E174: Tarek Mansour, Kalshi CEO: Why Prediction Markets Are the Future of Investing

0:00The best way to price anything is a market where you get rewarded for being right and you get punished for being wrong. Instead of like settling something via debate, the market will filter it. You're taking this complete mess of subjective emotion and debate to the clean plane of mathematics. Information doesn't lie in the traditional authority figures or institutions. It actually is very distributed amongst the crowd. Prediction markets are the best at forecasting in the future. What's the true innovation of prediction markets? So, you know, um... Tarek Mansour, co-founder and CEO of CalSheet.

0:27The largest federally regulated exchange for event trading. A former Goldman Sachs and Citadel trader. Advancing prediction markets as an asset class. How does prediction markets revolutionize the media industry? One, it's a version of going direct. There's no intermediaries. There's no filter. There's no spin. There's nothing between you and the answer. Second thing is the incentive structure in prediction markets is true. You get paid if you're right. And you get punished and lose money if you're wrong. That doesn't quite exist in traditional media. Talchi is launching the very first regulated perps in the USA.

0:56It's what people want. The offshore market is very, very good valuation. There's no first principle reason for why the U.S. should be different. What does the regulator purpose actually mean? Let's talk about the distinction. Like, when should it be a future versus a purpose? When it comes to digital assets, like Bitcoin, etc., they don't have any. Then the derivatives should not have an unnatural entity. It should be a perpetual. People should decide when they want to close their own position. Edward Armstrong was on this podcast a few months ago, and he says insider trading is 100 % necessary in prediction markets.

1:21I read a tweet recently, which I totally agree.

1:28Hi, everyone. This is the little bit that I know none of you like that can help us make a huge difference for this show, and we want to take it next. 71 % of the people who regularly watch When Shift Happens have not subscribed. And so all I'd ask you if you want to make a huge difference is the following. If you've seen this show before and you like it, help me, help my team. Hit the subscribe button and we'll continue to build this show for you. Thank you. It's a crazy week. Is it not a crazy week every week? this you know yeah i mean it is there's some variants this one was because they just passed market structure and there's a bunch of shit going on out of committee uh and everything is like usually very urgent with these things so how do you know what's urgent and what's not urgent if everything is urgent it has to be sort of like consequential and then there's like a deadline like basically there are things like and consequential is usually things that are like pretty important and then they're like one-way door so it's like you cannot you cannot just sort of like you know type one type two from bezos like you cannot revert the decision after it's made like after the thing happens um those should give a lot of attention to because if you made a mistake you cannot change that later down the line uh whereas if like you can revert back then it's okay you don't like someone else can handle it like you can let it be it's okay to skip a deadline worst case you know in two weeks you basically change it um so is this mine by the way yeah it's yours i was told you love anime i was like this is perfect i'm just gonna put it there to put it in good mood in good mood i have a lot of these i have a lot of these in my house i mean all my house is like decorated as anime where is the anime passion coming from and since i was a kid like i just loved i started like reading dragon ball and it was like six maybe five six um and then since then i was like a huge huge fan uh you know i think a lot of a lot much larger percentage people like anime than um people know because when i liked it it was something that you just don't tell people about you know it's like kind of like a pretty uncool thing to do like you know like a big nerd if you like anime but now it's like pretty cool like people like you know uh people are like came out of the closet uh people that like anime came out of the closet so it's like uh because you know It's pretty cool to be a nerd now.

3:52So it's different. Now you can probably show them in the office and we can probably put it on the table.

4:00That's right. How are you doing? Pretty good. Yeah. Life is good? It's pretty good. I mean, like, you know, the company is growing. Like, I think the product is getting a lot better fast. I think they have a really incredible team. And I think that's sort of the best, usually the best leading indicator of most things. It's like the product is really, really improving. that's really exciting and consumers are increasingly loving the product more which is really good um i just think things end up like when you're in this sort of hyper inflection phase um the the analogy is like you have always things being thrown at you all the time all the time just like non-stop and you know we're a small team you know we're like still like 150 people or so so like um everyone is like overstretched all the time so you know things feel pretty hectic but it's a good type of hectic like the exciting one who are you who am i it's pretty philosophical let me think it's a good question um so a few things i would say one of my most defining characteristics is like i'm a math nerd at heart i really really love math like that's a lot of what has like guided what i want to work on and what i get excited about when I'm like, you know, in the day-to-day, in the work.

