Prediction
markets are a form of betting that involves betting in favor of or against
events occurring. When this is applied to things like wars, assassinations, and
human injuries and deaths, many ethical questions arise. To bet on such things
seems decadent and seems to make light of such heavy events. It seems like a
dystopian view of the future where basic human compassion is set aside for
selfish personal goals. I can imagine such markets being elevated in some
dystopian novel or movie.
According to Wikipedia:
“Prediction markets, also known as betting markets,
information markets, decision markets, idea futures, or event derivatives, are
open markets that enable the prediction of specific outcomes using financial
incentives (gambling on real world events). They are exchange-traded markets
established for trading bets in the outcome of various events.”
Political betting has been
around for a long time. One historical instance is betting on who would become
the new pope in 1503, but it goes back way farther than that.
“Prediction markets are based on the theory that
individuals with financial stakes in an outcome can collectively predict it
more accurately than any single expert. Even if participants are not highly
informed, the collective wisdom emerges from their shared incentive to avoid
financial loss. Eric Zitzewitz, an economics professor at Dartmouth, explains
"Financial markets are generally pretty efficient, and the evidence
suggests that the same is true of prediction markets. There’s no
virtue-signaling in an anonymous market when you’re betting", and that
"what you’re seeing with the market is some average of all of those
different opinions, weighted by their willingness to put their money where
their mouth is."
Prediction markets
essentially forecast future events, something commodities traders also do with
futures markets, which makes them similar. One could say that prediction
markets are a kind of futures market, usually based on events more so than
future prices. As noted by Investopedia, online prediction markets began in
1988 with Iowa Electronic Markets, which predicts the winners of presidential
elections.
Successful prediction of
future events can enable business advantages. Utilization of existing available
data can be optimized by AI and improve success rates theoretically, so
AI-enabled forecasting can improve results. Investopedia explains below how
prediction markets are a kind of “crowdsourcing.”
“Prediction markets can be thought of as belonging to
the more general concept of crowdsourcing. Crowdsourcing is specifically
designed to aggregate information on particular topics of interest. The main
purpose of prediction markets is eliciting aggregating beliefs over an unknown
future outcome. Traders with different beliefs trade on contracts whose payoffs
are related to the unknown future outcome; the market prices of the contracts
are considered as the aggregated belief.”
The Investopedia article goes
on to explain the different types of prediction markets. Some are very similar
to sports betting. Indeed, they are a form of crowdsourced gambling. Gambling
has its own addiction concerns. For an understanding of habit, which includes
the societal problem of habitual gambling, I would recommend Charles Duhigg’s
2012 book, The Power of Habit: Why We Do What We Do In Life and
Business, which details the nature of habit as a form of conditioning that
involves the habit loop consisting of cue, routine, and reward.
Advocates for prediction
markets argue that crowdsourced prediction enables better accuracy, which has
been borne out by experiment. Crowdsourcing forecasts often perform better than
forecasts by single predictors. One might say prediction markets
harness the power of “collective intelligence.”
An article in Crypto News
considers prediction markets to be like a stock market for questions. The
article describes two systemic dangers of prediction markets: oracle
manipulation and smart contract vulnerabilities. Oracle manipulation involves
blockchain oracles being tricked due to false data. They note a 2025 Polymarket
case where data was manipulated, then voted on with a payable outcome different
from what actually occurred. This outraged others. Smart contract vulnerabilities
and liquidity traps refer to the details of the question and how results are
interpreted. An example given was bets on an invasion of Venezuela in January.
The smart contract apparently did not consider the extraction of Maduro as an
invasion, which outraged some who disagreed.
One of the biggest concerns
about prediction markets is insider trading or otherwise leveraging insider
information for advantage. Below are examples from the Crypto News article of
controversial predictions that have been suspected of being influenced by
insider information. One concerning issue is that the anonymity of the online
process gives a kind of immunity to being detected, which can lead to more
widespread market manipulation. This is due to the decentralization of these
markets. With decentralization and anonymity,
insiders can bet without detection. (And once again, cryptocurrencies enable
manipulation and support, and protect criminal behavior).
“Decentralization makes cheating harder to punish
because it removes the identity layer. On traditional exchanges, suspicious
trades can be investigated and tied to real people who face legal consequences.”
“On decentralized prediction markets, trades happen
through anonymous crypto wallets, often with no KYC checks. Everyone can see
that a wallet made a fortune on a well-timed bet. Proving who controls that
wallet is the hard part.”
“So far, enforcement agencies have not prosecuted a
crypto prediction market insider case. They would need to prove both identity
and misuse of confidential information. That bar is high. In practice, it is
the honor system, and there is a lot of money on the table.”
Below, they list some red
flags that suggest possible market manipulation.
They get into the psychology
of gambling as well, noting that prediction markets can be as addictive or even
more addictive than other forms of gambling since the element of skill produces
an illusion of control. Prediction is a part of life and an important part of
business. As an economic geologist, I had the job of predicting where the best
places to drill oil & gas wells would be. To do this, I relied on
geological data. If successful, I was rewarded by getting to keep my job or a
raise in pay. The article notes that prediction markets can be more addictive
because they feel more like conducting research rather than betting. With
decentralization and anonymity, insiders can bet.
