Prediction Markets vs. Gambling: Where’s the Line? — ft. Tarek Mansour

16:38Scott Galloway:So you cannot participate as a minor, obviously. But someone on the younger side, you know, repeatedly losing, repeatedly kind of taking aggressive actions, doing too much of their portfolio, we start showing warning signs. Like, hey, you should not put more than X percent of your portfolio in one thing. Because, you know, again, like long-term, if you want to build a healthy ecosystem, you don't want these sort of behaviors to go off the rails. But then also our incentive is not misaligned with those guardrails. In some ways, it is aligned. We want people to be long-term participants in this model.

17:06Scott Galloway:We want them to be engaged socially. We don't win a lot if they come and lose a lot of their money very fast. That's actually a bad outcome for us.

17:12Tarek Mansour:The pushback to that point, though, you make a point, which I agree with, show me the incentive, I'll show you the outcome. The pushback for a lot of people to that would be actually the incentive might not be that consumers need to lose or that traders need to lose money, but they need to trade. And if you can get them addicted, if you can get them to keep trading and get hooked, ultimately that actually is a boon for your business. So the guardrails you're describing, they are inherently counter to the incentives that are built into your business, which is we need people to trade as much as possible because that is our business model.

17:53Tarek Mansour:We're taking a transaction fee on all the trades that happen. We don't want you to lose money, but we want you to put some money up.

17:59Scott Galloway:What would you say to that? I think there's a presumption in your question that's just assuming that all the trading is basically dopamine-type behavior, right? Which is not the case, right? Actually, again, a majority of our users, the people that are really contributing the most volume, are the people that are making these, are actually necessary. Their trading is necessary to this because they're making the forecast more accurate, right? The stock market doesn't get efficient if nobody trades. You need the trading and you need the informed trading. You need the well-researched trading. And actually the trading that grows the most over time is the winners, is the people that like are essentially very well-researched.

18:36Scott Galloway:They predict the weather because they're scraping satellite data. These are people that are building models. They're in the spreadsheets. They're doing math. They're building systems. These are people that are actually rejected from traditional, for example, like sports betting because they're making too much money. They get blocked and limited there, but they can come to prediction markets. It's a good home for that. So, like, yes, you want the trading, but, you know, the dopamine level trading is not necessarily the thing that makes the forecast the most accurate, right? Like, it's not, you know, it's part.

19:03Scott Galloway:You need that vibrant ecosystem. You need speculators. You need, you know, forecasters. You need hedgers, which we can talk about. but you don't necessarily need the excessive behaviors and the excessive behaviors are the things that you can cap over time to build a well-balanced ecosystem.

19:19Tarek Mansour:We'll be right back after the break and if you're enjoying the show so far, send it to a friend and please follow us if you haven't already.

19:32Ed Elson:Hey, Kara Swisher here. I want to let you know that Vox Media is returning to South by Southwest in Austin for live tapings of your favorite podcasts. Join us from March 13th through the 15th for live tapings of Today Explained, Teffy Talks, Prof G Markets, and of course, your two favorite podcasts, Pivot and On with Kara Swisher. The stage will also feature sessions from Brene Brown and Adam Grant, Marquez Brownlee, Keith Lee, Vivian Tu, and Robin Arzon. It's all part of the Vox Media Podcast Stage at South by Southwest, presented by Odoo. Visit voxmedia.com slash SXSW to pre-register and get your special discount on your innovation badge.

20:15Ed Elson:That's voxmedia.com slash SXSW to register. Really, you should register. We sell out and we hope to see you there.

20:32Tarek Mansour:We're back with Profity Markets. I just want to go back to some of the criticisms. And by the way, the reason I'm interested in this is because this is what everyone is interested in when it comes to prediction markets right now. I was just on a PBS panel where this was the entire conversation. There was a focus on young men and young men's issues, this prevalence of addiction and this trend towards gambling. and this question of do prediction markets sort of fit that description? And so what are we supposed to do about it? How are we supposed to feel about them? So one thing that I found interesting, and I want to get your reaction to, I read somewhere that almost 90 % of the volume that is happening on these prediction markets, and I think on Calci, is related to sports.

