"Prediction" markets were supposed to be great because of insiders: they make the probabilities much more accurate and actually useful for forecasting.
But they ended up just being for gamblers and there is no more signal.
Essentially the argument is that more dumb money in a prediction market provides an even stronger incentive for smart money to join, moving the price back to an accurate probability.
I regularly check geopolitical markets to see if a breaking news story is substantial or not, and find it useful. It can help distinguish between propaganda and intelligence there.
It does seem like there could be a distinction between markets which require genuinely knowledge and analysis (geopolitics), versus pure gambling (sports, crypto up/down 5 minutes, etc), but I'm not sure who's going to bother making it.
So they caught 2 very small cases and both cases were literally posting publicly about how they were doing a thing against the rules. Seems like they can't actually do anything if the culprits aren't total idiots?
Also what is this 5x payment penalty? What mechanism do they have to enforce this?
I thought insiders were an important part of prediction markets? If you want the predictions to be as accurate as possible then you need insider knowledge
Reading about these cases immediately makes me wonder how much I could get away with before being caught. I've never gambled on any of the prediction markets, but immediately I see the appeal of the game ("the game" being win the most money without being caught). The fact that I see the fun, really drives home to me how dangerous this can be.
Fascinating first principle to thinking about Kalshi 90% of it is sports betting - I assume a lot of their revenue is gambling law regulatory arbitrage atm
These platforms actually seem like a great way to run sports betting to me. Much better than what the actual companies are doing trying to write their own books and risking arbitrage.
Pretty sure insider trading on prediction markets is a feature not a bug. These cases are laughable compared to the true size of insider trading volume on platforms like Kalshi.
This is hilariously weak. "over a dozen have become active cases" is so low it made me laugh given how much insider trading happens on these platforms. This post is actually pathetic
Why do we need to allow prediction markets like this at all? It's just gambling dressed up as though it was a stock market. It's just horse racing at a massive scale... except for the hyperstition factor of it actually influencing world events. At least one can pretend, with the regular stock market, that one is investing in the success of a company; though we all know we're a long way from that.
There seems to be no prosocial reason for this whatsoever.
Polymarket and Kalshi have just been declared gambling under New Zealand law, and therefore 'investing' in them is now illegal for New Zealanders. Both companies have been ordered to stop providing services to New Zealanders [0]
Australia's 'full' name is the Commonwealth of Australia. Don't think anyone uses it outside of the region, though, much like no one calls Mexico the 'United Mexican States'.
I don't want to be an absolute killjoy about it; but IMO sports betting should be cash between you and a buddy watching the game down the pub. Anything past that - where a bookie gets involved, where the sums get bigger than a hundred bucks, that's when we really ought to stop, because it's just not a necessary action for anyone other than an addicted gambler. We're preying upon such personalities at scale. Entire people are working entire careers supporting such a thing - what a waste of human capital.
Similarly, I love the idea of the casino aesthetic, but the entire setup is designed to fleece you and to exploit the addicted. It was better when you had to go to Vegas to experience such a thing, but now casinos are everywhere, diluting the entire thing and making it sad instead of glamorous. Maybe it always was....
Eh, betting houses have a vested interest in matches not being fixed, which actually fixes a huge problem in sports, so they have a use in that.
I used to work in odds prediction and the issue is all the shady shit surrounding betting, not actual betting itself. We very contractually forbidden from betting on any of our customers, but managers would go around encouraging to bet. This is obviously a huge problem when you know how the algorithms work, and more importantly, where all the errors are. I'd see odds on matches where you couldn't lose on a weekly basis (think 2 outcomes, average payout of >2x), open bets for things in the past (score 1:0, bets for first point still open, etc.).
The biggest issue though, was betting houses straight up banning winners. The more you won, the less you could bet, eventually leading to a ban. This is straight up illegal, but nobody cares. On the flip side, the more you lost, the more you could bet, you'd get better rewards (if you won, which you didn't) and the cheaper it would be.