5:24And, you know, I...

5:31You know, I like to find ways... So I really like math, and more specifically within math, you know, when I went to MIT, you know, so I spent time, you know, in Lebanon, like, really kind of figured out, okay, where are the math nerds going, and MIT was one of the names that came up. so I really worked very hard when I was in Lebanon to figure out how to get into MIT it was hard to get in from Lebanon and all of that and at MIT I started really liking the types of classes I really liked is like a little bit more on the theoretical side and I really loved information theory and probability I really really liked everything around sort of like you know all this comes around model capacity like how do you encode information like you know in the most compact way um and then just probably theory just everything around that and that led me naturally to finance because that's where you can you know apply these things i wanted to be i didn't want to be necessarily in academia i wanted to like apply it um and the more time i spent in finance the more i liked it i liked i like there's like some degree of objective function like uh that is pretty clear and well defined you know like that's why i like working at citadel because the culture there is like what is your piano there's no subjectivity there's no debate there's no like it's very hard to debate right you have a number and i like that i really like the the the certainty of mathematics and and i don't know why i mean i i can respond to that i don't know if you want to follow up on that certainty of mathematics to define who is the best or just certainty of mathematics there's a certain sort of um

7:13so growing up in lebanon um i would say there was two things you know one that was broader macro and then one that is more micro that defined me uh the macro one is like lebanon is a very um um volatile country extremely volatile country right i wouldn't say it spikes in like dangerousness or or level of conflict or level of peace or level it spikes in volatility things are always always changing like you know it's like you can go from full-blown peace to full-blown war over like really quickly like from you know safety to civil unrest really quickly it all stays back and forth people got used to that but it's very volatile there's always a lot of stuff going on um and then the second thing is i grew up with a single mom and a single mom household which create there's like an underlying feeling of anxiety you look for like refuge and it's hard to have without like a dad present in the house and it's interesting because when you talk to a lot of uh funnily enough like a lot of entrepreneurs like a disproportionate number of entrepreneurs have had similar setups growing up um i personally found refuge in math like i like the fact that there's an answer you know uh it's like a world where you can go to and like you can box out the problem and like find an answer at the end and i found that to be very elegant it was really beautiful and and the answer is not you cannot debate it like a math proof is so elegant and beautiful because when you get it right there is no debate there is no um like vagueness there's no nuance it's just like okay does it work or does it not work and there's i don't know that that's the certainty i'm talking about it's a bit of a feeling of it feels safe right it's beautiful it's symmetric it's well structured versus the outside word that was like complete chaos all the time right um so yeah you said there's a many entrepreneurs have a common story i actually always ask this question to all the people i interview because they they have this common pattern which is a childhood trauma or something that happened in their life that gave them this fire in the belly and drive yeah for this incredible success that they have today you want to develop a bit more on that like maybe what we mentioned with your mother and how it impacted your fire in the belly and enabled you to be a multi-billionaire before 30 years old which is something that pretty much doesn't exist yeah I think

9:55so a few things happen but like definitely the single mom thing is a very defining at least something that has really defined me and it's it's and it's not just that is that plus my mom had this sort of extremely high expectation extremely high standard of us extremely high expectations and to this sort of unwavering belief and conviction that we will do great things and in some ways had to do great things Like we had to be great. And then I talked to her sometimes about it. And what was it? I mean, she had like really a very deep sense of anxiety that we would like, you know, be a little bit like our dad and like kind of not be there and like not fully achieve our potential and all these different things.