21:30Tarek Mansour:so it's prediction markets trading but if it's trading based on like what color is the gatorade going to be at the super bowl halftime show that to me fits the bill of gambling it's to me is a kind of a different thing from the looking at satellite data and figuring out how will this affect weather patterns so i guess my question is one is that right are you seeing that amount of sports prediction markets trading? And two, does that not fit your definition of gambling?

22:02Scott Galloway:So we're seeing a lot of sports. Sports has grown astronomically last year. We don't have the Gatorade market. Again, there's unregulated regulated. But we don't have the war, terrorism, assassination markets either. The insider trading is also not the Maduro trade and the capture that's not regulated prediction markets or Calci. But look, I think there's sort of definitional, like, okay, maybe like, let me just kind of, let me just, let's just align on some definitions so we can have like a precise conversation, right? When someone is buying an option that expires end of day, retail participants buying it against Citadel and the open market on, you know, traditional, you know, the most boring names like NASDAQ or Chicago Board of whatever.

22:50Scott Galloway:Do you consider that to be gambling or a form of gambling?

22:53Tarek Mansour:I think it's something different from investing. And so I would consider it, I would call it gambling, yes. And that is why I'm very interested in the regulatory rules around options trading, which are stricter than buying a stock, for example. So long answer, short answer,

23:12Scott Galloway:So yes. So let's just establish a definition and then we can like basically, you know, have a principal conversation here. So there's a few definitions we can basically take on, right? It's like one definition could be there's a threshold of research or understanding in a certain market that needs to happen for this to be a trade or not gambling. And obviously you'd see kind of the problems with that definition from a, you know, delineation perspective, because how do you know who does research and you get into nanny state questions and like now you have access, you know, open access problems, et cetera.

23:46Scott Galloway:One other one that I believe to be too broad is one that a lot of states in their state rules, rule books hold, which is like you're staking some money in the hope of making more money on something you don't control. That's one, you know, now you could see where that lands, right? You know, if you and I just leave this call and open Schwab and buy stock, even if we're investing in that stock, that's gambling, right? Like we just gambled. So what is the line? Like, I mean, how do we define that line? And, you know, I'll tell you how we do it, but it's actually kind of grounded with how historically the lanes and the regulations have basically landed on this piece, which is one, is there a natural underlying instrument that, you know, where it's helpful to price or forecast the thing because some people in society care about it, whether socially or economically or other.

24:40Scott Galloway:And, you know, number two is the mechanics. And I think that's the most important thing when we talk about addiction, all the issues, the mechanics. Is this, you know, to me, gambling is the negative incentives, right? It's the incentive where I'm walking into a casino and that business is essentially, like, structured against me. Like, it's rigged against me. It's basically gonna incentivize all the bad behaviors that we're talking about because that's how they make money. Whereas an open marketplace, like a marketplace where I'm a marketplace, I'm a neutral, fair exchange where I provide the rules, I provide the guardrails, I provide the technology, I provide the structure, but then people are engaging with each other and they're figuring out the pricing.

25:27Scott Galloway:You could be a price taker ad or you could be a price maker and then you're figuring out how to beat others. That has historically fell under the definition of an exchange, a marketplace, whether stock market, commodity market, et cetera. And that same principle was drawn in 1905 by the Supreme Court for grain futures. And then they delineated, like there's the bucket shop. So if you go and trade directly or bet directly against like a company on grain futures, that's like bucket shop laws. It's gonna go state by state. And if you do it in an open fair marketplace and the Chicago Board of Trade and now CME, that's considered like a federally regulated financial market.

26:04Scott Galloway:And then the same thing happened know, the election market for Calci and then, you know, what we're seeing kind of play out in sports. Also exists, by the way, insurance. You know, you have state regulated insurance, which is like one insurance company is the one that gives you the price and you just take it how it is versus hedging, which is on CME. If you go and want to offload some risk and open and fair marketplace where anyone can compete on the price, that's also like open and fair game. So that's kind of like where, you know, we, I think, draw the line. And to me, all prediction markets very squarely fit under They're kind of number one and number two.

26:34Tarek Mansour:I mentioned the Gatorade at the halftime show. What color is the Gatorade going to be? Which is something that you can bet on on gambling apps. You say that's not something that we provide on Kalshi, which I didn't know that. I assumed that that was kind of fair game. That raises an interesting question of where does that fall on the line? Why does betting on the color of the Gatorade not work for you guys?