You can't ban gambling, because you'll just get illegal gambling (much like prohibition/drugs). Proper regulation and enforcement is the solution here (much like drugs).
Edit: All this being said, I don't bet, nor do I endorse gambling with real money. I agree betting should mostly be between you and your buddy, but unfortunately the reality doesn't support that.
Depends if it's total amount wagered or total amount lost.
If amount wagered, at typical takes for bookies/casinos/lotteries that would mean people would lose in expectation 0.1% to 5% of their income. Seems like a reasonable compromise that people could indulge in gambling for entertainment but very few people would be caused financial problems. With some weird second-order effects, but no regulation is perfect.
I imagine most countries will regulate it as gambling. Some already do – Netherlands fined Kalshi or Polymarket (don't remember which one) for operating without a gambling license. I guess US will be one of the last ones to do it (certainly won't go for it under the current administration)
My understanding is the original value these markets create is the ability to hedge risk.
If you're worried an event may impact you materially (like cat 5 hurricane in Florida), then you can place a bet that the event will happen, thus hedging some risk if it does happen.
Insurance companies can participate in these products for the same reasons.
Or if you need to hedge against an event that isn't insurable. For example, if you are a high level democrat party leader and you will lose your job if a republican wins, you might take a bet to hedge your risk if your party looses the next cycle.
Weather derivatives have existed much longer than prediction markets. search for “catastrophe bonds” (normally called “cat bonds” in the markets) if you want to find out more. There is also insurance and reinsurance.
Insurance is what normal people use to hedge weather risk. The insurers use an combination on reinsurance and cat bonds issuance and the reinsurers use cat bonds and weather derivatives.
I seriously doubt there is meaningful weather hedging volume on prediction markets by comparison.
The vast majority of bets on Kalshi (90% according to another user) are sports bets. There's no risk being hedged here; it's just gussied-up sports betting.
A substantial portion of the other bets on the market are other trivial events of no financial significance. For instance, the second insider case described in the article involved the contents of Mr. Beast videos.
> For example, if you are a high level democrat party leader and you will lose your job if a republican wins...
This would probably constitute insider trading, as the party leader has a direct role in their party's election results.
My example is not great. A better one would be an employee at an oil company may be personally impacted depending which party is elected and they want to create their own hedge.
on sports betting, people's income depends on if a team wins or looses. If the team didn't make it to the playoffs, then their bonuses (or income) is reduced. Sports betting enables these people to smooth out their income, instead of all or nothing.
I agree, these tools are frequently abused by gamblers (or better: the tools abuse gamblers), but unlike your typical casino game, there is utility in these services for certain groups of people.
A good reason to allow it is because people want to do it and it is as relatively harmful as many other normative human behaviors.. A better reason is that it provides a means of measure real attitudes and opinions. The revealed prices afforded by prediction markets is interesting at the least, and possibly the best source of information for many of topics.
When i see those ads I legit thought it required gaming licenses. Just wow, apparently you can get away with gaming as long as it doesn't have the label.
We are living in a time of institutional breakdown. Punishment is being doled out based on your friendship with the president, instead of who broke the law.
There are prediction markets on a number of questions (most prominently about politics) where people have good reasons besides entertainment value to want to know the answers.
I agree that it's disappointing that so much of it has ended up being sports betting, and would be in favor of targeted regulations to deemphasize that in favor of more socially useful topics.
I’ll admit that in my younger days, reading Bryan Caplan and Nassim Taleb, I got caught up in the starry-eyed fantasizing about prediction markets that was (and still is) widespread in the libertarian corners of the internet. Force people to put their money where their mouth is! Combining the wisdom of crowds with Superforecasters will lead to vastly improved decision-making! Prediction markets will be so accurate eventually we’ll run the government on them! It sounds so good on paper.
