Suppose Kalshi launches their cool new prediction marketplace soon, and it attracts a large userbase with high trading volume, and it doesn’t get shut down or strangled with red tape. What then?


  • Replication markets will mitigate some of the bias afflicting scientific research.
  • Market prices will become an additional source of bias afflicting scientific research.
  • There will be sets of questions that can sketch out causal models. The market will give predictions not only on what will happen but why.
  • Philanthropists will subsidize markets of public interest unless and until governments do.
  • There will be great demand for trustworthy reports of ground truths. Some kind of payment scheme will be worked out that pays fees to trustworthy reporters. Costly signals of honesty will be developed and popularized.
    • "A survey of 100K residents showed [some result]. Survey integrity was established by [some standardized proof of neutrality or costly signal of honesty]".
  • There will be market estimates on how long we have until the next respiratory pandemic, the next natural disaster, the next large military conflict, and so on.
  • The userbase will contain some amount of institutional investment even though individual bets are capped at $25K. There will be professional traders whose daily workflow is similar to that of existing professional stock traders.
  • Futurism will be more disciplined. Conversations about technological forecasting will always involve some discussion of contract prices. "Majority self-driving traffic within the next 20 years, huh? Well the markets have that at X cents."
  • The $25K cap will sometimes be low enough for price manipulation by special interests, so makers of important policy will be hesitant to use decision markets.


  • How reasonable is the initial assumption--that Kalshi does not shut down or get hamstrung with red tape?
  • How much extra complication will there be in betting about inflation? Betting on the value of the very currency with which you are betting seems possibly kinda tricky.
  • Direct questions about assassinations will be banned of course. But how hard will it be to arrange bets across multiple innocent markets in order to indirectly bet on banned markets? Are there other ways that perverse incentives can leak into otherwise regular usage?
  • How much will insurance bets cause market prices to diverge from notional market probabilities? If people bet on an imminent pandemic because they want to reduce their total potential pandemic losses, this will raise the price above the market’s probability.
  • What are the implications for a startup employee who is being partly paid in equity? Will it be easy or impossible for that employee to move their net position back to neutral by betting against the startup?

Pre-Hindsight Prompt

The year is 20XX and prediction markets are in full swing, with all kinds of new business models and betting opportunities now available, many of which you hadn’t even thought of before Kalshi launched. But not for lack of imagination--you realize that you really could have been the first mover on a few of these new enterprises back in 2021 if you had brainstormed a bit. Describe one of them.


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You know, Polymarket really works and anyone can use it right now, including US citizens; the only really serious problem with it is that it costs a flat fee of about ~$50 to deposit and withdraw, and you have to be able to figure out how to send cryptocurrency.

Some comments:

  • As a random smart LW person, I actually rarely have interest in participating in a prediction market, because I have to work hard to have any edge on anything, and even if I have an edge I risk betting against someone who has true inside information. I would have to value my time less or enjoy modelling things more to be an active participant. It's not like the stock market where you are incentivized to use it even if you don't know anything special.
  • It's hard to get people to participate in long-term markets, because the payoff just isn't very good. I have zero desire to work hard on a model so that I can make an expected profit of 10% two years from now.
  • $25k is a joke -- is that for real? That does not pay off someone for making a good model. It also doesn't let smart money fix a wrong price even if they magically have a perfect model. You would have to organize some kind of fund with many traders working on many models who all shared info and went in on all of each others' trades.

I don't use Polymarket because, relative to a material investment,

More generally, I haven't yet seen a prediction market where the "easy money" looks more attractive on a risk-and-work-adjusted basis than working on HypoFuzz. Perhaps others have similar opportunity costs?

USDC is a very different thing than tether.

Do you have most of your net worth tied up in Eth, or something other than USD at any rate? If not I don't see how the volatility point could apply.

With the capital I have on hand as a PhD student, there's just no way that running something like Vitalik's pipeline to make money on prediction markets will have a higher excess return-on-hours-worked over holding ETH than my next-best option (which I currently think is a business I'm starting).

If I was starting with a larger capital pool, or equivalently a lower hourly rate, I can see how it would be attractive though.

you really could have been the first mover on a few of these new enterprises back in 2021 if you had brainstormed a bit. Describe one of them.


  • Curated data services for forecasting.
  • High-trust paid newsletter/research service oriented around interesting markets. Maintain a publicly-verifiable scoreboard linked to market positions to demonstrate reliability.
  • Insurance markets - take an extreme position as a catastrophe hedge, use this to subsidize market making.
  • Social network - rationales and discussion for various markets. Content discovery algorithms could include historic accuracy so truth propagates more easily.
  • Infrastructure to annotate opinion pieces with concrete predictions, link to market positions.
  • ... [will update if more occur to me]

By the way, here's a Metaculus question about when Kalshi will launch.

Regarding betting on inflation, TIPS already exist.

TIPS aren't great for betting on inflation:

  • Embedded option on deflation
  • Liquidity issues
  • Difficult to short for a retail investor

If you have the kind of ability to short TIPS, you have the kind of ability to trade inflation swaps which are a much purer way to bet on inflation.

(That's not to say TIPS aren't a useful product - as an investment vehicle with the risks it mitigates they are excellent, but for betting on inflation they aren't especially useful for retail)

On the question of subsidization and liquidity, has anyone considered investing money locked into a prediction to create outcomes which aren't zero-sum? I imagine prediction markets like PredictIt invest the funds sunk into their markets in some manner already, but those returns/losses aren't accessible to bettors.

Currently, the money placed into a prediction market just idles there from the perspective of bettors.

Suppose instead of distributing earnings/losses based solely on the market outcome, in the meantime the money was placed into high yields savings. At the resolution of the market, the payout would include not only the money put in the market but also any interest earned. On the flipside investment losses could erode winnings.

Of course, this gives rise to the possibility of markets which have major market repercussions being mispriced, reflecting concerns over investment losses. But if anything that teases out more useful information from the market. It also erases the opportunity cost of storing money a betting market over other financial markets.

FWIW FTX allows you to bet on its prediction markets on margin with a tokenized version of the S&P 500 as collateral, which accomplishes exactly what you want to accomplish here


Why do people trade?

We often trade to express an opinion on whether a future event will drive value up or down.

You believe that a vaccine will be widely distributed, so you try investing in travel stocks. You believe emissions regulation is coming, so you try shorting auto companies.

But these trades don’t provide direct exposure to the event. There’s a lot of noise that gets in the way. Kalshi enables you to isolate trading on the event itself.

This makes me pessimistic about it, see Prediction Markets Fail To Mooch.

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