27:04Scott Galloway:Well, I think it's kind of the pillar number one is like, is this like a natural like thing, a risk or an occurrence that, like, okay, trading on Brexit, like if you have a market on whether Brexit is going to happen or not, that has extrinsic consequences to a lot of people, government, businesses, people. Pricing that thing is relevant. People care, right? Like pricing, whether this is a 20 % chance or a 60 % chance, that's a very important thing. That can be basically traced back to asset prices. That can be traced back to how we price the S &P, to how we price the FTSE. That's a very important thing to have.

27:41Scott Galloway:That has extrinsic consequences outside of the speculative activity that is going to happen on people trading on whether Brexit is going to happen or not. The Gatorade is a harder kind of argument. I would assume it's 50-50, right? or coin toss is the same, like a similar sort of setup. So this is where like, when you go back and if you all take a step back, you know, on kind of like this sort of, what is the purpose? And maybe we didn't talk enough about this so far, like about prediction markets. Like, why is it so important? Well, I, you know, I'll say like, what they do is they apply a market-based mechanism to questions.

28:13Scott Galloway:So these key, to a lot of questions about the future, some of which may be existential to humanity, some of which less existential. And you have to build a marketplace of diverse range of participants and diverse range of sort of opinions and all of that. But I think to me, it's like what this does. And I don't know if you have seen, there's a Fed paper last week that has kind of in some ways confirmed a lot of stuff that we've been saying over the last few years. And the Fed paper was saying basically, cash fills a lot of holes. One, it's more accurate than Fed funds for forecasting Fed decisions.

28:41Scott Galloway:It's more accurate than any other like survey, like the Bloomer Economist survey for forecasting CPI or inflation prints. But it also gives us a full distribution of outcomes and it does it in real time. It gives us like a much better understanding of basically the economy or a better understanding of the economy. And what excites me about what we're building is like over time is we get a very liquid marketplace about all these kind of different questions. You will basically just have a better light about our future, which enables better decisions, better resource allocation, and then better also like better asset pricing for all the kind of assets that we're currently pricing.

29:17Scott Galloway:So there's a paper from Kevin Hassett about this idea of as society gets increasingly more complex and, you know, you used to be agriculture-based economy. So as long as you understand the agriculture, you understand where we're heading. Then we added, you know, industrials. Then we got into service-based economy and now information economy, all these different, now AI is happening. As you add more and more complexity to society, it argues that we need infinite number of markets. You in some ways need prediction markets to price all these different aspects and facets of society so that you can actually price like the core asset prices, like homes and S &P and the rates and the big sort of ticket items that we currently price.

29:59Scott Galloway:And maybe to make that like example very concrete, like, you know, you might, did you read the AI paper that some people are calling it the Doomerism AI paper from, what was it called? Citrini. Citrini, yes. And what we're doing is we're launching a market this afternoon on whether the Citrini outcome is going to happen. Because in the Citrini paper, someone put out an opinion and it actually tanked a bunch of stocks. The market actually reacted to this. And I want to release that market to price that specific outcome, like price the outcomes that people are talking about when it comes to AI and get a better understanding of AI.

30:35Scott Galloway:Because if you have these markets getting us better prices about these things, those will end up basically helping us price the bigger things, like the S &P and the stocks. And those are things that basically excite me about what we're building.

30:46Ed Elson:When I think about potential for insider trading, which has gotten a lot of reporting, I think eventually that'll be starched out when people realize that you never want to bet against someone who has more information. So I see that probably going away organically.

30:56Tarek Mansour:Why would you say that? This already happens. I mean, insider trading is rampant across many markets, including the stock market. The way we prevent it is through regulating it and making it stop. It doesn't organically stop itself.

31:13Ed Elson:If I'm betting on the speed of a baseball pitch and I realize I don't know, but someone in the audience may be giving hand signals to somebody or it comes out that this is highly susceptible to insider trading. I think fewer and fewer people are going to bet on those things that don't have access. My friend Todd Benson once said to one of my classes at CERN, never bet on anything where there's, if you can, where you believe there's people who may have much greater information than you. I think a lot of the most ripe for insider trading markets are just going to, quite frankly, die a slow death because people are going to realize they're maybe betting against people who.

