Betting on Taylor Swift or Who'll Be Made Pope: The Past and Present of Prediction Markets

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1:39Pushkit. Too quick? No, it was perfect. Pushkit. Stop. You got it. Hey, it's Jacob. Robert and I recently did a live show with our friends from the Bloomberg podcast, Everybody's Business. The show is about prediction markets, and the hosts of Everybody's Business talked about what's been happening in prediction markets in the last few years, while Robert and I talked about what's been happening in prediction markets for the last 500 years. It was a fun show. I learned a lot making it. And we're going to play it for you now. I hope you like it. This is Everybody's Business from Bloomberg Businessweek.

2:18I'm Stacey Mannix-Smith. I'm Max Chavkin. And this is Business History, a show about the history of business. I'm Jacob Goldstein. And I'm Robert Smith. So actually, this is a podcast mashup between everybody's business and business history. We are calling it Everybody's Business History. Clever. See what you did there? Do you see what I did there? And today we are going to be talking about the world of prediction markets. This is Polymarket and Kalshi. These are places where you can bet on how many inches it is going to snow in Brooklyn today or whether we are going to attack Iran. Everything and anything we can bet on.

2:56These markets are now worth more than$100 billion a year. They're growing all the time. Yeah, I figured just for those people who have been following this in the pages of the Wall Street Journal or Bloomberg, just want to lay it out quickly. Prediction markets, you've probably seen them most with politics. There are two big companies. Stacey just mentioned them. Kalshi. Polymarket. You go on a prediction market, and you'll see essentially a price, like, say, 10 cents for AOC to be the Dem nominee. And what that means is that if you put 10 cents down and AOC becomes the Dem nominee, then you get a dollar.

3:32And if she doesn't, you get zero dollars. And you can bet on everything, pretty much anything under the sun. And we wanted to kind of give people a visceral sense of this via our own sort of prediction market. So this is a financial opportunity for everyone in the room. It's going to require you to look around the room and ask yourself, how's this talk going to go? People are starting to laugh as they see the official name of the market. Okay, let me read the terms. The terms of this market are, will at least 10 % of the audience leave the room before the end of the show? So just to be clear, betting yes is betting, I think, you guys, on a dud, right?

4:14If they bet yes, they're betting that more than 10 % are going to leave. I don't think it's necessarily a dud because they're also overlapping segments. So there could be another panel that people feel like they really want to see. An even stronger panel. Also bathroom, right? Oh, yes. All factors are possible. There's also the prospect of insider trading, which we will get to. I mean, you could bet yes and then walk out. We could all leave. Okay, I'm going to get us back on track. And I just want to give people a sense of how crazy this gets. So Stacey mentioned a couple of markets, weather, there's politics.

4:46There are also these things called mention markets. And Stacey, you are a big fan of the Federal Reserve. I do love the Federal Reserve. People who listen to the show know this. It's kind of endearing, strange. I don't think it's that strange. It's a very important and powerful issue. Monetary policy is exciting, and there is a prediction market. There are prediction markets, as you know, Stacey, every time Jerome Powell gives a speech. and we wrote about one of these in the latest issue of Business Week. This is the lead of the story. So basically, this is Jerome Powell's last press conference.

5:18You could bet on 44 words. So is he going to say the phrase, good afternoon? That's a gimme, by the way. He always says good afternoon. Always. Easiest one cent you'll ever make. But the thing that was kind of crazy about this market is, as the press conference goes on, the odds change. You just saw that with our own market, right? as people are entering the odd shift. And so during the last press conference, there was a question of the word renovation. Would Jerome Powell mention renovation? Remember, people who've been following this probably remember that there's a big controversy over the renovation of the Fed building.

5:53Donald Trump's very mad about it. And let me just play what happened. You know, technological developments that raise potential output, some kind of technological revolution. Did he say renovation? Insane, am I right? It's like the equivalent of a Hail Mary when the game is almost over. We need a replay. Traders on Discord and on Twitter went absolutely berserk over this. The quotes, and you can read these in the Businessweek story, the most insane market I've ever traded. Somebody else wrote, investigate Powell in all caps, suggesting that perhaps Jerome Powell had done this on purpose. He has a Polly market bet.

