160: Why Prediction Markets Matter To You

0:00Robert Croak:Hey everyone and welcome back to the Rich Habits Podcast, a top 10 business podcast on Spotify brought to you by public.com. By the end of this episode, you'll understand exactly how prediction markets work, why they're better than polls, pundits, and headlines at telling you what's actually going to happen, and how you can use them to make smarter investment decisions starting right now. My name is Austin Hankwitz and I'm joined by my co-host Robert Croak. Robert is a seasoned entrepreneur with lifetime revenues of over 300 million, and I'm a multimillionaire in my late 20s with a background in finance and economics.

0:36Robert Croak:As the show name might suggest every episode, we talk about rich habits as they relate to business, finance, and mindset. So Robert, what are we talking about in today's episode?

0:47Austin Hankwitz:In today's episode of the Rich Habits podcast, we're talking about one of the most powerful and most underused tools available for everyday investors, and that is prediction markets. We're going to break down number one, what they actually are. Number two, why they're more accurate than almost any other source of information out there. And number three, explain how you can use them to actually get an edge with your own portfolio.

1:11Robert Croak:And this isn't some obscure corner of the internet anymore like it was during 2021 or 2022. to. Polymarket, a very famous prediction market website, did$21.5 billion in trading volume last year in 2025. And in February of this year, pioneered by the Super Bowl, prediction markets did a combined$18 billion between Polymarket, Calci, Robinhood, whatever, $18 billion just in that one month. And just last week, the Iran conflict prediction market contracts on Polymarket topped half a billion dollars in volume, one of the largest single day markets they have ever hosted. This stuff is going mainstream and it's going mainstream fast.

1:58Robert Croak:And most retail investors have no idea it exists or how to even use it. So this episode, we are going to fix that. I am so, so, so excited to dig in because I feel like, again, Robert, this was a very small, weird part of the internet, but now it's becoming more prevalent and we've not yet talked about it on the show. So Robert, why don't you kick us off by sort of setting the table of answering the question, what even is a prediction market?

2:24Austin Hankwitz:Yeah, I'm so glad we're doing this episode because we've been talking about prediction markets as an edge for months and months and months for people to use it as a tool for their own portfolios. So think of it like a stock market, but instead of buying shares of a company, you're buying shares of an outcome. So So for example, will the Fed cut rates in June? Will SpaceX IPO this year? Will there be a recession in Q4? Each of those questions becomes a contract, and the price of that contract tells you the probability that the crowd, aka the people, putting real money on the line think things will happen.

3:03Austin Hankwitz:Will they happen? What is the percentage? And if a contract is traded at$0.72, the market is saying there's roughly a 72 % chance that that outcome occurs. We love these tools because they're just so helpful in understanding what the rest of the world is thinking about each of those questions and outcomes.

3:23Robert Croak:Yeah. So let's like make it super simple for people to understand when it comes to purchasing an event contract on one of these prediction markets, let's say, for example, is the Fed going to cut rates in June? I don't know what the real percentage is here, but let's call it 30%. That contract is at right now will cost you 30 cents to buy one contract. That one contract, if the Fed does cut rates in June, will turn into$1. So you spent 30 cents to make$1. And then of course you pay your platform fees and trading fees and stuff like that. But that's how to think about it. Robert did a great job of a contract is trading at like 72 cents, right?

4:01Robert Croak:There's about a 72 % chance that that's going to come true because 100 % chance is that$1 outcome. So$0.72, 72 % chance turns into a$1 outcome. Now, what makes these prediction markets so different from just reading a poll or listening to an analyst is that people are putting their own money behind these predictions. It's not a survey where you can say whatever you want and there's zero consequences. is if you are wrong with how you play these markets, you will lose money, full stop. And if you're right, you will make money. So that financial incentive is what makes the signal from these prediction markets so much cleaner than anything else out there.

4:44Robert Croak:So Robert, let's walk into our first big idea as it relates to the prediction markets.

4:49Austin Hankwitz:So here's the first big idea when it comes to prediction markets. And it's the one that blew my mind when I first started paying attention to prediction markets. These platforms like Polymarket and Calci, they're essentially showing you in real time what the smart money thinks is going to happen. And this is the information that used to be locked behind Bloomberg terminals and hedge fund research desks. So let me give you some real examples. Right now on Polymarket, the odds of SpaceX going public through an IPO in 2026 are sitting at around 86%. But here's where it gets interesting. The odds that SpaceX would be valued above$1 trillion at IPO, that's been hovering around 91%.

5:29Austin Hankwitz:So the market is telling you it's fairly certain SpaceX will IPO in 2026 at a valuation well above$1 trillion on day one. That's an incredibly useful signal if you're thinking about investing in space-adjacent companies on the broader tech ecosystem. And like Austin alluded to earlier, this is real money, real people betting on an outcome, not like the old days where you'd bet on free stocks and you had free money stock portfolios that you didn't suffer if you were wrong. So that's why I love it so much.