10:42And she also sort of in some ways when she had us and she went through a divorce, et cetera, we basically became like her life, like her achievement, her success. like the way she I think ended up measuring herself is through the success of her children right and she's like you know she's like a harsh person she's someone who really like has you know it's like kind of my way or the highway I want like you know like 9 out of 10 is a loss you have to be 10 out of 10 and all that and it was intense it was like a very intense version of that plus there was like all the you know the Lebanon volatility the financial sort of like stress and anxiety and like we like carried a lot of that and you know people that like grew up in financial stress it doesn't leave you you know like this sort of thing never leaves you right and you like want to help your mom because you you feel kind of like you feel always stressed and your mom is alone and like she's doing all these things by herself um and and as the eldest like i was the eldest so we were two brothers and i was the eldest as the eldest you start putting like these types of responsibilities on yourself like you know am i doing enough even though you're like a you know 13 year old right uh and you carry that anxiety with you all of that doesn't leave you right and then you see people around you that like have full families like they live normal lives and uh you know you you you know you sort of like um you start seeking this notion of like um yeah refuge like you want you want to you want to have it for yourself and i think it ends up all of that ends up bottling up it as a sort of monster chip on on your shoulder basically it all ends up manifesting itself i mean look it depends some you know i think maybe in some ways my brother and i were lucky that it ended up manifesting that way but maybe in some other places you could end up you know it could end up like going in the other direction like in a more negative direction right um and uh but yeah my mom really pushed us so it's it's channeled in that direction and so ended up being very ocd very sort of uh focused very perfectionist very like competitive like i you know i really want to like always always give it my all like my biggest fear is not leaving it all on the field it's walking out of a day or walking out of something and be like i did not give it my absolute best i didn't try any everything i could possibly try to basically make this happen um and so that just doesn't leave you like i think that just you know that momentum and drive basically ends up you know staying with you for for a long period of time and I think that's the case that's the case for me you know I challenge my love for math I challenge my like in like my competitiveness I challenge it I challenge it in my wanting to basically like you know learn more and more about things and then after a while into building a company yeah quick one I want to thank our partners who help us make this show possible thank you treasure my favorite cold wallet to store my bitcoin and crypto and make sure I sleep well at night.

13:42If you want to sleep well at night too, you can order your treasure wallet with my promo code WSH10 and get a 10 % discount. Check out my treasure link in the description down below. Big thanks to my good friends at Bitwise Asset Management for backing today's conversation. Bitwise is a global crypto asset manager with$11 billion in client assets and more than 70 crypto solutions. That includes ETFs, index funds, smas custom option strategies staking vaults and more however you want to invest in crypto the experts at bitwise have you covered you said my brother and i what does your brother do he is working at a hedge fund in in in london um he actually is more like um you know it's it's interesting you know have you ever played fifa the soccer game you know how like when you're picking players there's like all the attributes and you know like if you like see you know i don't know um like some some players that end up really like messy is extremely spiky like on dribbling for example like he has a huge spike on dribbling you can apply that to life i tend to think that entrepreneurs tend to be like very spiky in one dimension and then a lot of the other dimensions tend to be like pretty weak uh my brother somehow ended up being much more balanced so he's like a more balanced life like he's actually like a very successful person with much more balance much more structure etc i'm very very spiky what are your spike yet i think resilience like just this sheer stubborn resilience like i you know i like really will bang my head against the problem for like over and over and over and over you know completely locked in uh no matter what like you know i can like you know not eat for days i can like i you know i i get really really like focused on something uh and you know that's a hard life today because and then i go from one to the other right i like i there's a problem okay if i solve it or you know like that chapter is closed i go immediately to the next one um and i over time it's actually kind of it's a pretty positive trade for a founder because you know you're in my view that one of the key roles of a founder in a company is you have to find the hole in the boat like you're on a boat and in a ship and there's It's a sinking ship at all point in time, no matter who you are.