The reality has been rather different. It’s just another form of gambling that’s wrecking people’s lives, and it's not obvious to me that they’re even very good at forecasting, which might help make up for it (the absurdly overpriced markets re: “is LK-99 a room-temperature superconductor” were one example). It was an interesting hypothesis but a failed experiment: shut it down and move on.
Exactly. The problem is the same as a casino, though: we now have an "industry", we have thousands of people making their living through these companies; we have a niche that Someone Will Fill if we shut down the big players and create a vacuum. Imagine getting a city to shut down its casinos when it has all the tax income flowing from them... sucking its own blood, cutting off its nose to spite its face, some such analogy. Maybe eating more sugar will cure my cancer.
The question of what does and doesn't constitute illegal insider trading turns out to be surprisingly subtle, and can vary depending on the type of market. Prediction markets in the U.S. are legally treated as commodities, not as securities like stocks, and insider trading rules for commodities are in some ways less strict. (There are good policy reasons for this; you want to let, e.g., farmers hedge their exposure to the market prices of the stuff they grow, this being the principal reason why we have futures markets, and presumably they have inside information about how their crops are doing.)
Specifically, the CFTC's rules say that it's illegal to "misappropriate confidential information in breach of a pre-existing duty of trust and confidence to the source of the information" by using that information to inform your commodity trades. The MrBeast editor likely did that, but the gubernatorial candidate didn't (he didn't promise anyone that he'd keep his candidacy secret), so if it were just up to government regulators and not platform rules, he'd be in the clear.
Matt Levine writes about this a lot (and is both funny and astonishingly good at explaining the workings of financial capitalism to laypeople); most recently he did so about this particular case: https://www.bloomberg.com/opinion/newsletters/2026-02-25/kal...
I for one appreciate that these markets are allowed to exist, but I think the contracts themselves need to be less open to manipulation and interpretation. The Zelensky suit, the mention markets (see coinbase CEO: https://techcrunch.com/2025/11/01/coinbase-ceo-brian-armstro...), the bets on reality TV shows with tons of insider knowledge, the list goes on and on.
By volume these markets only exist because of sports.
This corporate messaging piece really falls flat.
So they caught $4000 and $200. Sounds very much like sacrificial pieces.
“yes but see they don’t tolerate insider trading!”
That’s it? One from a social media post by the own person who did it, and another in a slim market and had tips come in?
So it basically comes down to:
1. Don brag about doing something, that I’m not quite sure is illegal but supposedly breaks kalshis terms of service (oh no)!
2. Instead of operating in a thin t̶r̶a̶d̶i̶n̶g̶, sorry, prediction market pool, stick with ones that enable more plausible deniability?
If anything there should be more regulation against prediction markets like Kalshi or even elimination.
Someone dropped $100k polymarket on US attacking Iran that day, it sent the whole place into a frenzy.
There's degeneracy and then there's insiders and that's how these places work.
This account had no prior trades.
At least they don't allow insider trading like Polymarket does!
lol definitively the small fish. What’s 200 and 4000 in the total? 0.0000000001%? And they only catch because one was bloating on their social media.
"Prediction" markets were supposed to be great because of insiders: they make the probabilities much more accurate and actually useful for forecasting.
But they ended up just being for gamblers and there is no more signal.
You may be interested in "Do Morons Make Prediction Markets More Accurate?" - https://nicholasdecker.substack.com/p/do-morons-make-predict...
Essentially the argument is that more dumb money in a prediction market provides an even stronger incentive for smart money to join, moving the price back to an accurate probability.
I regularly check geopolitical markets to see if a breaking news story is substantial or not, and find it useful. It can help distinguish between propaganda and intelligence there.
It does seem like there could be a distinction between markets which require genuinely knowledge and analysis (geopolitics), versus pure gambling (sports, crypto up/down 5 minutes, etc), but I'm not sure who's going to bother making it.
(Geopolitical) prediction markets almost always tend to overreact. This is expected from retail, so I'm not sure about the signal.
So why not just always bet against their reaction? Over time you should make money then, right?
