How election failure, gambling regulation and political gridlock have paved the way for the predicted market crash.

Although the forex market has been legal in the US for less than 18 months, it cannot stop making news and making money.

In prediction markets like Kalshi and Polymarket, users can spend real money on anything, from the winner of the 2028 presidential election to when Taylor Swift will get married.

But this is not simple entertainment: In theory, these wagers serve as a way to gather public opinion about the future.

That’s why you may have seen CNN reporters bashing Kalshi’s picks for the 2026 primaries, or watched CBS provide Polymarket’s real-time predictions on which actors will win awards during the Golden Globes.

Existing research on the principles and history of prediction markets suggests that they can be an important way to synthesize collective knowledge about the future.

But when researchers like me, journalists and legislators race to understand the impact these markets have on society and politics, several questions have arisen about the control of these planets and their ability to predict.

The what and why of the predicted markets

In fact, the prediction markets are very simple.

Each market offers what are known as “event contracts” on whether a certain outcome will occur in the future. Each contract costs 1 to 99 cents, paying US$1 if the event occurs or nothing if it does not.

Similar to betting on sports, buying a contract represents a premium. There are high rewards for positions with respect to results that are considered low. As in the stock market, a trader can buy and sell contracts over time, just like the odds – and so prices change.

At the time of writing, Kalshi’s brokers put expectations for passage of the SAVE Act, a law aimed at requiring no proof of US citizenship to register to vote, at about 10%. So each contract for this result costs 10 cents. If I think that the action may go beyond that, I can buy a “share” and sell it at a higher price if the opportunities rise in the future. If I catch them and the bill ends up being legal, I will get a refund of 10 times what I originally paid.

Two theories support the idea that prediction markets should excel in forecasting: the wisdom of crowds and the efficient market theory.

First described more than a century ago, the wisdom of crowds refers to the idea that the average judgment of a large, diverse group of volunteers is often more accurate than that of a single expert.

A related argument arises from the efficient market concept, which emerged in the mid-20th century among economists who advocated free markets. It believes that prices include all available information, reflecting the collective judgments of profit-seeking sellers and bargain-seeking buyers.

Basically, prediction markets combine collective intelligence to estimate the probability of future events.

The problem of the reliability of elections opens up an opportunity

Betting on the outcome of the day’s events has a long history. In 16th century Italy, gamblers could bet on the election of civil magistrates and the results of papal conferences. And from the 1880s to the 1930s, New York City was the center of political drama, which sometimes outpaced the stock market on a daily basis.

In reporting on betting before the 1924 presidential election, The New York Times noted, “It is an old sentiment in the financial district that betting on Wall Street is ‘never wrong.'”

However, the rise of scientific polls and legal disputes over the political game forced the predicted markets to fade into the background.

That changed in 2024.

One month before the US election, the federal court gave permission to start the Kalshi market to legally operate prediction markets about the results of the American elections.

Around the same time, Elon Musk wrote on X about Donald Trump leading Kamala Harris on predictive markets. Trump followed suit. Kalshi installed billboards with voting opportunities in Times Square. Users and dollars flowed in. On election day, more than $500 million worth of presidential election badges had been sold in Kalshi alone. Polymarket has generated over $3.6 billion in revenue.

Meanwhile, the political elections were facing a crisis of trust. Response rates had been falling for decades, and Trump’s turnout was down in 2016 and 2020.

Polls predict the presidential election as a coin. The prediction market favored Trump with about a 60% chance of winning.

After Trump won at the ballot box, prediction markets declared victory over the polls as new, reliable predictors of public opinion.

Use of markets

Over the past 50 years, journalists have incorporated more information into their reporting, and audiences have come to expect political forecasts as part of their news feed.

As polls suffer from reliability issues, the prediction market has become an increasingly attractive way for journalists to provide a data-backed picture of public beliefs.

Prediction markets have some advantages over polls. They respond to events in real time, and are free to access. Meanwhile, elections take time and money to run. They provide forecasts of political outcomes beyond elections – such as Cabinet nominations and Supreme Court decisions – which are often outside the scope of the election.

In recent months, Kalshi and Polymarket have entered into several partnership agreements and press releases. There’s a connection: Prediction Markets provide journalists with information to report and communicate. Journalists also validate prediction markets by citing them as a reliable source.

Prediction markets have performed well in elections. Whether they are more valid than the options for other types of questions is still up for debate.

If traders behave rationally, with an economic sense, they may fly between positions to increase profits based on new information, personal bias aside.

But when making options, many traders seem to buy and sell only one position, rather than switching between them. They may think they are selling rationally while exhibiting “wishful thinking” bias. Or,​​​​​​like many sports bookmakers, they may be betting because of fashion or entertainment.

All these conditions can reduce the accuracy of these markets.

The elephant in the room

Many journalists accept the data as their publications are reporting on the concern about trading inside the predetermined markets. Because the outcome of events is often determined by human actors, those who are aware of certain plans – say, the upcoming ceasefire agreement – will have access to information that is not available to the public and can benefit greatly from that information.

Two anonymous accounts have made hundreds of thousands of dollars predicting the fall of Nicolás Maduro and betting on the overthrow of Ayatollah Ali Khamanei, as traders put their money down before the US takes military action. This time has raised eyebrows.

Kalshi prohibits insider trading, and in early 2026 it fined and suspended two high-level traders who used insider information.

Perhaps due to the press and negative statements from the legislators who want to control the platform, Kalshi and Polymarket also announced new regulations for insider trading on March 23, 2026, which focus on politics and sports.

The legal mechanisms for enforcing these laws, however, are not so clear. SEC Rule 10b5-1 prohibits the trading of securities on the basis of non-public information.

But event contracts are not regulated by the SEC. They are under the supervision of the Commodity Futures Trading Commission, which is a very small agency. As things stand, the small agency has too few staff to manage the validity of certain event contracts, which are regulated by the Commodity Exchange Act. Kalshi and other predefined market platforms are given the space to verify the legitimacy of each contract.

Any attempt to control insider trading, in my opinion, will require clear rules and effective operating procedures.

From participation to profit

As I do my research, I keep thinking about what the rising popularity of stock markets predicts for American culture and politics in 2026.

In 1969, sociologist Erving Goffman suggested that Americans’ attraction to gambling stems from the need to “take action” in an increasingly hierarchical society. Similarly, studies have shown that betting on sports makes fans feel like they are participating, not just watching.

Congress is less productive than before. Many Americans feel they have little influence in the workings of government, and many have watched helplessly as democratic safeguards have been eliminated.

Who knows what will happen next year. The filibuster may fail, or the US may invade Cuba. Most Americans will not speak. But prediction markets at least offer a chance to make a buck in action.