Kalshi and Polymarket are racing to ban insider trading. The economist who built the theory behind prediction markets says it’s the whole point |
Kalshi and Polymarket are racing to ban insider trading. The economist who built the theory behind prediction markets says it’s the whole point
The walls have started closing in on prediction markets.
On Thursday, the Department of Justice announced it was charging a U.S. Army soldier who helped plan the operation to capture Nicolas Maduro with five felonies, alleging he used classified intelligence to bet $33,000 on Polymarket that the raid would happen, then cashed out roughly $400,000 when it did.
The day before, Kalshi fined and suspended three federal candidates who engaged in insider trading on its platform by betting on their own races. Under mounting pressure, Kalshi and Polymarket have rolled out new restrictions barring politicians from trading on their own campaigns, athletes from trading in their own leagues, and employees from trading on contracts tied to their employers.
But Robin Hanson, who’s been making the intellectual case for prediction markets for nearly 40 years, says this is all wrong.
“You want them trading,” Hanson, a professor at George Mason University who helped develop the market scoring rule used by many prediction markets, said of insiders. “You want the most accurate prices. That’s pretty clear. The purpose of the market is to inform decisions.”
For a swath of consumers, particularly younger and male, prediction markets are an attractive arbitrage opportunity. For many policymakers, they’re a troubling scourge, literally equivalent to “gambling.” Even President Donald Trump said that he was “never very much in favor” of them, despite his son’s business ties to the platforms.
But for those market-loving economists, prediction markets are a way to pay people to tell........