16:04It could be a seed stage company all the way to Apple. There is one really gnarly, really big problem in your company. And that problem needs to be the founder. The founder needs to consistently seek the hole in the boat that's sinking the ship and figure out how to resolve it. And then you resolve that one. Then there's going to be another one. You have to go to the next one. And that thing should not be delegated. And so I think that has helped that like sort of extreme level focus helps. you said entrepreneurship is your therapy why i don't know if i said that but i i think i you know say that definitely i'm definitely one of these entrepreneurs who is kind of broken inside but use entrepreneurship as therapy yeah i think i think like um i don't know honestly like when i'm not um battling with something like when i'm not you know in the midst of like you know um i think a building company like it's a little bit like the ship analogy that just it's like a bit like war you're always like taking on battles and like you you want to like consistently sort of like um um you know seek greater and greater seas and like all of that and i think like um whenever when i'm not in that mode where like i'm i'm under tension like i'm i'm under sort of like working through something and battling and going on I kind of get a little like I get depressed and I don't know like I you know and part of it is like I don't really have I just immediately lose purpose like I want to be working towards something and I you know and I honestly find myself in many ways really lucky because you know one of the things that have gotten us through and you know Kalshi has a lot of anti-patterns we've gone through like years and years like four or five years of absolutely like no one cared about the company it was completely dark and the things that got us through this is like uh and it's true for both one and i like if we were to pick a problem to work on in a vacuum it would be something it would be something in financial markets is something where we're building and i like to believe that we're building the next generation of financial markets so like you know we've kind of found our thing like we found i think our life's work um and and i think uh whenever i'm not working on that i I just sort of kind of like lose purpose.

18:22I had a conversation with Michael Saylor a couple of weeks ago on this podcast. And you share at least two things. Probably more, but at least two things. The first one is a mother who was saying, you're going to do great things. You're going to do great things. Oh, he said that? Yeah, he said that. The other thing is you both studied at MIT. And he actually said that building micro strategy for the first 10 years, going public, going that into a multi-billion dollar company was not hard. You said MIT was hard. MIT was really hard. Does that resonate with your MIT and Calci experiences?

19:05I don't know. I don't know if I fully agree. I mean, like, I actually think, okay, I have somewhat of a separate view. I can address MIT as well, but I think building a high growth VC backed sort of completely out in the open tech company is one of the hardest sort of endeavors. I really do. And because there's like, you're putting ourselves, you're putting yourself out there. And, you know, Jensen talks a lot about this. and I think he kind of said it best I couldn't put words on it until he said it but like for a long period of time and even until now like it never ends you have this feeling of shame because people are always sort of like people are always looking at you and you're failing and a bunch of different things and like you kind of go from failure to failure and like you know at the beginning like product is not working and no one cares and you know why should anyone care about this problem and like it's like weird set of guys that are working on this weird thing that no one cares about and you're kind of this weird guy that you know you're walking around the room and people are like, oh, how is your thing going?

20:13You know what I mean? And you're at it for four years. Why are you calling it a thing? And that's a little bit how it feels, right? It's not like if you're in a large company, you have a really serious job. It's like, how is your career going? You're progressing, you're moving. And here, you've been like three years doing this thing that has absolutely not moved. Like nothing's changed. You don't know if it's working. Maybe it worked for a little bit, but then it stopped working again. And so there's this feeling of like, you're constantly addressing this feeling of like, shame, and I didn't do enough.

20:47And like, it's not work, you know, so that feeling is very hard. And even when the company is working, like, you know, we're lucky in many ways, but like, CalShare is really working right now. And like, it's become a big brand. And like, it's always as if it's putting like a spotlight on your, on your weak spots, as a founder, the places that you're not doing really well at right now. And those are places that people, you know, immediately notice and become very visible in the company. You have to constantly, like, you're putting yourself right in the spotlight, allowing people to kind of open up your vulnerabilities at any point in time.

