undermine their use of these things, but would make the odds that they're citing more robust.

22:43Thanks for listening. We'll be back tomorrow.

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