6:32But I do think, Stacey, this kind of raises a question, which is like, is this valuable? Like, what is the point of these things? Yes, like what is the economic value of these? Obviously, if you are betting on Jerome Powell saying renovation, you have personal value, but what about for the economy? Okay, so let me give you the perspective of the founder of Calci, who's, this is one of the two big companies. Let's just listen to Tariq Mansour try to explain why this matters, like why this is important beyond just an exciting opportunity for gamblers. The long-term vision is to financialize everything and create a tradable asset out of any difference in opinion.

7:10And I think if you do build a general purpose exchange that can resolve differences of opinions on anything, like the time is quite massive. I think that might be the least relatable sentiment I've ever heard. We're going to financialize everything. Do you like finance? What if everything was finance? That's essentially what they're saying. And it sounds kind of crazy, but the argument is basically that this would be a way to sort of hedge your risk in areas where it might be hard to. So one example that Cal Street founders give is flood insurance. Like maybe instead of buying flood insurance, or if the flood insurance were too expensive, you could buy a contract on the weather.

7:47You could buy a contract on rainstorms. And it sort of is, it's the way that like Wall Street hedge funds, you know, use futures and stuff like that. But it would be for all of us. And I want to say, as crazy as this sounds, anyone who bets on sports knows this phenomenon because there's this concept of emotional hedging where you bet against the team you're rooting for. Sort of as a way to soften the blow. Like, my team loses, but, you know, but I make a little money. If I lose, I win. It feels kind of wrong, though. Like, here, let me just give you one last prediction market that's on Polymarket right now.

8:23Will Jesus Christ return before 2027? It's gone up sharply since February. Well, it's also gone down. What has happened in the last month or so? And who is betting on this? Anyway, there's a lot. If he, with a capital H, returns, do we think that Polymarket's going to pay? Oh, that's a good question. There might be bigger problems at that point. Or opportunities, depending on how you've lived your life. And we should say for people listening, it's a 3 % chance, which seems pretty high, right? It does seem high. I mean, it's been 2 ,000 years. We'll talk about this more, Stacey. but to me, like, this just kind of feels wrong.

9:00I'm not specifically talking about the Jesus market, although this does feel wrong to me. But the whole thing, the whole idea of financializing everything. I mean, yes, these markets are incredibly problematic. But I kind of like them. Okay. Here's why I like them. So I really hate gambling. I don't like taking risks, and I don't like trying my luck. I like homework. I like, you know, you do the work and you get the payoff. That makes sense to me. That feels fair to me. These are the markets. This is what I like. I like things where I like homework-oriented things. I mean, and homework does not help you in gambling.

9:40This all tracks. Like, if you go to a roulette table and you know more about roulette and the history of roulette and the roulette wheel than anybody in history, it's not going to help you win at roulette, right? In those cases, like, the casino, it's got an edge. Yeah, if you understand gambling, you don't go into the casino. Exactly. And I would argue in investing, there's kind of similar things going on. Because these big investment houses and hedge funds, they have all this money and they have access to all this information that you and I have no access to. Like they will look at satellite photos of Walmart's parking lot and they will see how many trucks are going in and out.

10:15And they will estimate Walmart's sales and they will figure out Walmart's profits. And then they will place a bet on Walmart's share price. You and I don't have access to that information. It feels very unfair to me. And I don't like it. It just feels like in these cases, the house has the edge and homework is for suckers. And I don't like that. But this is not true on Polymarket and CalShe. On Polymarket and CalShe, if you do your homework, you can get the edge. Yeah, we, a couple months ago on the show, interviewed this big Polymarket trader. I think we called him the Polymarket whale. His name, his pseudonym is Domer.

10:54We know his name, but he likes to be anonymous because I think partly because these markets are in sort of a legal gray area. But anyway, Domer had bet Stacey something like$400 million on Polymarket. When we talked to him, he had a big money bet on Taylor Swift album sales. He had$1 million riding on the question of how many albums Taylor Swift would sell. Yes. And we asked Domer, like, was there a bet that did it? How did you get on these markets? Because this is his job now. He had been a professional poker player, but he had left the world of professional poker for this market. And he said, yeah, there was this bet that did it.