21:20That's hard. That's really hard. And so there is that. I think, and I don't mean, by the way, to say this, and like, I would do it any given day. I would start a company. Like, I think it's one of the, you know, there's all the upsides that come in the other way, which is like, it's totally worth it. Like, the small peaks of when it works or when, like, the product that people are using it and they love it. and like when you walk around the place and like people are using your app or you're using your product and they absolutely love it, like that makes the whole thing worth it. And I would do it 10 times out of 10 times again if I could rewind the clock.

21:51I think MIT was just like, it's just like intellectually challenging problems. It's like a lot more than, oh, this is like not building rockets. Well, at MIT, you're solving problems that are building rockets and that was hard in a very different way, but I think it was less psychologically hard. And I think the psychological difficulty is, I think, in my view, I think a much harsher form of difficulty. Yeah. You woke up and went to work every day for four or five years before Calci took off. Four or five years, that's... Six years, really. I mean, 2018, we started. And then end of 2018, we took off at the end of 2024.

22:27So six years. So that's about 2 ,000 days of waking up every day and going to work. It was very tough. Is this madness? Is this irrational self-belief? is this denial what is that? I think it's all of them right I really I mean I think it's it really I mean look I think you have to have a really strong belief in the self and I think in my case I think Luana has it stronger than I do like I doubt a lot and I question etc but in my case you know again like I'm lucky that people around me like my mom even in the like darkest times where I really lost belief in myself I'm like I don't know what I'm doing and like I'm bad at this and I don't know like and you always have doubt a lot of times I think founders won't talk about this enough but like there's a lot of myth created around founders but like i honestly believe that like you know most founders they just get it's like you're working out you don't have some special muscles like you're just working out for long enough that at some point you get better at like the reps and you get better at dealing with like difficulties but like we're all kind of sort of figuring it out as we go and you have self-doubt like you know i might not be good at this and like all that but my mom has an extremely high belief in me so give it a little bit longer right you came so long give it a little bit longer so there's like a lot of a lot of self-belief or belief from people around me even some of our early investors so you call your mom often yeah i call my mom all the time yeah yeah a very close relationship with my mom and like especially in really hard things would happen and like really disappointing ones where like a big negative inflection happened in the company or for example when we were trying to do election market like we had spent a year and then it got denied another year and then it got denied like the denials were so hard like you know i wouldn't sleep for weeks after that i would call and be like you know maybe i should change like maybe we're on the wrong like really what are we doing and should be like give it a little bit longer the second thing is i think that's another thing uh be naive like you know absolutely first time founder helps a lot right i think it does yeah helps a lot for these like really big potential outcomes like these category defining new market all these types of companies like i think if you're second or third founder you'd be much more effective at like having high odds of success for a decently sized outcome but being a first founder is lower odds success for potentially massive massive size outcome so you think that you might have given up earlier if you are not a first-time founder for this type i don't know about me specifically but i I do think like the pattern, I do believe for this type of company that is so like asymmetric.

25:02I think, I think I put cash in that bucket. I put Airbnb in that bucket. I put,