31:56Ed Elson:I don't understand why anyone would bet on a, I forget what you call them, markets, where someone's saying something on a TV show that's already been prerecorded, unless you are engaging in insider trading. Because it's fun. Well, then it's consumption. It's not gambling. And you better make sure you're having a lot of fun because it means someone with a lot more information is betting against you. You're on the wrong side of that trade. Anyways, Tarek, what would you say?

32:23Scott Galloway:I mean, look, there's a lot of consumption. And I like that frame too. It's like the consumption bucket to think about a lot of these different things. And I think there's consumption on prediction markets, a lot of traditional financial markets. And that's not necessarily a bad thing. So I agree with Scott. And I think the way I always think about this is let's think about why is insider trading banned in the first place? Some would argue, well, if you let insider trading happen in the stock market, shouldn't that make it even more accurate? But the reason it's banned, and actually in some ways we've tried this, is that what happens is exactly what Scott mentioned.

32:57Scott Galloway:Is that like, if you let insider trading kind of go loose, people stop trusting the market. And if people stop trusting the market, they stop trading. Like no one wants to participate, or very few people want to participate in a game or a structure or a mechanism that is rigged. Like that is just like, you know, unfair. Yeah. So, but, but, and so, but, but that's why we actually, you know, we are regulated. There are rules against seller trading. So, so, you know, and these rules are very similar to the stock market rules and the mechanism of how we police it are very similar. And, you know, this has been a big topic of discussion and it goes back a little bit to the regulated versus unregulated situation.

33:37Scott Galloway:There are unregulated players, you know, and they are, you know, offshore. And there is, or at least allegedly, there is a lot of insider trading going on, like the Maduro trade that a lot of people have talked about. And, you know, that has brought kind of these issues into light. But at least on the cashier side, like we have a very strong position, we ban insider trading. Insider trading is not a good thing. It makes the marketplace unhealthy long term, and it creates an unfair field.

34:00Tarek Mansour:Can I ask how you do that? Because I think in the stock market, insider trading laws are very, very strict. And I mean, anyone who's worked on Wall Street will know and will tell you just how intense everyone is about making sure.

34:17Scott Galloway:I mean, the problem is the executive who told the cousin who told the cousin, right? And that stuff does happen in the stock market.

34:24Tarek Mansour:But we have such airtight definitions in the stock market and such airtight regulations. or you're shaking your head as much as airtight as we could make them. Yes, sure.

34:35Scott Galloway:But the definitions are airtight here too, and the regulations are airtight here too. So please explain that. And I think it's an education thing. So it's a thing that over time we need to get there as an industry. And look, are they perfect? I don't think they're perfect. And I think there's work to do with regulators and policymakers, and that's something we're very committed to. But so how is it defined in the stock market, right? And, you know, let's just sort of attack that problem first. I think at a high level, it's defined as like you cannot trade on material, non-public information, which is basically, let's make that even simpler.

35:06Scott Galloway:It's like, Ed, if you have a legal obligation not to disclose information that you have, that you have received, you cannot trade because trading is a form of disclosure, right? Disclosing information, you can, you know, one way to disclose information is you can call Scott and tell him. One way is go on CNBC and tell them. Or you can trade it. And that's one way of disclosing it, right? That same standard applies to prediction markets. And our rules ban it the same way, right? So if you have information that you receive that you legally cannot disclose, you're not supposed to tell anyone, like you work at the BLS and the Fed, you're not allowed to release the report beforehand, you cannot go into the marketplace and trade it.

35:46Scott Galloway:And this applies to any of the other markets that we have.

35:48Tarek Mansour:Isn't the reason that there is a legal requirement not to disclose it because of the insider trading laws in the first place, which says, you can't disclose this. And just to explain this for people, this came up in your interview with CNBC, where Andrew Ross Sorkin was providing to you the hypothetical, like, what if there's a dancer at the halftime show who knows what's going to happen in the halftime show? And there's no law requiring him or her to not tell someone about it. But then he or she does.

36:25Scott Galloway:And that seems to me to be insider trading. The stock market is not the only market that exists out there, right? We have markets on commodities. We have market on rates. We have markets on, I mean, we have all sorts of markets. It's not like we add the stock market and then all of a sudden prediction markets happen. But those markets also have rules around market manipulation, insider trading, and so on and so forth, right? So yes, there's some reflexivity. I agree with you. Like maybe the companies in some ways, the underlying got more strict about some of these things because of the existence of the market.

