Election betting has well and truly broken through in the 2024 campaign. Mainstream publications now cite odds alongside polls and other election models, while millions of people are watching them directly — hoping, wondering, or fearing that the power of the market has discovered something close to the real probabilities of the election.

This is still new. In 2020, election betting was a fringe but growing phenomenon. On Polymarket, the total bet volume on the outcome of that election was just over $10 million, with Joe Biden favored to win. This year, total bet volume is about to pass $2.5 billion, with Donald Trump currently sitting at a 66 percent chance of winning. That is markedly higher than the probabilities assigned by popular poll-centric election models, but only slightly higher than other, smaller markets, which have followed its swing, and the old-fashioned betting lines set by casinos.

The confidence of these markets and their (shrinking) gap with models from established election forecasters has invited a mixture of reasonable and motivated skepticism. Do the sort of people who would, or could, place bets in a crypto-centric betting platform that’s not legal to use in the United States have a strange, particular, or biased sense of U.S. politics? Maybe. Could the market be distorted by massive bets from anonymous individual “whales” with unknown motivations? Sure! Could betting markets be prone to unpredictable manias or poisoned by incorporating misleading data such as polls or press coverage? Yeah.

Prediction markets have an answer to all these critiques, which happens to be the premise on which they’re founded: that people with skin in the game will be motivated to synthesize a broad range of information, including these possibilities, setting aside personal biases and acting rationally, motivated by the prospect of winning or losing real money. According to Polymarket:

Studies show prediction markets are often more accurate than pundits because they combine news, polls, and expert opinions into a single value that represents the market’s view of an event’s odds. Our markets reflect accurate, unbiased, and real-time probabilities for the events that matter most to you. Markets seek truth.

“If you’re an expert on a certain topic, Polymarket is your opportunity to profit from trading based on your knowledge, while improving the market’s accuracy,” the company says. Because its users are “financially incentivized to be correct,” the theory goes, Polymarket “creates more thoughtful, data-driven predictions.”

Kalshi, a Polymarket competitor that recently won regulatory approval in the U.S., makes its case in a similar way. By putting “a concrete number” on predictions or rumors, betting markets take the “messy world of opinions” and force participants to “refine our beliefs, consider all sides of the issue, and ultimately, gain a sharper understanding of the world around us.” This portrait of a rational market participant is core to the work of Robin Hanson, an economist whose ideas are cited by Polymarket as inspiring the platform. In a short manifesto posted on his website outlining........

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