With prediction markets,
there are also ethical concerns when betting on situations that involve human
tragedy, such as wars, assassinations, coups, calamities, and death. The Crypto
News article goes on to suggest that desensitization and the gamification of
reality can be dangerous. That is why some prediction market platforms are more
regulated than others. Below is a list and some examples, followed by a
comparison of regulated and unregulated prediction markets.
Regulations for prediction
markets are likely on the horizon. Congress is considering them, as are some
states. Businesses are also concerned about prediction markets. Below are some
recommendations for public companies from law firm Morrison Foerster.
An article in MEXC describes the
U.S. legislation proposed in January 2026 regarding prediction markets:
“On January 10, 2026, a bill titled the Public Integrity
in Financial Prediction Markets Act of 2026 was introduced in the House. The
measure, sponsored by Representative Ritchie Torres and co-sponsored by a group
of Democrats, would prohibit federal elected officials, political appointees,
executive-branch employees, and congressional staff from betting on government
policy, official actions, or political outcomes in situations where they might
possess material non-public information.”
“Proponents argue the bill aims to remove perverse
incentives and restore public trust in both government and market mechanisms.
Critics of existing prediction-market activity assert that without targeted
regulation, a small group of well-informed actors could gain unfair advantages
or even influence policy for personal profit.”
After the Iran war
predictions on prediction markets, Congressional Democrats are leaning heavily
into restricting such markets. Below is some information about how prediction
markets are growing quickly and, in some cases, replacing sports betting.
On March 12, 2026, the U.S.
Commodity Futures Trading Commission called for public comment ahead of a
regulatory proposal that would require government oversight of prediction
markets. The public comment period is for six weeks.
It was recently reported that
an Israeli reporter has been subjected to Polymarket blackmail and death
threats tied to his Iran War coverage. This is quite concerning.
“When an Israeli journalist wrote about an Iranian
missile strike, he was deluged with threatening messages from online bettors
demanding he alter his reporting. 'It wouldn't surprise me' if there are more
Polymarket-related influence attempts on journalism than previously thought, he
tells Haaretz.”
At issue was whether the
strike at Beit Shemesh in Israel was from an Iranian missile or from an Israeli
interceptor strike on the missile, with the falling debris causing the damage.
The terms of the bet were that an interceptor strike would not count as a
missile hit. The issue here is also insider trading and market manipulation,
and shows another good reason to avoid and regulate prediction markets. It was
reported in February that two people, including an IDF reservist, had been
charged with using classified information to place bets on Polymarket during
the June 2025 war between Israel and Iran. Thus, we see that there is
temptation provided by prediction markets for insider trading among those with
inside information.
References:
US
Democrats working on bill to rein in prediction markets after Iran bets. Michelle
Price. Reuters. March 5, 2026. US Democrats working on bill to rein
in prediction markets after Iran bets
Prediction
Markets Explained: Types, Uses, and Real-World Examples. Katelyn Peters. Investopedia.
Updated January 27, 2026. Reviewed by Robert C. Kelly. Prediction Markets Explained: Types,
Uses, and Real-World Examples
Polymarket.
Polymarket | The World's Largest Prediction Market™
Kalshi's
$2.2 million Iran mess exposes prediction markets' fine-print problem. Jack
Newsham, Business Insider. March 5, 2026. Kalshi Amends Rules Amid Khamenei
'Death Market' Controversy - Business Insider
Prediction
market. Wikipedia. Prediction market - Wikipedia
Prediction
Market Risks (2026): A Guide to Security, Ethics, and Addiction. Crypto Content
Editor (SEO). Camila Karam. Fact Checked by Ines S. Tavares. Last updated:
February 4, 2026. Crypto News. Prediction Market Risks (2026): A
Guide to Security, Ethics, & Legal Issues
Prediction
Markets and the Law of Insider Trading: A Practical Guide. Morrison Foerster. March
3, 2026. Prediction Markets and the Law of
Insider Trading: A Practical Guide | Morrison Foerster
Prediction
Markets Spark Ethics and Regulation Debate. MEXC Blog. January 12, 2026. Prediction Markets Spark Ethics And
Regulation Debate | MEXC
Democratic
senator says 'we need to ban' certain prediction markets, but CFTC chairman
Selig has other ideas. Daragh Thomas. Benzinga. March 5, 2026. Democratic senator says 'we need to
ban' certain prediction markets, but CFTC chairman Selig has other ideas
US
commodity regulator kicks off rulemaking for prediction markets. Reuters. March
12, 2026. US commodity regulator kicks off
rulemaking for prediction markets
Israeli
reporter on Polymarket blackmail and death threats tied to his Iran war
coverage. Ben Kroll. Haaretz. March 18, 2026. Israeli
reporter on Polymarket blackmail and death threats tied to his Iran war
coverage
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