Election seasons are often full of forecasts that don’t bear out, with few consequences besides a loss of credibility. But in 2024, hundreds of millions of dollars may also be at stake, thanks to the growing popularity of “online prediction markets” also known as betting or information markets.
Betting on politics is an old practice, going as far back as medieval Italian merchants placing wagers on the papal succession. But it was not until the internet age that real-time political betting on a global scale became possible. Starting in the early aughts, electronic platforms like Intrade allowed users to buy and sell options contracts that pay off if a specified future condition is met. While the contracts can cover anything from wars to entertainment awards, U.S. elections quickly became one of the most popular prediction categories.
It's not only potential bettors who have been drawn to prediction markets. By tracking how many millions of people are willing to stake on a given outcome, contract prices function as aggregated polls updated in real time. Thus, political scientists have considered them potentially more accurate than traditional polls — a theory known as the wisdom of the crowd. In 2012, prediction markets outperformed polls for both state and national results, according to a study from the University of Bergen.
But prediction markets have had their share of problems, beginning with the fact that they are considered a form of online gambling. Because this is banned in most of the United States, major platforms have often been based in other countries like Ireland and New Zealand. Furthermore, when the types of events people can bet on include the future prices of assets like gold and cryptocurrency, prediction markets effectively function as unlicensed and illegal commodities exchanges.
Since Intrade was shut down in a 2012 ruling by the Commodities Futures Trading Commission (CFTC), other platforms like Polymarket have blocked customers based in the U.S. from trading — though this hasn’t stopped many American users from circumventing the ban with the use of cryptocurrency and virtual private networks. Other markets such as Iowa Electronic Markets and PredictIt, which are run for academic research purposes and limit how much users can invest, have secured regulatory approval.
However, as the 2024 election approaches, the prediction market landscape may be shifting. Sports betting has recently been legalized in many states, creating an opening for other types of wagers, and U.S.-based prediction website Kalshi began legally operating in 2021. While Kalshi's plan to offer bets on congressional elections is awaiting a final ruling by the CFTC, the overall market for election predictions has grown to over $800 million, dwarfing previous cycles of 634 million for 2020 and 85 million for 2012.
Beyond technical regulations, there is a deeper question of how betting on elections may impact American politics. Economists have found prediction markets to be a valuable way to track public opinion, and Kalshi’s own legal team has suggested they provide an incentive to combat disinformation.
But the accuracy of political prediction markets may become more questionable as their popularity grows and people begin to base their bets on the odds themselves rather than incorporating real-world information, such as news reports.
Other analysts see a darker side in prediction markets' cynicism toward the democratic process and their potential for manipulation.
With a closely contested election only weeks away and their regulatory status still unresolved, the role of prediction markets in American elections remains unpredictable.