25:10you know, and I don't think we're anywhere near that level, but like, you know, Tesla and like those types of companies that like, when they first start, it just seems so impossible. And so, so many issues. And like, but you know, it's like, if it works, it'll be very big, but like the road to get there just seems so like impossible and unclear and how um i think being a first time founder is a huge superpower because it's like you don't know how how much how long you know how when you climb a mountain they tell you not to look at the peak because if you look at it you get tired you're like how am i gonna make it like yeah when you're first time founders you don't look up you're just like step after step and then the other thing you know you mentioned madness and like self-belief and like um uh um all of that like the other thing is like there's a little bit of sunk cost fallacy like you spent four years on this you're gonna stop now like give it another six months and another six months right like and and that's worked surprisingly well like you know and but i do think maybe my biggest thing is like it's so important like at the end of the day there's all these different things but the key thing is we wanted this to exist because if it was about like just being successful or like other things we would have pivoted much earlier right like i was thinking i mean there's so many crypto like that we we would pivoted earlier but we just wanted this thing to exist we really wanted to deliver this thing and that helps a lot because that could be a forcing function for you to stay in one lane and sometimes big things require to be in that lane for a very very long period of time has there been some times we're thinking actually it's finally happening but then it didn't so many times yeah right because you also really want to believe it right like you really want to finally believe you start like seeing like you start you know it's like you start like um uh you start like seeing things you know that like you start like seeing product market fit or like seeing things that just are not there you know uh do you have an example i mean with the election when we're trying to list the election every time we were so like we were convince ourselves it's finally going to happen and now they're going to do it and and and they that you know they're definitely gonna approve it and then they would just like not approve it and like we'd be so close oh yes you know uh and then i think we've seen a lot of it with um we're trying a bunch of categories we'd see a little bit of an uptick on one week and we're like okay this is it let's go and then the next week would come and fall flat like it would just like unwind the the prior week completely um and we've seen that a few times um uh so there was a lot of a lot of these moments i would even say like the i mean in 2020 so after we got back like we didn't we weren't allowed to do elections at the end of 22 at the beginning of 23 we started to do the election again but then we tried like a bunch of different products like we tried for example like a weather product like focus really on the weather markets and those started growing um and we thought okay finally we find something like this is it like this is gonna be the thing and then it's just like basically tanked back and like we convinced ourselves for three months like oh we should like go all in on this it's gonna work and um it just like flattened out right after and like went back to zero um but when you desperately want something to work sometimes you start seeing you know success where it doesn't really exist.

28:26Yeah, that's tough. How do you become numb to all of that? And did you even... I don't think you do. Like numb? I think you don't... That phase where things are not working is very hard. Psychologic. It really is psychological. Think about it this way. If you're onto a real, potentially sizable market with a real problem, which I think is most entrepreneurs, And you give yourself like infinite time to make it happen. It will happen at some point. The problem is the second one. Absolutely. Like most people just, like the biggest risk of any company is founders giving up. That's really it. Absolutely.

29:07That's what kills companies. It's nothing else. And I think the reality is like that phase is so hard. It really is very, very difficult. And I think, I don't think necessarily everyone needs to or should go through that. Like it may not be worth it for a lot of people. I think it's Steve Jobs who said that. I'm convinced that what separates the entrepreneurs who are successful from the ones who are not is mostly not giving up. I totally agree with that. Like, I think that's the single most defining characteristic. And people put a lot of things on like great strategy and great foresight or like vision.

29:45And they like to create these myths. And I think all these things exist. But you can also train yourself to have all of that. I think not giving up is by far the biggest thing. By far. Quick shout outs to our legendary long-term WhenShiftAppens partners, without whom none of this would be possible. Thank you to Cast, my go-to global money app to store, earn, move, and spend stablecoins across 170 plus countries directly with Apple Pay or a physical card. On top of that, I can also get paid in USD and Euro with my Cast virtual account. Use my promo code SHIFT and my link below to get 10 % off your membership, earn up to 3 % instant USD cashback on every card spend and get up to$250 in cash for referring your friends.

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31:19You said focus on the input, not the results. Yeah. But this must have been extremely hard, as you said. How do you keep thinking like that? Focus on the input, not the result, when for four, five, six years, things are not happening? It's very hard. I mean, like, and I don't have, like, really good secret sauce. Like, it's because, you know, it's a bit like walking in a desert. And you're, like, liking to believe that, oh, it's going to be, like, an oasis at the end. Or, like, at the end of it. But, like, keep walking and there's no end. At some point, you start being like, maybe I'm crazy. Like, maybe there is no end.

