These Are the Sharps Actually Making Money on Prediction Markets

23:41I'm just one guy with Excel, and they have pretty much unlimited resources to find this data. It's, you know, not just shocking from a kind of what are they doing and why aren't they trying harder? But I think we find in both economics and elections that expert forecasts really shape expectations. And that can play a big role in narrative creation and how the public responds to that. I mean, I've seen many times the headline on Bloomberg 20 minutes before the inflation number will say inflation to show blank, as if it's a foregone conclusion because Goldman and J.P. Morgan and Bank of America have said so.

24:26And then when the inflation number is wrong, they just change the headline like that never happened. And the market reacts to it either being above or below that expectation, which maybe wasn't that good of an expectation in the first place. So I don't know why they're not trying harder. I mean, they certainly have more resources to chase down these numbers than I do.

24:46Tracy Alloway:For what it's worth, the best inflation people we know all did it the same way you did, Brian, in terms of actually the bottoms-up approach to learning the formula. All the best inflation, and of course someone like Omar Sharif comes to mind. Yeah, he's great. There's a handful of people who really – yeah. And this is what – I mean this is what not just Brian but all of the Sharps that I talked to, whether they're doing inflation or they're doing elections or they're doing meteorology, how much is it going to rain next weekend in New York City, whatever. They're all just making calls and going on the ground and talking to people and gathering so much data.

25:23They're calling meteorologists. They're calling geophysicists. They're calling Bloomberg reporters in many instances. I talked to a few sharps who were like, yeah, I'm on the phone with Bloomberg reporters all the time. But I think a lot of these sharps are just – they're constantly on the phone gathering information, which makes sense, right? This is also what you do if you're at a fund.

25:42Tracy Alloway:Yeah. Can I ask, this is more of like a sort of, I don't know, a tactical question or market structure question. Maybe it's two interrelated things. So sometimes an event happens, and then there is a period of time before it resolves. And Kelsey and Polymarket have different approaches to resolution. Polymarket is based on a sort of third party, quote, Oracle, unquote, that is also sort of like whatever. And then Kelsey is more centralized. And I'm curious, like, what your trading philosophy is, it's like, okay, you get the LA mayorship right. Do you wait until resolution or do you sell it when it hits 99 % and then move on to the next big thing?

26:22Tracy Alloway:And is there alpha or profits to be gained in holding from the 99 to 100 during that period of resolution? And is it different on either of the two sides? I think it depends how much time it is and what other plays are available. I mean, usually, you know, if if if a market is going to resolve in the next 48 hours, I mean, you're pretty much always going to hold that from 99 to 100. But there are certainly elections that the answer is clear. And then, you know, you're not getting that payout for a month. And I mean, usually I can turn 99 cents into a dollar over a month faster doing something else than waiting.

27:01But I suppose it depends on the context. I mean, I don't know. Daniel might have a different approach. It's really important to know the difference between is your market 98 or 99 just because of the time it's going to take to resolve? Or is there a 1 % or 2 % chance of it actually going the other way? I try really hard to avoid these rules disputes and these thorny markets where it ends up kind of a debate. I think Polymarket's system is very problematic. They have basically undermined their oracle, and now every market just settles on how Polymarket clarifies. I have generally, for the most part, been happy with Calci's resolutions, but when you trade in stuff like, will a cabinet member get confirmed or who wins an election, it is almost never up for debate, you know, 2020 notwithstanding.

27:52you have clear answers. And so it just depends. I'm holding the Peruvian election right now from 99 to 100 because I don't have anywhere else to put the money. But if I had another play that I liked and I wanted the money freed up, I would sell it in a second and put it in whatever else there was. Let's talk when we get off the call. I got some places for you. Since we're talking about probabilities changing, I wanted to bring up this. There's a long running debate, I guess, about whether prediction markets are actually better than traditional polls when it comes to forecasting election results, or whether they just look better because they're able to update faster as the results come in.

28:34And Daniel, I'd be very interested in getting your take on this. Are these genuinely producing better probabilities, or is it just a matter of speed? Yes, but it depends on how much money is coming into each side. A really noteworthy election, I think, recently, last November, was the New Jersey governor's race, where the polls really all said this was a pretty close race. You know, two, three, four, five. One of the guys on our channel had made a very simple model, not even really a model, had basically just said, you know, Kamala won the state by five or six. Trump's approval had fallen maybe eight or nine points since then.