11:31It was back in 2008. So it was John McCain versus Barack Obama. We knew that, but they hadn't picked their running mates yet. And everyone was wondering, especially who's John McCain going to pick? People thought maybe Mitt Romney, but they weren't sure. And there was this old betting market. This old version of a betting market was not Polymarket or CalSheet that went up. And Domer thought, I'm going to bet on this. And I wonder if I can get an edge. And here's what he told us. The date for John McCain picking had been announced. And also the location was a small town in Ohio, which is obviously a swing state.

12:04And then it's like, OK, like, what are the logistics of it? And so we looked at the map and we're like, OK, where's the nearest airport? And so we found the nearest airport and we were looking at the flights that were coming in. And, you know, most flights are, you know, little podunk things. But there was this one random flight from Alaska that was coming in. And it's like, what is going on here? Like, why is that? Why is a flight from Alaska coming into this random town in Ohio? And we're like, OK, I think it might be Sarah Palin. And she was 25 to 1 odds. And, you know, I put a thousand dollars on it, which is a huge bet.

12:40and it ended up being Sarah Palin and I made$25 ,000. Game change, baby. Yeah, heartwarming story, right, Stacey? I think so. Homework for the win. To me, it is a heartwarming story. Domer, by the way, he made$60 ,000 on that Taylor Swift bet, which that was like a couple of days work for him. So this guy is pretty successful. Yes, and at this point, Domer is kind of a pro, but anybody can do this. So our wonderful producer, Jasmine J.T. Green, say hi, Jasmine, told me about this story that I loved and have not been able to stop thinking about. This guy, Caden Booth, he was 21, and he decided he wanted to bet on the Super Bowl.

13:18And he didn't want to bet on the game or the halftime show. He wanted to bet on the national anthem, which seems like a weird thing to bet on. He was betting on the length of the national anthem specifically, which doesn't seem like there should be that big of a range because the song is the song is the song. But there's actually a huge range. So back in 1998, this is Jewel singing the national anthem. It's one of the shortest national anthems in Super Bowl history, clocked in at 1 minute and 27 seconds. Now, in 2013, it was one of the longest national anthems in Super Bowl history. It clocked in at 2 minutes and 36 seconds from the lovely Ms.

13:55Alicia Keys. So now, Caden had to call this year's Super Bowl national anthem. Charlie Puth was singing and he had to figure out where Charlie Puth's national anthem was going to fall on the like star spangled spectrum. Yes. Do the vibrato. Is he going to hold the high note for like a minute and a half? Yes, exactly. Is he going to be on the jewel side or is he going to be on the Alicia Keys side? Yes. So he was kind of poking around and he came across there was this moment and he saw it and he was like, this is my moment. And what happened was he just saw a social media post from Charlie Puth being like, hey, headed to San Francisco.

14:30It's like a week before the Super Bowl. And he thought, this is my moment. He bought three things. He bought a stopwatch. He bought this weird listening equipment that really serious bird watchers use. Like a parabolic mic. Yeah, exactly. To listen to distant bird calls. And he bought a plane ticket to San Francisco. He went to San Francisco. He stood outside of the stadium. There he is. There's the weird bird watching. He stood outside of the stadium. And he was like, at some point, Charlie Puth is going to come. And he is going to rehearse on site. and I'm going to catch the sound with my bird watching listening equipment.

15:06I'm going to time it. I'm going to place my bet. And he waited and he waited and he waited. And then he heard the swell of the music. He hit the timer and clocked it in. I think you can see it there. At a minute 51, he placed his bet. He won thousands of dollars. Homework for the win. Okay, two things, Stacey. One is this is not heartwarming to me because if I'm going to bet on this, I have to bet against this guy with the parabolic mic and the plane ticket and the stopwatch. He did his homework. Okay. This feels fair to me. Problem number two is, what happens, Stacey, if Charlie Puth deliberately, you know, swayed the, you know, he held the high notes for longer than he intended to during the Super Bowl, placed a bet, and took$5 million from this guy?

15:51Yes. So these markets, it is true, have always had an insider trading problem. But now that they're getting bigger and more money is going into them, the insider trading problem is getting much larger. This is especially true in sports. Of course, everyone loves sports betting. Sports betting, you can bet on everything from like the color of socks that some athlete is going to wear to how many fouls there's going to be to how many free throws. So you can bet on every aspect of every sports game. And some people have really taken this kind of insider trading to almost an art form. So there's an athlete, John Taye Porter.