31:51Like, what are we doing? But to us, like, again, we really wanted this to exist. So, there's that drive. We really wanted to make it past the desert. We really did. And that was really important. um so i go back to like if for people that want asymmetric outcomes they have to care about the the thing that they're building they really have to care and i love markets i really like and we talked a little about the certainty of mathematics like the thing i love most about what we're building is this idea of like taking things from a subjective emotional like polarized to objectivity to math to markets people things are being priced they move up and down over time and then the second thing i think is like um the first principles were there like we would read the law and like hey this should be legal like i i haven't been disproven i did not see the definitive proof for why this shouldn't be legal or why this shouldn't work right like if the stock market is so big and all these other markets so big like we're creating a version of the stock market or the options market where it's about things that people care about and and it and and there's already enough empirical evidence that the prediction markets are going to predict things better than other places.

32:56So like in some ways we're like, maybe the thing that we would need to see is proof that this wasn't going to work for us to stop. Like definitive proof. And if we didn't see that, then like, you know, we keep going. And maybe that's what it takes sometimes, you know. Tell me about the day or probably time where this love for probability

33:26I think it's when we spend a lot of time in finance, we saw that, like we saw the problem firsthand, which like a lot of people were getting exposure to events in an indirect way via proxies. Like I want to buy like Trump winning the election. I would like I'm going to do it via like a basket of stocks or shorting the S &P or other things. And over the course of few years, like the more like 2016-20 years, I think it's like a lot of people are getting exposure to events in an indirect way via proxies. the more we read about the market the more i spent time at citadel as well the more like i got really into the idea of like the at the time it's like information markets the idea that like you can apply the free market concept to pricing the probability of an event and i love i love that concept i really like that concept right because you know um having a good like prior like having like oftentimes the hard part when you're building a model of the world is the priors you have the right sort of probability of different things happening or like you have the right distribution of a certain outcome and there was a lot of proof that like you know both empirical but also theoretical that the best way to price an event to like predict the probability of something is a market really the best way to price anything is a market right like the because the market is you know aggregates like seeks out the crowd wisdom in an effective way and there's skin in the game people are putting money where their mouth is so that that that forces self-calibration like it forces an incentive structure where like a clear objective function where you get rewarded for being right and you get punished for being wrong right it's a very clean objective function and i mean i just find the concept so elegant right like instead of like settling something via debate like i think you're wrong i'm thinking right and you're not you see twitter people are like throwing stuff at each other and you don't know what's a fact you don't know what's a real you know put a market the market will filter it right like if people are like saying things that may not be totally factual now you ask them to put money they're going to be much more careful about like the non-facts that they're using right because otherwise they'll lose money and everybody hates losing money and i find that beautiful right You're taking this complete mess of subjective emotion and debate to the plane, the clean plane of mathematics, where like now there's a price that summarizes the entirety of like people's opinions about something and it tends to work.

35:48It felt like we had to build that. It was, you know, it was essentially it felt too big of an idea. And we loved it too much that we had to build it, basically. What's the true innovation with prediction markets?

36:06So, you know, there's many ways to answer that question.

36:16But there's a cash piece of it, but then there's a prediction market piece of it, which are not exactly the same. But the true innovation in prediction markets, I think, is this notion. And I think it has been built through a lot of literature. and then I think the prediction markets that have come in our generation like Calci and some of the others have proven it

36:41is that like information relevant information about a certain question doesn't lie in the traditional like authority figures or institutions as you would expect. It actually is very distributed amongst the crowd and you need to seek it out from the crowd somehow. Right. And you're seeing like there's a Fed paper two months ago that I don't know if you saw that it's called Cashing the Rise of Macro Markets that showed that the cash forecast on all the economic indicators like jobs and GDP and inflation and Fed interest rates are more accurate than any other alternatives. And you're seeing that for a lot of other places like, you know, the prediction markets outperform the polls.

37:19They outperform a lot of it. If you dig enough of a sample size and create the mean error, prediction markets are the best at forecasting the future. And I think the key innovation is that the best way to answer all these most pressing questions is that you have to ask the crowd and you have to incentivize the crowd to bring it and you don't really know who has a relevant piece of information um and the best you know the one way is to describe that tech lock in 2015 he had this groundbreaking book about super forecasting and you know he picked the sort of geopolitical experts like super like big names experts in geopolitics have been selling it for decades against a group of like um just kind of like intellectually curious people that read the news but like random people and had them predict two political events and the second group outperformed dramatically right that i think is the the crux of the innovation right um and i think that power but then like it makes you think like okay if you want to answer all these different questions you have to have a market to do it it will outperform any of the you know elites or any of the sort of like institutions.