29:17You know, Trump was president instead of Biden. Cheryl's probably going to win by about 14. And this was just, you know, sketched out on priors on a napkin very quickly, three months before any polls. And then all these polls came in showing this close race. Very, very few polls showed a big, you know, big margin. And we actually wouldn't ignore the polls. We kind of tried to standardize them all, but we did genuinely believe in our channel that this was a 12, 13, 14 point race that the polls didn't show at all. Now, we couldn't make the prediction market prices reflect that because there was so much money on the other side.

29:54So, you know, ultimately, the prediction markets, I think, were higher than the polls and pointing to a higher margin, but still well below what it would eventually come out to. So on an election where the liquidity on the square side is large enough, the prediction market prices are still going to be wrong. I mean, you can look at Pratt again. Pratt's price was never$27 to be the mayor. It was less than$5 always in truth. But it was also still that$27 was still much more accurate than anybody's bubble who would have said.

30:26Tracy Alloway:Actually, this brings me to a question I want to go to, the bubble question again. Adam, obviously your piece was great. There was another great piece of prediction markets journalism in the last year about Alan Cole, who had bet his life savings that Elon Musk wouldn't actually reduce the deficit very much. And he knows the deficit very well. He's like, this is never going to happen. And the money quote in that article is from Alan's wife, who said, I read through the comment section in the prediction markets, and they all seem like idiots, at least relative to her husband. And therefore, I was very comfortable with him risking all of our family's life savings on this one particular bet.

31:02Tracy Alloway:I'm curious, like, if you like, OK, when maybe there's sort of bubble mentality emerging or it's like this is a price that reflects people not getting good information. How often in your group can you use the comment sections to gauge like, wow, there's a lot of dumb money on this contract? Always bet against the comment section. OK, for real. I mean, not always, but it tends to be a guiding principle because sharps tend to keep their mouth shut except when talking to each other. And generally, the more ideas or comments there are sort of advocating for one side, I do think that tends to be the wrong side.

31:47Yeah. I was going to say it was surprising how or is surprising how reliable the comments indicator is. Back on on predicted, there was actually a lot of good information. People hadn't built these discord networks. They hadn't, you know, ended up in their silos where we talk about all the useful information ourselves. And so there was a lot more sharing and helping. and you know part of that is also because the money's gotten larger the importance of protecting your reliable information is so useful that you just don't see you know someone like me or brian going on to cal she's you know message board and explaining no you guys have it wrong because you're not you know accounting for this that and the other i mean predicted having an 850 limit you know made it very possible for all right you know the the limit meant you could share like i'm done.

32:37I can't fill up anymore. But Calci not having kind of a meaningful position limit, you know, changes that equation dramatically. Since we're talking about betting against the comment section, you know, there was the article in the journal recently talking about how on Polymarket, 67 % of profits go to 0.1 % of accounts. And we also have more professional investors who seem to be expressing some interest in getting into this market. If a bunch of people are just losing money on this, which it seems like they are, does the dumb money eventually go away and it becomes harder for you to make these bets?

33:19It should. That's been the history of the poker boom got harder. Daily Fantasy Sports was big money for a lot of people. That got harder over time you know certainly it should happen that way so far certain markets have gotten harder elections appear to still be dominated by vibes and emotions you know we'll we'll see hopefully these prediction market spaces are still new enough that there's a lot more people still to be onboarded and anything can happen but so far they still seem to be pretty beatable yeah i

33:51Tracy Alloway:remember during the online poker boom people like talk about like soft tables and all these and then And like eventually, like they all lost their money and they're like, no soft tables. And then the. I don't know. I didn't know that about the poker. Yeah. Then it was just all like sharks versus sharks. And the only when it's like you go to like the high limit room at a casino and there has to be like, you know, there has to be some celebrity there or like a shake or someone who has like a bunch of money who just wants to lose to pros there that night. But if it's all like, you know, Adam Ivey and all these guys playing high limit poker against each other, the only one is they're just going to grind each other down and the money is going to go to the house.