36:53Scott Galloway:And this could have happened in our market too. It's possible, right? But like the way I would describe it is like, and by the way, I do also want to address how we actually police it. Like how do we actually find, so let's just finish the definition and let's move on to that. But on the definition piece, like if there isn't a problem with disclosing the information to people, then there isn't a problem with disclosing the information to people. You can trade it. Like, you know, and, you know, you could tell a friend who could tell a cousin and then that's completely fair game and that is not considered insider trading there's no issue with that and if people feel like hey maybe too many people may be around the stadium and can look at it they don't and they you know that's like an unfair market they would stop trade like they would just like you know if you over time feel like the the subset of information is too important or too prevalent like too deterministic for the marketplace and they would start trading like scott scott basically was saying but I think that the line like you know you don't want to be in a position where you like block information because it is actually totally fair game to go and sit around next to a stadium and figure out what the next song is going to be and listen to rehearsal that's like doing research outside of Walmart it seems to me

38:02Ed Elson:my mind starts spinning around the different types of synthetic applications of this or different things you could use prediction markets for whether it's hedging existing positions can you give us some examples of of different applications of prediction markets that people have not hit the mainstream yet?

38:22Scott Galloway:One example, you know, and every time around hurricane season, we get a lot of calls from people that live in the Keys and they want to basically buy our hurricane contract. They're buying a hedge against hurricanes hitting their city. And it's super interesting because historically, what they do this is they go to state-regulated insurance, right? They go to an insurance company and the insurance company insures their home against a hurricane. There's sort of like two issues with that. One, it's an inefficient marketplace. And it's a little bit goes back to how when I started the company, when we were like structuring these trades around Trump or Brexit, like there's one pricer, which is the insurance company.

39:01Scott Galloway:And you usually don't get a very good price. And oftentimes they don't pay out the policy. Whereas having it in an open marketplace enables competitive bidding, right? So if Ed wants to buy this hedge, Scott or other people can basically be competing for that market so you can get price improvement. The number two issues for this specific use case is insurance companies have pulled out of the keys because they've had a lot of trouble and a lot of difficulty pricing hurricane risk. It's been a very difficult thing for them to put in their balance sheet. Usually they reinsure it with reinsurers, but reinsurers have pulled out of the market.

39:35Scott Galloway:And so this is a very good alternative that people basically go to. And we see this in a bunch of other places, like, you know, the Fed interest rates, inflation, geopolitical events, bills passing, where kind of regulation could negatively impact an industry or other. And we even see a lot in sports. I mean, sports, the reinsurance or insurance industry for sports is around$10 billion today,$9 to$10 billion today. And the same sort of thing applies. So for example, there's a lot of teams that have big bonuses that are due at the end of the season if they achieve certain milestones. And a lot of teams like to insure against those performance bonuses.

40:13Scott Galloway:And they do it oftentimes with reinsurers. But the prices are really bad. And so now that they can basically offload on an exchange, they get better pricing and they get more efficient pricing. They actually know what the fair price should be for this thing. And that's generally a good thing because it increases liquidity in the ecosystem for all these types of use cases.

40:30Tarek Mansour:We'll be right back. And for even more markets content, sign up for our newsletter at profgmarkets.com slash subscribe.

40:59Tarek Mansour:And it will be more, based on the vehicles of our supply partners in the EU and Great Britain, until the end of 2026.

41:31Scott Galloway:40X, 24 to 25. And this is like on an FY basis. On an annualized basis, much more. It was maybe like 60. I think we could do, I don't know if 10X, but maybe half of that is, I think, within the realm of possibility for this year. It is pretty mainstream now, right? Like it is very, very mainstream. I think like the, so obviously, as you get more in the stream, the growth, you know, at some point, I mean, you know, 45 % of people up to the age of 45, of men up to the age of 45 are like basically active users of prediction markets now. Like some part of them are trading pretty actively. And the other part is like consuming it as an information feed, as a news feed that they use next to X and other places.

42:10Scott Galloway:Like that's a pretty large number, right? You're starting to kind of like flirt with, I wouldn't say you're flirting with the boundaries, but you're starting, you know, you're starting to decelerating as you kind of get closer to the boundaries of the TAM. But yeah, I think it's possible. I mean, I think, you know, we're growing it. The institutional business is starting to pick up traction. I think going international is exciting. diversifying into more marketplace markets, types of markets, and there's a lot of categories that are growing. So, you know, I think there's a lot to be excited about for 2026.