38:28Expanding on that, how does prediction market revolutionize the media industry? Yeah. I think it's very tied to this concept, right? Because I think of it as like a version of like, I mean, I think two things. One, it's a version of going direct. There's no intermediaries. There's no filter. There's no spin. there's no there's nothing between you and the answer right it's just the market that is like you know right there in front of you without like an intermediary delivering the information to you which i think is not the case for the news the second thing is the incentive structure is very clean like the incentive structure in prediction markets is true you get paid if you're right and you get punished and lose money if you're wrong that doesn't quite exist in traditional media or even social media that you don't get engagement based on like factual tweets right like you get engagement based on like hate and like crazy stuff and like you know whether it's true or wrong who cares you know but that and you everyone like you know you see it and that's why the country part of why like countries getting more positive and the media has it in some ways like headline like clickbaity headlines are the things that like over time get more readers and like more ads and all these different things the incentive structure is not quite aligned with the truth right now look a lot of journalists are amazing like i don't want to i don't want this to be interpreted as me saying like i do think journalists are actually at the core the best journalists are truth seekers that's what they do really well like they dig in and they like try to bring out uh but as an institution i think there's like incentive structures that are not quite aligned with that you don't they don't get rewarded the business model doesn't reward me exactly for truth, right?

40:13And I think, you know, prediction markets do have that intended structure. So, the following question, like, does it replace the news? No. No, it doesn't. Actually, it enables the news. Will it ever replace the news? I don't think so. Like, I think they, it will enable the news. Like, I think they will complement each other. It's a bit like saying, like, will the stock markets, will the stock market replace stock analysts? Not really. Like, you know, the stock analysts, you know, analyze the stock and give information about the stock and think about where it's going to go and the stock obviously is pricing the stock.

40:43And in some ways, the journalists are like stock analysts in the context of prediction markets. They're analysts of the world. They're analyzing the world and figuring out truth. And like, you know, the prediction markets move on the news. And over time, you're seeing news incorporating prediction markets as they kind of like write about the world and understanding of the world. And I think that's going to be an increasingly kind of more important trend as we progress. Like if you look at the number of times prediction markets are quoted in news over the last few years, like that curve is really like growing extremely fast really like incredibly fast and that's very very important um and a lot of our users actually 70 to 80 percent of our users actually use they don't trade on like the login daily not to trade but to to look at the forecast to get informed and we have a lot of work to do in terms of building that more of a view only like news based products that people can basically just use the news feed next to twitter and next to their like what they read in the morning there's another category that's where prediction markets are changing the game hedging can you explain this simply to someone like me who is not a finance person so the way to think about uh the derivatives markets which is markets that like there's a stock market which is like about capital allocation and the risk market is about like a risk transfer and so it's like about pricing these risks understanding like a question better and then some people may decide to speculate like they want to increase their exposure to something like they want to have more volatility towards something and others want to hedge which is decrease their volatility something it's a bit like a form of insurance right so very simply if If you want to insure your home against hurricanes, one way is you go to an insurance company and they give you a contract and they say, okay, we'll pay you X amount if you have this amount of damage.

42:34And then you have one counterparty, like you have one person on the other side, which is the insurance company that decides what the price is and they decide the terms of this thing. And then they give it to you. The alternative is you can go to an exchange and then buy a yes on a hurricane hitting like your area. Right. Right. That second one is you're now trading in an open market. So like there's multiple people that are competing to give you better prices for the basic insurance or the hedge that you're basically trying to put on. Right. And they both are not like exactly like solving the same thing because this one you get paid based on damages, whereas this one you get paid based on just a hurricane hitting.