6:02Robert Croak:No, I think it's a great example, Robert. And something I love most about this is it sort of gives you a framework because when we talk to entrepreneurs and investors, we do this all the time and they're trying to make decisions based on a gut feeling or based on what their buddy told them over at dinner. And don't get us wrong, gut instincts and you know what your friend tells you around discounting that but what is most important is when you can see the real probability with the real dollars behind it of an event taking place because that begins to change the conversation you're not guessing anymore about what an outcome can be you can actually read the room and what's awesome about these prediction markets is it's not just about the ipos you can also see the probability of the fed cutting interest rates at every single FOMC meeting for the rest of the year.

6:50Robert Croak:So as of right now, Calci has the odds of at least one rate cut by July, 2026, hovering around 70%. The odds of three or more rate cuts by the end of the year is only 15%. So if you're out there saying, hey, you know, we just saw this inflation print, it was cooler than expected, the Fed's gonna cut rates three times in 2026, well, you can have that idea, but by looking at where real people are putting real money, that is only a 15 % chance probability. So it allows you to have a different perspective on your own assumptions when it comes to your investing style.

7:24Austin Hankwitz:And that matters a ton for your own portfolio because if you've loaded up on high growth, rate-sensitive tech stocks expecting four or five rate cuts and the market is only pricing in maybe two, you might be positioned wrong and this is actionable information that you can use to rebalance and calculate where you should be invested. And you can even go deeper. There are contracts on tariff policy. There are contracts on whether the U.S. will enter a technical recession. There are contracts on geopolitical events, even. All of this used to be kind of the scenario analysis that Goldman Sachs would do internally and charge institutional clients a fortune for.

8:02Austin Hankwitz:Now you can pull it up on your phone for free and know exactly what they know and have this edge on the rest of the markets. And this is what really gets me excited because I remember early in my career, the information asymmetry between Wall Street and Main Street was massive. I mean, really massive. And prediction markets are the one tool that's actually closing the gap and making it fair for the everyday investor like you and I to be able to have the same information that the big guys have.

8:30Robert Croak:I love that breakdown, Robert. Let's now jump to our second big idea as it relates to these prediction markets. Why prediction markets are so much better than other sources of information most people rely on. And I know you've got a lot of strong feelings about this one.

8:44Austin Hankwitz:Yeah, I really do because I see so many people, smart people, making financial decisions based on headlines. They see recession fears mount on CNN and they panic sell. They see markets set to boom on Fox Business and they go all in. And both of those headlines are designed to get clicks. They're not designed to help you, the investor, make more money.

9:05Robert Croak:Prediction markets allow you to see through the noise better than the polls, the pundits, and all the headlines you might see online. And this is where the data really speaks for itself. Because in 2024, we had, of course, the presidential election and traditional polls had the race essentially a coin flip. For example, RealClearPolitics polling average had it within one or two points right up until election day. But on Polymarket, a prediction market platform, it was very different. Polymarket had Trump winning this at a 67 % chance for weeks leading into the election. And as we saw, Donald Trump won the election.

9:43Robert Croak:The prediction market was right and the polls were wrong. And it wasn't just on this top line result. Poly market was actually much more accurate in swing states and how they were going to vote as well. Pennsylvania, the market had it leaning Trump while most polls said it was a toss up. Georgia, Arizona, poly market and prediction markets saw it coming a mile away. The prediction market nailed the direction on nearly every single battleground state. And this is, of course, not a political episode. It just goes to show with something as important as a presidential election or politics or anything going on like that, like these prediction markets really allow you to better understand and see the difference between signal and noise, talking heads, pundits, headlines, and is this actually happening?

10:31Robert Croak:Polymarket, Kalshi, they help you figure things out. Is this actually happening versus a Fox News business or a CNN article saying recession, be careful, right?

10:41Austin Hankwitz:You have to ask yourself, why is that? Why are prediction markets better than polls? And it comes down to one word, incentives. When a pollster calls you and asks you who you're voting for, there's no cost to lying. There's no cost to saying undecided when you've already made up your mind. There's no cost to telling you what you think sounds good rather than what you actually believe. But when you put$500 on an outcome on Polymarket, you better believe you've done your homework and you're putting your money where your mouth is. And I also think that it's because you're getting the information from the people and not from someone or some organization that actually has a stake in the game to persuade the outcomes.

11:24Austin Hankwitz:That's why we love this as a tool. And that's kind of one of the key insights. Polls tell you what people say. Markets tell you what people believe. And when there's a gap between those two things, the market is almost always closer to the truth.

11:38Robert Croak:That's all correct, Robert. And there's another layer to this, which I think is just as important. The fact that prediction markets are self-correcting in real time. So as new information comes out about a jobs report, a Federal Reserve speech, an earnings surprise, something with validity to it, the odds shift within minutes. You don't have to wait for the next poll to be conducted in two weeks from now. The market is repricing itself constantly, incorporating every piece of new data as it comes in in real time. It's like having a living, breathing probability engine.

12:14Austin Hankwitz:So if you're someone listening to this and you're still relying on cable news and X threads to form your investment thesis, I'm not saying stop reading the news and stop following along on all these platforms. But what I am saying is check the prediction markets first, because like I alluded to, they're reactive, they're fast, and they change within minutes. And you can see what the actual money is really saying. Then read the headlines and decide if the narrative matches the probability. Nine times out of 10, you'll find the headline is more extreme than the actual reality. Now, Austin, before we jump into our next point, I want to give a shout out to our sponsor.

