Prediction market boosters often tout the platforms as barometers of public opinion, or even “truth machines” offering a clearer picture of where things are headed than polling or other data. In 2024, for example, Kalshi beat many pollsters in forecasting the outcome of the US presidential race. But their trading activity can also tell more perplexing stories.

Two global election markets on Polymarket’s offshore platform, for instance, generated over $600 million in trading volume, far more than most political markets typically attract. Most of the activity took place buying and selling contracts tied to long-shot candidates who ultimately did not win.

This summer, Ethiopian Prime Minister Abiy Ahmed’s Prosperity Party cruised to victory in federal elections, winning 438 parliamentary seats and paving the way for him to serve another five-year term. The closest competitor won 13 seats. On prediction markets, trading volume—the total value of contracts bought and sold—typically tracks roughly with the odds of a given outcome; frontrunners attract far more volume than long shots. But in this case, the trading patterns deviated sharply from the norm. Just $173,000 was wagered on Ahmed winning, compared to more than $41 million traded on his chief of staff, Shimelis Abdisa, becoming the country’s next leader. Altogether, the volume traded added up to over $285 million, nearly all on losing candidates.

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In July 2010, US Senator Blanche Lincoln (D-Ark.) predicted the rise of prediction markets and the problems they could cause. If not properly regulated, Lincoln warned during Senate proceedings on the Dodd–Frank Wall Street Reform and Consumer Protection Act, prediction markets could evade gambling laws by offering "event contracts" that let people place wagers on sports games.

"It would be quite easy to construct an event contract around sporting events such as the Super Bowl, the Kentucky Derby, and Masters golf tournament," Lincoln, who played a key role in making the law that now regulates prediction markets, told fellow senators. "These types of contracts would not serve any real commercial purpose. Rather, they would be used solely for gambling."

Today, Lincoln is a lobbyist for prediction market Kalshi and has urged the Commodity Futures Trading Commission (CFTC) to allow sports gambling on the markets. The firm she founded has received $480,000 from Kalshi since 2024 in exchange for lobbying Congress and the CFTC for looser regulation of event contracts.

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The state was the first to pass a law banning Kalshi and Polymarket. A lawsuit filed by a federal agency may set a precedent on who gets to regulate them.

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The outcome contradicted an earlier appeals court decision. Federal regulators said the split rulings called for resolution by the Supreme Court.

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A legal dispute over the future of Kalshi, Polymarket and others has drawn in the Trump administration, the president’s son and nearly every state attorney general.

© Ricardo Tomás