Great, Kalshi, now do this one: https://www.theatlantic.com/technology/2026/02/kalshi-aliens...
Insider, market manipulation, or…?
So they caught 2 very small cases and both cases were literally posting publicly about how they were doing a thing against the rules. Seems like they can't actually do anything if the culprits aren't total idiots?
Also what is this 5x payment penalty? What mechanism do they have to enforce this?
I thought insiders were an important part of prediction markets? If you want the predictions to be as accurate as possible then you need insider knowledge
I’m personally pretty confused how a private company can effectively fine people?
They have your money and they're poorly regulated. They can just remove it from your account.
"Kalshi will be donating the fines imposed to a non-profit that provides consumer education on derivatives markets"
sounds like a great cause
Reading about these cases immediately makes me wonder how much I could get away with before being caught. I've never gambled on any of the prediction markets, but immediately I see the appeal of the game ("the game" being win the most money without being caught). The fact that I see the fun, really drives home to me how dangerous this can be.
Fascinating first principle to thinking about Kalshi 90% of it is sports betting - I assume a lot of their revenue is gambling law regulatory arbitrage atm
https://closingline.substack.com/p/the-takeaway-kalshi-non-s...
These platforms actually seem like a great way to run sports betting to me. Much better than what the actual companies are doing trying to write their own books and risking arbitrage.
Pretty sure insider trading on prediction markets is a feature not a bug. These cases are laughable compared to the true size of insider trading volume on platforms like Kalshi.
This is hilariously weak. "over a dozen have become active cases" is so low it made me laugh given how much insider trading happens on these platforms. This post is actually pathetic
It was a Mr. Beast staffer who was insider-trading on the second case. See: https://thehill.com/business/5756511-mrbeast-editor-fined-in...
From NPR yesterday? (6 points) https://news.ycombinator.com/item?id=47156858
Or Axios yesterday (Kyle Langford + Artem Kaptur(Mr Beast Aid)) https://www.axios.com/2026/02/25/kalshi-insider-trading-susp...
Why do we need to allow prediction markets like this at all? It's just gambling dressed up as though it was a stock market. It's just horse racing at a massive scale... except for the hyperstition factor of it actually influencing world events. At least one can pretend, with the regular stock market, that one is investing in the success of a company; though we all know we're a long way from that.
There seems to be no prosocial reason for this whatsoever.
Polymarket and Kalshi have just been declared gambling under New Zealand law, and therefore 'investing' in them is now illegal for New Zealanders. Both companies have been ordered to stop providing services to New Zealanders [0]
0. https://www.rnz.co.nz/news/business/587993/why-betting-on-to...
Nice job, Kiwis, hopefully that sets a trend, at least in the Commonwealth.
> the Commonwealth
Do you mean Australia or the Commonwealth of Nations?
I'm a Canadian, so the latter, I guess? I didn't realize people referred to Australia that way.
Australia's 'full' name is the Commonwealth of Australia. Don't think anyone uses it outside of the region, though, much like no one calls Mexico the 'United Mexican States'.
No doubt. Sports betting too. I’m a curmudgeon but we should completely unwind to the pre-lottery days when organized gambling was simply not legal.
I don't want to be an absolute killjoy about it; but IMO sports betting should be cash between you and a buddy watching the game down the pub. Anything past that - where a bookie gets involved, where the sums get bigger than a hundred bucks, that's when we really ought to stop, because it's just not a necessary action for anyone other than an addicted gambler. We're preying upon such personalities at scale. Entire people are working entire careers supporting such a thing - what a waste of human capital.
Similarly, I love the idea of the casino aesthetic, but the entire setup is designed to fleece you and to exploit the addicted. It was better when you had to go to Vegas to experience such a thing, but now casinos are everywhere, diluting the entire thing and making it sad instead of glamorous. Maybe it always was....
Eh, betting houses have a vested interest in matches not being fixed, which actually fixes a huge problem in sports, so they have a use in that.