34:30Tracy Alloway:How did how did you guys do on the 2025 Romanian election? It was a dark day for our channel. Yeah. Tell us about that day. Tell us about the Romanian election and the dark day for your channel. Yeah, Daniel, what happened? And so in the first round, well, the first round of the Romanian election was actually annulled due to Russian involvement. It was a very strange event. But the next first round, this guy Simeon won it by, I believe, about 20, and it was headed to a runoff. And basically in the entire history of European runoff elections and even expanding beyond European, nobody had ever really come back from a deficit that big.

35:16And there was also a correlation where the places that the other candidates had done well, this guy, Simi, and the leader had also done well. So it really just seemed at the beginning like he would win easily. And a lot of us put a lot of money on it at various times. He then proceeded to leave the country, skip all his debates, became a laughingstock on Romanian media, which we, to be clear, did not pick up on just how much he had become a joke in Romania. And so it ended up being a case where a lot of Romanians were betting a lot of money against a lot of Internet politics sharps. Yep. I mean, they were right.

35:58We were wrong.

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37:49Learn more at BloombergLive.com slash SBS dash Singapore. how do you feel about uh insider trading in prediction markets because this is also one of the big debates now uh the idea that people i don't need it's not illegal right well i think it is like i i can't get clarity on this but i know there are some charges against people for using like legally protected information to make these bets but how do you feel about the idea that there you might be betting against someone who is actually like fully in the room and fully informed i feel like there's sort of a mixed feeling here where one of them one on one side you're like well yeah that's really terrible for retail traders to know that they are you know going to be going against someone who literally has the answer on the other hand you know i think one of the early arguments for why prediction markets should be allowable is that they can provide price signal by allowing all information that exists to come into the public sphere and not stay private.

39:04I mean, you can imagine a scenario where, I mean, you could cook up a very Hollywood scenario, which I won't, but you can imagine where someone who was aware of illegal activity and had no way to make that public. We're trading on that information and sort of creating a little bit of price signal there. I don't know. I mean, you never want to be trading against an insider. And of course, CalShe and Polymarket would very much like people to think that there are no insiders at all, that they have policed this aggressively. I don't really find that to be the case. I could tell you specific markets that I am 100 % sure that I lost to someone with inside information.

39:46I think you can pick out a market and see, is this possible for this market to be insidered? You get a little bit of a sense of what price movement looks like when someone actually knows the answer. Huge volume coming out of nowhere at a price that hadn't been traded on before. I can tell you, I would bet my life savings that someone who knew the Critics' Choice Awards winners last spring knew that Jacob Elordi was going to win Best Supporting Actor the night before because he went from$0.01 to$0.40 on massive volume, which was a trade that I lost because I really didn't think he was going to win.

40:24So we've taken some of those Ls. I think ultimately you want to not allow it, but it's hard because it also can be part of giving a price signal on important events. So what I'd like to see and what I think we're moving toward is the sites and the companies making the serious insider trading not make financial sense for the people that do it. So we just saw the guy who insider the Google urine search lost his Google job, and I believe charges were referred. The military guy who bet on the invasion was arrested. I mean, he made something like 400K and now he's facing charges. I mean, there's no way that math works out for those people, right?

41:05So it's really the small insider ones. But then you also have these situations where it's debatable what's an insider like there were insiders on the super bowl performance market where you know somebody who has no actual attachment to the gig or the performance you know happens to hear something that you know makes them know more than the market but they really have no technical like relationship of being an insider how i don't think you can police that. So I like to stick to stuff, you know, again, like in elections, you can't have insiders. We bet a lot on the cabinet confirmations. And that was interesting, because you could have insiders on those, you know, some staffer to a senator knows how their person's going to vote.

41:50You know, you just kind of have to ask in every event, you know, who's my counterparty? Could they know more than me? And in situations where someone could know more than you, you really got to size appropriately and make sure that you're not just blowing a ton of money to somebody who only is in it because they know more than you.

42:05Tracy Alloway:Just for what it's worth, not that my opinion matters at all, but I don't think the government should be expending resources to police insider trading on the length of the Super Bowl halftime show. Because it's like, it doesn't matter if you guys lose a bunch of money to an insider on that, I don't care. Because, like, I think, like, regulated while markets are a good thing, I do not want, like, you know, public resources protecting people who are, like, gambling on it. But just to, you know, I'm curious, and maybe all three of you, like, this story and people discovering that you guys have this discord, et cetera, like from the perspective of the companies, like I could see the Cal, she's in poly markets of the world loving this.