42:40Tarek Mansour:Tarek, I've grilled you a good amount in this episode. I think as we just close here, I would separate two things, as I said at the beginning. On the content, Calci and prediction markets as a content machine, as an information machine, I don't think it can be disputed. Everyone is looking at this stuff. Everyone is interested in this stuff. This is, by the way, one of the great things about markets in general. This is kind of why I love markets. It has this really awesome thing, which is that it tells you a lot about the world. You can look at a chart and you can understand things. It tells you about the future.

43:17Tarek Mansour:This is the great thing. It's even a great thing about options trading as well. Options trading also is an interesting and helpful information machine, content machine. At the same time, I am personally someone who thinks that the act of trading options is not a good or wise investment decision most of the time. I would grant you that there are a lot of people who make a lot of money who ultimately are doing well. But ultimately, something I wouldn't recommend, I don't think it's great. Now, the law generally agrees, for the most part, which I think is why we have these stringent laws on things like gambling, on things like options trading, where we say you're only allowed to do it if you prove this, this, and this.

44:06Tarek Mansour:You're only allowed to do it if there's sufficient education. That's not true for gambling. Or for gambling, it would be we need to express to you, and I mean, if you're advertising as a gambler, you need to say you need to gamble responsibly. we kind of recognize that that is built in you need regulation which brings me to i view calci as kind of the only platform in prediction markets that actually is embracing regulation i think prediction markets are here to stay i think the genie's out of the bottle this is happening so the thing that i think is really important for you and i i guess i want to hear more about is how will you embrace the regulation that so many tech companies throughout history have tried to shirk off because it eats into margins, it eats into your bottom line, it can be an annoying problem.

45:01Tarek Mansour:How do you deal with that?

45:02Scott Galloway:I don't think of it that way. Look, I think let me just address it in two folds. First, the model. You may or may not, you know, people may or may not agree whether trading on option is a good or bad thing. I strongly believe that trading on prediction markets is a good thing. And we've seen the results. People are being more engaged in the political process. They research different things. And if you talk to our traders, you see like it, you know, it brings them community. Like, you know, I, you know, the going back to the Joel example, like I think one of his best men is someone who he's met in a prediction market in Calci in our discord.

45:35Scott Galloway:And I think there's a lot of like beauty that's coming out of these markets where like you're seeing this sort of like subjective debate that usually happens, people insulting each other on Twitter and, you know, this polarized on Instagram happening more quantitatively, more objectively, more in a more engaged way, more intellectually on prediction markets. And I think that's a good thing. I think we're like, we're not talking about like, when you have a position on something, you get more self-calibrated. Like, you know, when social media is incentivizing clickbait, prediction markets are incentivizing truth, calibration, objectivity, the pursuit of truth.

46:08Scott Galloway:All of these things are good things. And I think over time, you know, when I think about people, like even, you know, when we think about like, you know, our generation, like we want people to value things like being accurate, being precise, thinking critically about the world. And I think prediction markets brings a lot of that. Our regulatory position. So we spent four years getting regulated before we launched a single product. So the reason why you heard about Polymark and a lot of other, you know, Polymarkets really primarily in other places, they just launched without a license, without anything else.

46:34Scott Galloway:We were committed to like, we'll get the license up front no matter what. And let me tell you, like when I was 22, the idea of spending my 22 to 26-year-olds just doing regulation and law and legal stuff without a product, I mean, it was horrendous. It was really difficult. But I'm very proud of that decision because, you know, it led to the outcomes that we're seeing now or leading in the market. But I want to build an enduring company. And I just don't see a way to build a financial services company. I can't talk about social media and other places. But a financial services company without proper regulation.

47:03Scott Galloway:I think that's, you know, I think it's not right. Like, I think you need a regulator overseeing every step, where the money is going, reporting on transactions, everything needs to be public. But then, you know, I also think that, like, there are questions like the ones that we're discussing that, you know, over time, we need to get better at solving. And that's something as a company I can do alone. We need the regulators to work with us.

47:27Tarek Mansour:Tarek Mansour is the co-founder and chief executive officer of Kalshi. Tarek began his career as a quantitative trader at Goldman Sachs and as a global macro trader at Citadel. He went on to co-found Kalshi in 2018. Tarek, thank you very much. Appreciate your time. Thanks, Tarek. Thanks for having me.