I used to work in odds prediction and the issue is all the shady shit surrounding betting, not actual betting itself. We very contractually forbidden from betting on any of our customers, but managers would go around encouraging to bet. This is obviously a huge problem when you know how the algorithms work, and more importantly, where all the errors are. I'd see odds on matches where you couldn't lose on a weekly basis (think 2 outcomes, average payout of >2x), open bets for things in the past (score 1:0, bets for first point still open, etc.).
The biggest issue though, was betting houses straight up banning winners. The more you won, the less you could bet, eventually leading to a ban. This is straight up illegal, but nobody cares. On the flip side, the more you lost, the more you could bet, you'd get better rewards (if you won, which you didn't) and the cheaper it would be.
You can't ban gambling, because you'll just get illegal gambling (much like prohibition/drugs). Proper regulation and enforcement is the solution here (much like drugs).
Edit: All this being said, I don't bet, nor do I endorse gambling with real money. I agree betting should mostly be between you and your buddy, but unfortunately the reality doesn't support that.
Without betting houses existing, why would you fix a match?
Be a killjoy. Gambling's the devil and should be highly regulated so you can't gamble more than 1/3rd your last year's income.
That's a pretty generous ceiling!
Depends if it's total amount wagered or total amount lost.
If amount wagered, at typical takes for bookies/casinos/lotteries that would mean people would lose in expectation 0.1% to 5% of their income. Seems like a reasonable compromise that people could indulge in gambling for entertainment but very few people would be caused financial problems. With some weird second-order effects, but no regulation is perfect.
Organized gambling wasn't legal most places, but that didn't mean there wasn't a booming trade.
I imagine most countries will regulate it as gambling. Some already do – Netherlands fined Kalshi or Polymarket (don't remember which one) for operating without a gambling license. I guess US will be one of the last ones to do it (certainly won't go for it under the current administration)
My understanding is the original value these markets create is the ability to hedge risk.
If you're worried an event may impact you materially (like cat 5 hurricane in Florida), then you can place a bet that the event will happen, thus hedging some risk if it does happen.
Insurance companies can participate in these products for the same reasons.
Or if you need to hedge against an event that isn't insurable. For example, if you are a high level democrat party leader and you will lose your job if a republican wins, you might take a bet to hedge your risk if your party looses the next cycle.
Weather derivatives have existed much longer than prediction markets. search for “catastrophe bonds” (normally called “cat bonds” in the markets) if you want to find out more. There is also insurance and reinsurance.
Insurance is what normal people use to hedge weather risk. The insurers use an combination on reinsurance and cat bonds issuance and the reinsurers use cat bonds and weather derivatives.
I seriously doubt there is meaningful weather hedging volume on prediction markets by comparison.
The vast majority of bets on Kalshi (90% according to another user) are sports bets. There's no risk being hedged here; it's just gussied-up sports betting.
A substantial portion of the other bets on the market are other trivial events of no financial significance. For instance, the second insider case described in the article involved the contents of Mr. Beast videos.
> For example, if you are a high level democrat party leader and you will lose your job if a republican wins...
This would probably constitute insider trading, as the party leader has a direct role in their party's election results.
My example is not great. A better one would be an employee at an oil company may be personally impacted depending which party is elected and they want to create their own hedge.
on sports betting, people's income depends on if a team wins or looses. If the team didn't make it to the playoffs, then their bonuses (or income) is reduced. Sports betting enables these people to smooth out their income, instead of all or nothing.
I agree, these tools are frequently abused by gamblers (or better: the tools abuse gamblers), but unlike your typical casino game, there is utility in these services for certain groups of people.
A good reason to allow it is because people want to do it and it is as relatively harmful as many other normative human behaviors.. A better reason is that it provides a means of measure real attitudes and opinions. The revealed prices afforded by prediction markets is interesting at the least, and possibly the best source of information for many of topics.