42:43Tracy Alloway:Cause they're like, look, a bunch of people get in their minds that they could be a Brian and Daniel, and they could have a crew and do a bunch of information and win. Or I could see them just like, again, cause they're like, wow, you know what? I'm not going to start. I'm not going to trade because I do not have anywhere of the means to come close to this group in terms of like the resources required to invest to trade consistently well. I'm curious, like what you've seen is like, are stories like this good for the markets? Or do they, would they rather sort of perpetuate the illusion that it really is like totally random?

43:18Tracy Alloway:I just made my rent money because I knew it wasn't raining today. And that's simple, which is how some of their ads are. And this is like really like the sort of the advertising, the misadvertising, et cetera. Or, you know, you've seen it from both of the two major platforms. At a high level, I'm very, you know, concerned with like, how are people going to read this thing? And I think my hope and, you know, what folks have told me is, wow, I didn't really realize that I was the dumb money. Yeah. And I don't even think I realized, you know, at the beginning of this journey that like I was the dumb money.

43:50And so the hope, I think, is that, you know, people read something like this, people listen to a conversation like this and they think, oh, my gosh, okay. I maybe don't stand a chance against Brian or Daniel or the rest of these guys in these discord groups. But, you know, Kashi and Polymark can kind of flip the script and tell you the other story. Yeah, I mean, I think what is in the long term good of prediction markets continuing to be legal and regulated is stories that are like Adam's. because a lot of journalism reporting on prediction markets is sort of focused on, wow, isn't it crazy that people are making money on how long a handshake will last and what words someone will mumble at a speech?

44:35And, you know, I mean, my personal opinion is that people should be able to bet on things because it's their money. But these are not important questions that prediction markets are built to answer. And I think that in some ways, Kalshi and Polymarket have been so aggressive in trying to make as much profit as possible as quickly as possible that they have gotten deep in markets that are not only pushing against state regulation, but are clearly not the kind of important social questions and economic questions that prediction markets really should be answering. I mean, what I appreciated about Adam's story was that it was essentially about people who are going the extra mile and working really hard to try to answer questions that actually matter.

45:21Who will win elections? What prices will look like? And in some cases, people who are working harder than publicly accepted experts on those. So I think for the long-term existence and regulation and legality of prediction markets, stories that focus on, I don't want to say people like Daniel and I, because it's not about him and I, but it's about what questions are we all trying to answer and what puzzles are we trying to solve? And if those puzzles matter to the general discourse in the economy, then absolutely it should be legal. But some of the extraneous stuff that is just a silly excuse to gamble, I don't think that that is really the future of where this should be headed.

46:05Yeah, I think that's an important point because we talk about the price signal of all of this. And the price signal really doesn't matter if it's like a dumb question being asked, right? One more question for me on your research process. How much of this has been enabled by AI and the tools that are now at your disposal? AI is very helpful for getting started on something like an international market or especially for searching in foreign languages where it can intermediate the language barrier for you. There's basically been, I think very few of us use much AI for modeling. Some of the guys who code more have been using Cloud Code a bunch just to do some statistical stuff, you know, quicker and easier.

46:56But the people who just ask LLMs a question and think that that gives them an edge on a market are some of the squarest money out there. You know, these LLMs will tailor their answer to what you ask. And, you know, if you ask the question a certain way, it will tell you this is the probability and it will ignore. What an insightful question. You are on the right track. Wait a second.

47:19Tracy Alloway:Is square money, is that what you guys call soft money these days? Or like is that square money? Is that like the term for like a soft table or whatever? I mean, that's just the opposite of the sharps, right? There's plenty of things. Got it. Oh, of course. The squares are the sharps. But you saw tons of this again going back to Pratt. All the people on Twitter, my LLM told me the chances of this were one in a trillion, et cetera. I've asked chat GPT things like, what will inflation be next month? And it will give me a number. And it'll be like, wow, great question. I think it's going to be this because of these reasons.

