Have you seen advertisements for Kalshi as you scroll through social media? Have you been thinking of placing a bet on Polymarket?
This is moment a bit of a Wild West era for these predication markets, where users can bet on everything from World Cup games to the upcoming 2028 presidential election. It begs a few questions like “how is that legal?”
“I don’t see any theoretical reason for why prediction markets shouldn’t be subject to the same regulations that, you, know, the stock and bond markets should as well,” said Mark Hulbert, investment Columnist for The Wall Street Journal, Barron’s and MarketWatch, in an interview this week with Rob Hart on the WBBM Noon Business Hour.
Hart brought up a recent example of something a bit suspicious that happened on a prediction market. Before an article in POLTICO derailed the Senate bid by Democrat Graham Platner in Maine, someone bought a bunch of futures on prediction markets – indicating that someone knew the information before the story was published and sought to profit on it.
“The insider trading to which you refer is just one of many problems that prediction markets have,” said Hulbert. “I should acknowledge that the stock market and every other market around the world always has been subject to insider trading abuses. So that is not unique to prediction market. But what is unique to prediction markets is an additional problem, which is that the people with the most money can really affect the price of the underlying contract that you're betting on.”
Hulbert acknowledged that there have been arguments that prediction markets could provide insight into future events due to diverse investor pools with even more accuracy than opinion polls. However, he said their usefulness becomes tainted when some investors have more influence than others.
“When you have so-called whales, these huge traders that can swamp the market and affect the price, then you’re really not betting against a crowdsourced opinion,” Hulbert explained.
Hart noted that these “whales” have impacted the prediction market PredictIt once it became popular.
“That popularity ended up being… a curse really,” Hulbert agreed.
As for the legality of some of these bets on prediction markets, Hart brought up the “Eddie Murphy” rule inspired by the film “Trading Places” that prohibits benefitting off of stolen government information. Hulbert said that he expects legislative and political battles and that “politicians won't be able to turn a blind eye to the problem,” of similar bets on prediction markets.