For what topics is it the best source of information?
Election odds, chance of US bombing Iran, and many others
When i see those ads I legit thought it required gaming licenses. Just wow, apparently you can get away with gaming as long as it doesn't have the label.
We are living in a time of institutional breakdown. Punishment is being doled out based on your friendship with the president, instead of who broke the law.
There are prediction markets on a number of questions (most prominently about politics) where people have good reasons besides entertainment value to want to know the answers.
I agree that it's disappointing that so much of it has ended up being sports betting, and would be in favor of targeted regulations to deemphasize that in favor of more socially useful topics.
We have this thing called a "survey"
Less accurate in a lot of situations and costs money to run. It's not a massive loss to use surveys but I see the appeal of prediction markets.
Also surveys don't tell you anything about politics questions other than election outcomes, such as what existing elected officials will do.
Can I just get Joe Camel and smoking sections back please?
Every gas station in this traditional blue law state has beer and slot machines now!
Bring back Joe Camel!!
And original recipe Coca-Cola!
I’ll admit that in my younger days, reading Bryan Caplan and Nassim Taleb, I got caught up in the starry-eyed fantasizing about prediction markets that was (and still is) widespread in the libertarian corners of the internet. Force people to put their money where their mouth is! Combining the wisdom of crowds with Superforecasters will lead to vastly improved decision-making! Prediction markets will be so accurate eventually we’ll run the government on them! It sounds so good on paper.
The reality has been rather different. It’s just another form of gambling that’s wrecking people’s lives, and it's not obvious to me that they’re even very good at forecasting, which might help make up for it (the absurdly overpriced markets re: “is LK-99 a room-temperature superconductor” were one example). It was an interesting hypothesis but a failed experiment: shut it down and move on.
Exactly. The problem is the same as a casino, though: we now have an "industry", we have thousands of people making their living through these companies; we have a niche that Someone Will Fill if we shut down the big players and create a vacuum. Imagine getting a city to shut down its casinos when it has all the tax income flowing from them... sucking its own blood, cutting off its nose to spite its face, some such analogy. Maybe eating more sugar will cure my cancer.
Shouldn't this come with legal consequences for the inside traders?
Having private platforms be judge, jury, and executioner doesn't seem right. Existing regulations ought to cover this no?
The question of what does and doesn't constitute illegal insider trading turns out to be surprisingly subtle, and can vary depending on the type of market. Prediction markets in the U.S. are legally treated as commodities, not as securities like stocks, and insider trading rules for commodities are in some ways less strict. (There are good policy reasons for this; you want to let, e.g., farmers hedge their exposure to the market prices of the stuff they grow, this being the principal reason why we have futures markets, and presumably they have inside information about how their crops are doing.)
Specifically, the CFTC's rules say that it's illegal to "misappropriate confidential information in breach of a pre-existing duty of trust and confidence to the source of the information" by using that information to inform your commodity trades. The MrBeast editor likely did that, but the gubernatorial candidate didn't (he didn't promise anyone that he'd keep his candidacy secret), so if it were just up to government regulators and not platform rules, he'd be in the clear.
Matt Levine writes about this a lot (and is both funny and astonishingly good at explaining the workings of financial capitalism to laypeople); most recently he did so about this particular case: https://www.bloomberg.com/opinion/newsletters/2026-02-25/kal...
Do you think prediction markets need regulation to reclassify them away from commodities likeness?
I don't have any better ideas for what they should be classified as. They certainly aren't securities.
I for one appreciate that these markets are allowed to exist, but I think the contracts themselves need to be less open to manipulation and interpretation. The Zelensky suit, the mention markets (see coinbase CEO: https://techcrunch.com/2025/11/01/coinbase-ceo-brian-armstro...), the bets on reality TV shows with tons of insider knowledge, the list goes on and on.
By volume these markets only exist because of sports.
They found two cases?
Lol.
4 Stars. Go home and tell your mother you're brilliant.