47:49And then I'll just say, without anything else, I'll just say, that's too high. And it'll say, you're right. I'm glad you brought that up. It actually will be lower for these reasons. And then I'll say, that's too low. And it'll be like, you know what? Thanks for bringing that to my attention. So not only is it telling you what you want to hear, but it only has grounding in other expertise that it gathers. And if that expertise that I'm already trading against is beatable, then I don't really see why the AI is any less beatable than that, at least in its current incarnation. I lied. I have one more question.

48:28Very important question. Daniel, why are you called Carnitas Taco? So when I used to play a lot of poker, I would often be in tournaments all night and then stay up for breakfast tacos in the morning. And that has stuck with me as a DJ name, a Twitter name, a prediction market name. Just that's my online name.

48:49Tracy Alloway:Brian, Daniel and Adam, thank you all so much for coming on Avla. I think that actually worked. That was a little bit complicated to organize, but that was a great conversation and really appreciate all of you taking your time. Thanks for having us. Thanks for having us. Thanks. It was great to be here.

49:15Tracy Alloway:Tracy, that was really fun. That was sort of a complicated episode to do, but I thought that was like a, I actually felt like I learned a lot in that conversation. Yeah, absolutely. I didn't realize that the poker boom had sort of gone through a similar thing where you had a bunch of people playing online and then they just kept losing and they left. Yeah, because the story was, do you remember why the online poker boom really happened? Oh, vaguely, but remind me. Because this guy named Chris Moneymaker won the World Series. His name was Chris Moneymaker, and he was a total nobody, and he won the World Series of poker in Las Vegas.

49:49Tracy Alloway:So everyone got in their head that actually anyone can win a lot of money in playing poker, and that was the sort of catalyst for like poker becoming this thing that like ESPN would cover and etc. It's huge wave after wave. And then eventually like there was I think sometime in 2009 or 2000. I think it was 2009. It was a big government crackdown on some of these like quasi illegal offshore sites. But that was already at that point. I think like the minnows were coming out because a bunch of people were losing that Chris Moneymaker was really a fluke. There were a lot of interesting things on that, including, to your point, will eventually the square money or the dumb money or the minnow is just flush out of the system?

50:32Tracy Alloway:And then it's sharp versus sharp, and only the platforms are making money. All this stuff about, okay, what is a healthy future for these prediction markets look like? But also it is the real work involved to actually have an edge. It's like, if you are listening to this and you think you're going to make money, you probably aren't unless you actually have some reason to think that you're putting in work. It kind of emphasizes that in the age of AI, the edge is still going out and finding new data, picking up on turning points because most of the LLMs are still very backward looking. And I guess having that sort of human connection.

51:14Tracy Alloway:If you think about it. You have to know the vibes, right? But if you think about it, too, it makes sense because one of the things that a lot of our AI guests will talk about is the value of proprietary data, right? And so it actually makes sense. Like what is, quote, scarce in the age of AI? Well, someone knocking on doors and asking questions of people rather than someone just asking the model what they think is going to happen. I also think that story - I didn't mean to turn this into another AI conversation, by the way. I was just curious. Yeah, no, it's an important question. I want to I'm curious how much money was lost on that 2025 Romanian election because I know that that was like a big upset.

51:51Tracy Alloway:And so and he walked through respect the candor of admitting they really whipped on that one and that all the randos in Romania who are paying attention to it knew more than the sharps on that one. Shall we leave it there? Let's leave it there. All right. This has been another episode of the All Thoughts podcast. I'm Tracy Allaway. You can follow me at Tracy Allaway. And I'm Joe Weisenthal. You can follow me at The Stalwart. Follow our producers, Carmen Rodriguez at CarmenArmond, Dashiell Bennett at Dashbot, Kale Brooks at Kale Brooks, and Kevin Lozano at Kevin Lloyd Lozano. And for more Odd Lots content, you should check out our daily newsletter.

52:25You can find that at Bloomberg.com forward slash Odd Lots.

52:28Tracy Alloway:And you can chat about all of these topics 24-7 in our Discord, discord.gg slash Odd Lots. And if you enjoy Odd Lots, if you like it when we talk to sharps about beating the squares or the circles, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

53:09Thank you.

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