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When I was born in the 1970s, legal gambling was basically limited to Las Vegas, Atlantic City and horse racing. Then came Indian casinos, and finally, the floodgates opened with online gambling. Nowadays, with the advent of prediction markets, we can lay down a marker on almost any event on Earth.
One serious upshot of the rise of companies like Kalshi and Polymarket, which would be happy to set up a market to see if Lindy’s sells more cheesecake or strudel today, is that far, far more people have the feedbox noise than ever before. To paraphrase Andy Warhol, in the future, everyone will have inside information on a prediction market for 15 minutes.
Take a market like “Who will win the reality TV show “Big Brother?” Dozens, maybe even hundreds of people know this answer, thousands probably have inside info, and while, if they say anything out loud they will get sued into oblivion, what’s to stop them from telling their cousin, “Hey, drop a few thousand on this contestant?”
This isn’t a hypothetical anymore. We have seen, just this year, a soldier use inside information to win a bet on the timing of military action in Venezuela, we have even had the guy who runs the White House teleprompter profit from foreknowledge of President Donald Trump’s speeches.
These are not the types of people we think of as insider traders.
When we think of insider trading we think of wood-paneled financial offices with Paul Revere silver sets and guys in $5,000 suits. I also think of members of Congress who go to Washington worth thousands and leave worth tens of millions, but that’s another story.
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As in sports betting, it is easy to trace who, among the elites or insiders, might have non-public information that can move a stock. But right now, you can bet on whether Space X will have a successful launch by July 31, or whether Rihanna’s album will come out before the next Grand Theft Auto video game. How many thousands of people have information on those wagers?
Could a reporter who is sitting on a scoop they know will harm a politician running for office ethically place a bet on a prediction market in that race? It seems clear that legally they can, but we are in uncharted waters now that prediction markets open up this possibility.
In politics, manipulation can be used the other way round as well, especially in smaller congressional or local races. Prediction market wagers can act almost as campaign donations, making it appear, even for a short period of time, that a candidate is surging.
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There is something a bit dystopic about the constant online wagering over every aspect of our lives, as if the world is not a miracle of beauty and poetry, but rather a set of math problems, algorithms and betting lines replacing the organic flow of an election, or how much the average man will spend on his Valentine.
The danger here is that instead of looking at the world as the creation of human beings, we mortal souls become little more than the ball on the roulette wheel, which inevitably must stop somewhere, to somebody’s benefit.
Attempts to regulate prediction markets are already emerging both on the state and federal level, but don’t start writing the industry’s epitaph just yet, because short of shutting them down entirely, nothing can stop tens of thousands of markets from having hundreds of thousands of potential insider traders, at least.
The recurring story of the 21st Century is that technology keeps dropping innovation on top of us, from smart phones to AI, before we can figure out its pitfalls, much less decide if it benefits or harms our society.
For now, prediction markets are not only with us, but they are growing fast, not just as a new option for gamblers, but as an important alternative to polling or focus groups in politics. But we must understand, the bet is never on which candidate will win, it’s on which candidate will have a surge, whether it is organic or AstroTurf.
Meanwhile, if the business you work for, or the campaign you consult, or the reality TV show your best friend from high school was in, becomes a prediction market, it is up to you to decide if placing that wager is fair, because there really is very little else to stop you.