16:30He was with the Toronto Raptors. And he would basically, he was accused of basically making bets on the sidelines, saying I'm about to go in and fake an injury and place a bet. and he would go in and fake an injury and win all of a sudden. These aren't necessarily prediction markets, right, that you're talking about. This is traditional sports betting with Jonte Porter. These were on calling market. Right. And the other thing is this could happen in all sorts of other domains. And that, to me, is what's kind of so distressing about this. Well, it is distressing. And these kinds of issues. So Jonte was banned for life from the NBA.

17:11But these issues have happened on professional sports leagues and college sports leagues. And here's the thing that shocks me and makes me think that maybe this is all going in the direction of casinos and hedge funds. You'd think that sports leagues would be horrified by this, right? It's terrible for sportsmanship. Who wants to watch a game where people are throwing the game or wearing socks or missing free throws because they can get some side money? But no, the biggest thing the sports leagues are worried about is getting a cut of the action. National Hockey League, Major League Soccer have signed deals with Polymarket, basically exclusivity deals so Polymarket can offer bets on them.

17:50And they're cashing in. And the New York Stock Exchange bought a huge chunk of Polymarket. They, too, are cashing in. Which makes me think that Polymarket and Kalshi and all the glories of homework are now going in the direction of casinos and hedge funds. and that these big, rich players can buy an edge or make an edge in this case, and that homework, once again, is for suckers. Okay. It's so sad. I also just worry, Stacey, that we're trivializing important stuff. Like, let's look at this ad that Kalshi has been running. I think I saw this during the Olympics, but it's been out there for a couple of months.

18:30This is how Kalshi is promoting itself. History has taught us anything. It's not to root against the underdog. The British are coming! All right, so you see David with a slingshot, Paul Revere, the midnight ride. People are betting on whether the Wright brothers' plane will crash, I guess. Against impossible odds. Will prisoners escape Alcatraz? Will Sparta win the war? It's like a 300 scene here. And I guess the point is like, hey, all these historical events, you may think of them as historical events, but they're just betting opportunities. I will say they were betting opportunities. Like, we know, in fact, that there were prediction markets on the Revolutionary War.

19:11And we think that we've invented something new, as we always do on the Internet. But, as we found in business history, people want to gamble, and they want to know the future. And that has always been the case. So, can we check in on the market? Yeah, let's just see how it's going. Ooh. Okay, we're doing okay. It's at 56 cents. Oh, no, no, no. Oh, what? Oh, it just dropped. It is at 44%. The whale. Now, remember. The on-air fest whale just went against us. Because we're partway through this session, people have looked around. They have determined that not a lot of people have left so far. And so they are reevaluating what they think of this question, whether 10 % of the audience is going to leave the room or not.

19:58Do you feel like there's also pressure to not leave? 100%. Okay. We will close our eyes for 10 seconds. If anyone wants to make a bad leave, anybody, anybody, we will call you out. Okay. So in theory, those of you keeping count, this will change as we approach the end of the show. I'll try and pick it up a little bit. Yeah. I'll see if we can get at least back to 50%. We're going to take a break and then we're going to come back and Robert and I will talk about the centuries-long history of prediction markets in just a minute.

20:35Thank you.

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24:02so yeah in fact i meant it when i said that people might have been betting on paul revere's ride we know that prediction markets not just gambling but real prediction markets go back at least 500 years they go back to italy in the 1500s and the big market there the big prediction market in italy scomese a fare il papa, betting on who's going to be the pope. The papa! Il papa. And, I mean, it makes sense both that it's in Italy, and that's what they were betting on. It makes sense that it was in Italy because this was the time, Italy in the 1500s, when modern finance is emerging in Europe. The first banks are being established.

24:45The Medici are running Florence. And so you see these laws being passed to give brokers in Rome and Florence a monopoly on these prediction markets. And then the Il Papa part also makes sense because predicting the next pope in the 1500s was like the Super Bowl and the presidential election rolled into one. And a lottery. And a lottery, sure. You know, the pope had a tremendous amount of political power. It mattered if you were a wool merchant in England or if you were the king of France or whatever. It mattered who was going to be the next pope. And so you see ambassadors, you know, writing back home every time there's a conclave, like, who is papabile?