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13:53Robert Croak:Paid for by public investing. Full disclosure in the podcast description. Now, Robert, let's go over our third and final segment of this episode as it relates to prediction markets. This is where I think the rubber really begins to meet the road as it relates to your own investments. Robert, walk our listeners through how the big players now are using this information, the probabilistic thinking around prediction markets to inform their investment decisions.

14:24Austin Hankwitz:So every serious hedge fund, every macro fund, every family office, they all do some version of scenario analysis. They say, okay, what's the probability the Fed cuts rates? What's the probability of a recession? What's the probability that this trade deal falls apart? Then they assign probabilities to each scenario and position their portfolio accordingly. It's not about predicting the future with certainty. It's about weighing your bets based on the most likely outcomes. And they pay teams of analysts millions and millions of dollars to do this throughout the year.

15:00Robert Croak:And that's what prediction markets give you for free today. So let's walk through a real example. Let's say you're worried about a recession. Maybe you're thinking about switching jobs, or you're sitting on a bunch of cash because you're scared to invest in the stock market ahead of a looming recession you might be worried about. If you go to Polymarket right now, the probability of a US recession in 2026 is trading around 30%. That's not nothing. It's definitely worth paying attention to, but it means there's a 70 % chance we don't have a recession.

15:33Austin Hankwitz:So if you've pulled all your money out of the market because you read one scary headline, you're betting on the 30 % scenario and ignoring the 70 % base case. And that's useful information whether you're making career decisions, investing decisions, or just trying to figure out how cautious you should actually be right now given the market conditions. and you can apply this same logic across your whole portfolio.

15:57Robert Croak:Yeah, we see this all the time with people inside the Rich Habits Network messaging us and the DMs and of course here on Instagram as well. They read one scary article, one headline, and they say, I got to get out of the markets. I can't believe this. What am I doing? I'm an idiot to have my money in the stock market. But we ask them, what's the probability you're assigning to that scenario, right? This headline of inflation or Fed or war or recession. or like what's the probability? What's the real probability that you as an investor are assigning to that? Because that's the framework sophisticated investors use.

16:32Robert Croak:They don't just think in certainties, I must pull my money out because this is gonna happen. They think in probabilities. And now each and every one of you listening can go to PolyMarket's website, CalShe's website, or any other prediction market with enough liquidity where it makes a lot of sense and use them as tools to show you what the crowd thinks the probabilities on these outcomes actually is. The point is you are making an informed decision instead of an emotional decision.

17:01Austin Hankwitz:Yeah, it always reminds me of an old saying in the business of investing that the best accounts that perform well over time are those of dead people and people that forgot their passwords because they can't and don't have these knee-jerk reactions that we talk about all the time. And that really brings me to this is crowdsourced macro research. You used to need a$50 ,000 a year Bloomberg terminal and a team of analysts to get this kind of probabilistic framework. Now you can pull up Polymarket on your phone and get a better read on geopolitical risk than most financial advisors are giving their clients.

17:37Austin Hankwitz:And that's a massive shift. And most people are sleeping on this. Let me say that again. go right to your phone. It's free and you can get all of this information right before your eyes in seconds to help you better decide what is your move for your money.

17:52Robert Croak:So Robert, let's wrap all this up. Here's what we want our listeners to walk away from this episode with. Number one, prediction markets like Polymarket and Calci show you real probabilities backed by real dollar bills. This is the signal. This is not noise. This is not headlines. These are not tweets. It's not your uncle's opinion at the Thanksgiving dinner. If you want to know what's likely to happen, right, whether the Fed's going to cut interest rates, if we're going to have a recession, if SpaceX is going to IPO at a whatever trillion dollar valuation, check the prediction markets first. It will take 30 seconds.

18:26Austin Hankwitz:And number two, these markets are more accurate than polls and pundits because the people participating actually have skin in the game. Real money filters out the noise, the bias, and the spin. The 2024 election proved this on a massive scale. Polls tell you what people say. Markets tell you what people believe. So start paying attention to the gap in those two things. And I'm going to roll right into number three now, Austin. You now have access to the same kind of probabilistic thinking that hedge funds use to manage billions of dollars for free and right in your hand. Use prediction market odds to stress test your investment assumptions.

19:03Austin Hankwitz:If you think rate cuts are a sure thing, check the market. If you think a recession is inevitable, check the market. Position your portfolio based on probabilities, not emotions or headlines.

19:16Robert Croak:And Robert, I'll throw you guys a little bonus one here. Number four, which we didn't really talk about, but I think this is just as important. Don't be reckless with this type of stuff, right? Prediction markets are a research tool. They are not a crystal ball, and they are certainly not a casino. Use them alongside your other research tools like WallStreetFavorites.com. As you guys might remember, Robert and I have built WallStreetFavorites.com. We're really excited to unveil this new awesome platform to the world. So go check out WallStreetFavorites.com. More on that in the show notes below.