47:53Ed Elson:What did you think again? What did you think? Can I throw it back to you? Well, you know me, I'm pretty quiet. I don't like to share my viewpoint. It's just sort of reserved. I think they're trying to be the clean, well-lit corner of this environment. I mean, I struggle with the concept as a whole and the tension between you can't infantilize young people. Paul Tudor Jones, one of the great investors, will say that 80 % of the stock market is speculation. transaction, that if you look at there's$3 trillion in transactions, it's like 300 billion of secondaries and equity offerings, true financing.

48:38Ed Elson:So technically 90 % of it is not investing. It's me betting against you that the stock's going to go up or down and you're taking the other side of that trade. So this isn't much different. But at the same time, it does feel like it has more of a gambling feel to it. So I don't have moral clarity around that. What I am absolutely fascinated by is the opportunity for, so I am a resident of Florida. Basically, Floridians are struggling with they can't get insurance. And it's not only you have to go naked in terms of risk, if you have a mortgage, a lot of, because the mortgage industry is in bed with the insurance industry, in order to get a mortgage, you have to show proof of insurance.

49:18Ed Elson:And now homeowners in Florida can't get insurance. So is there some sort of synthetic where they basically every time, Hurricane Claudia pops up, they basically agree to buy or bet for you that this will hit. And if it hits, you get a bunch of money to cover your damage. I just think there's so many opportunities here. As you know, we are constantly using this information because as it ends up, the wisdom of crowds really is wise. This might put pollsters and investment banking analysts out of business because the guy covering Apple for J.P. Morgan, J.P. Morgan wants Apple's next debt offering and is always going to exaggerate the upside or have a bias towards the upside.

50:05Ed Elson:There's nothing to get to how you really feel about something when you ask people to put their money behind it. I hope that he does appear to be sincere about not embracing regulation, but at least being relative to his peers. He gets credit for embracing regulation as opposed to trying to skirt around it. So I think he gets some credit there. It'd be interesting to see if he, I thought it was 10X. He said 40 to 60X. Obviously, 26 is going to be a pivotal year for him. Anyways, my thoughts. What are your thoughts?

50:37Tarek Mansour:I think you have to give him credit for wanting to comply with regulation. I think there are so many of these companies that the idea is let's just skirt around as many rules as possible to make as much money as we can. That's not the route that he is taking. I do think he needs to get more clear on what are the lines that you're drawing here. What are the lines between speculation versus investing? What are the lines between speculation and gambling. These are hard lines to draw. It's not very clear. As you say, you know, options trading, you can make the argument that the entire stock market, or at least 90 % of the stock market, if you're not directly participating in the fundraising and investing in an actual company, if you're just trading the stocks around, maybe that's speculation, maybe that's gambling.

51:26Tarek Mansour:I think it's a harder argument to make. But the point being, there needs to be a lot of clarity on what are the definitions between these different things. Because what I can tell you is that betting on, say, the color of the Gatorade is flat-out gambling, and there is no real benefit to society other than it's fun and it's a form of consumption. And if that is the case, and if that is happening on the platform—he says they didn't do that, do the Gatorade on the platform, but maybe there are some others—if that is the case, you've got to regulate it like it's gambling. You've got to have disclosures.

52:03Tarek Mansour:If you're going to advertise, you need to say, gamble responsibly, trade responsibly. The same way that we have real robust regulations around any other addictive product, around cigarettes, around drinking. I mean, the rules are there in place because bad things can happen. And so what I would love for Tarek, and I think he's doing this better than anyone else in this industry, which is happening. sorry it's happening whether you like it or not uh he is embracing that more than the others are and i think that is going to be crucial to minimizing the very real potential for downside risk here when it comes to speculation addiction uh and and gambling um because unfortunately that is happening on these platforms so now it's on regulators to figure out how to make sure this works for everyone

53:04Tarek Mansour:this episode was produced by claire miller and alison weiss and engineered by benjamin spencer our video editor is jorge corti our research team is dan shalan isabella kinsall chris no donahue and mia silverio jake mcpherson is our social producer drew burrows is our technical director and Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from Prof G Media. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.

53:35Lifetimes

53:40You have me

53:45In kind reunion As the world turns And the dark flies In love, love, love, love