Prediction Markets: What Are They?

While sports betting expands slowly across America, state by state, constrained by the narrow provisions set by individual lawmakers, platforms like Kalshi and Polymarket have spread nationwide by working smarter not harder. These platforms quietly obtained legal status as prediction markets, so they can operate much like traditional betting websites, while offering a wider range of options to place wagers on (elections, pop culture events, the weather, etc.), and remain accessible in all 50 states to anyone over the age of 18.  

The key to this success lies in the fact that prediction markets are regulated federally by the Commodity Futures Trading Commission, or CFTC for short. As opposed to betting against the house of a sportsbook, prediction market users trade event contracts.

What is an Event Contract?  

Event contracts are tied to predictions about whether an event will or will not happen. At the time of the predicted event, the prediction market (Kalshi, Polymarket, etc.) pays out 1 dollar for each holder of a share in the correct prediction, and the shares in the false predictions are rendered valueless. Let’s take the market for the winner of the Superbowl as an example. Following the game, those who had shares in the Seahawks winning were issued 1 dollar per share from the prediction market, and the shares in the victory of the Patriots were rendered valueless.  

As opposed to sports books that typically lock you into a position, in the lead up to any given predicted event, users of prediction markets can buy and sell their positions at any time. The price of each share is determined by the market. When more people predict a certain outcome, that means the price of that share will go up, and vice versa. Since the price of each share can be anywhere between 0 and 99 cents, the price of shares corresponds to the predicted percentage likelihood of the event happening. For example, as of February 18th, 2026, shares of Paul Thomas Anderson’s One Battle After Another winning best picture at this year’s Oscars are trading at 74 cents on Kalshi, meaning that Kalshi predicts a 74% chance likelihood of this outcome. This seems silly, but the market on Kalshi for predictions on best picture has already reached 11 million dollars.

Either way, here enters one of the prediction market’s claims to legitimacy as a socially useful product: it can beat polls when aggregating collective wisdom. Prediction markets can respond in real time to new information, as opposed to polls which are static and already old by the time of their release to the public. Further, people do not need to tell the truth on polls. However, the prediction market gives an incentive for users to bet on what they really think will happen.

How do People Really Use Prediction Markets?  

As with any market, the objective is to buy low and sell high. The money one can make from each share depends on how low the likelihood of the event is at the time of buying it. For example, when the market for the winner of the English Premier League opened in August of 2025, Arsenal’s victory was priced at 30 cents per share. In February of 2025, that share price rose up to 70 cents. Traders have an option at this point to take the profit of 40 cents per share at this point or continue to the end of the market’s life cycle in hopes of getting the full 1 dollar per share, which would result in a 70-cent profit if Arsenal really wins the English Premier League. Given this, one may begin to wonder if the incentive to make money on the market interferes with the above stated commitment to truth.  

Where did Prediction Markets Come From?  

Prediction markets began as an academic experiment at the University of Iowa in the 1980s. For decades, they remained a niche corner of finance. New platforms appeared from time to time, but most kept a low profile and backed away from any pressure put on them by regulators. Kalshi took a different approach. Rather than avoid confrontation, the company chose to defend its model in court. In the autumn of 2024, it secured the right to offer markets on U.S. elections, a decision that arrived just weeks before the presidential vote. The ruling marked a turning point for the industry. Interest followed quickly. Traders committed roughly 540 million dollars to Kalshi’s presidential election market alone. A format that had long been confined to academic circles and specialized audiences suddenly drew national attention. Since then, prediction markets have expanded their reach, attracting higher volumes and a broader base of retail participants. What was once experimental has begun to look like a durable feature of the financial landscape.

What’s Next?  

Despite support and acceptance from the Trump administration for the current regulatory landscape of prediction markets, the public remains wary. Even though it’s clothed in the costume of a market, many continue to feel that prediction markets are just gambling. Some state regulators agree with this sentiment and think regulation of prediction markets should fall under their jurisdiction. Another set of controversies concern insider trading. The rhetoric around prediction markets concerns democratizing access to financial markets; something that may entice retail investors. And yet, it seems like the markets can be gamed by those with unfair advantages due to having insider information. Bad Bunny’s back up dancers buying shares of markets about his performance has become a popular stand-in for this issue.  Prediction markets have won the day, but the effort to disrupt them is long from over.

By Yanis Ait Kaci Azzou, Library Assistant