This is a linkpost for https://itsnotgambling.substack.com/p/the-world-hasnt-gone-mad
This is tricky. On one hand, what you said. On the other hand, this feels inevitable in long term -- if we want the prediction markets to become more than an obscure game for a new nerds, the stupid people will sooner of later find them.
I am not sure what would be a reasonable regulation here. I want smart people to be able to bet their salary on something. And I'd prefer stupid people not do the same. How to achieve that, without testing for IQ directly?
My first thought was something like: we could use your history of bets and outcomes to determine how much you are allowed to bet. Some kind of "prediction credit score" that only allows you to make small bets first, and only increases if you demonstrate sufficient sanity.
But the disadvantage is, if you have insider information, and you haven't already built up your "prediction credit score", you are also excluded from the market in short term.
Interesting, and I appreciate your thoughts. Why do you say we want PMs to "become more than an obscure game for nerds?" Dumb money is just a way for uninformed people to pay random people from CT in a very complicated fashion. If the goal of PMs is accurate predictions, having extra dumb money floating around won't improve the calibrations.
I'm not sure what your stance is on the purpose of PMs, but assuming it's more accurate foresight I think the ultimate goal is going to be finding the optimal incentive models for play-money markets.
Why do you think avoiding insider trading is a disadvantage? I don't disagree, but I'm curious to hear what you have to say.
Why do you say we want PMs to "become more than an obscure game for nerds?"
Prediction markets need money as a fuel. The incentive for people to provide correct predictions is to gain money. More money in prediction markets means more people have an incentive to spend their time figuring out the correct answers. Or maybe the same people have an incentive to spend more of their time figuring out things, so they can answer more questions.
I am not really sure on the impact of extra dumb money. Perhaps the extra dumb people need to be told repeatedly that they are wrong? But preferably in a way that doesn't take their entire salaries away.
Why do you think avoiding insider trading is a disadvantage?
No, I didn't mean it that way. Actually, the other way round; insider trading is good -- well, as long as the insider has a "read-only" access to information.
It becomes different when the insider is incentivize to create chaos and make money on predicting their own chaos most reliably. Like, I wouldn't want a world where e.g. Trump suddenly nukes a random unimportant place as a way to make money, like in the morning he creates a bet saying "what is the chance that Trump will nuke this irrelevant place of out the blue this evening?" and when people respond "very low", he says "lol, watch me, losers" and collects the jackpot. (But of course if people responded "very high, this seems like his usual pattern of insider trading", then he would make money by betting "no, he definitely won't" and not nuking the random place today. So he makes money either way.)
But the thing I wanted to say in the previous comment was that it seems good to have a rule "noobs can't make very high bets", but that would turn against many cases of insider trading, if the insider happens to be a noob.
In June 2025, Kalshi unveiled an ad campaign with the slogan “The world’s gone mad, trade it.” The ad was one of the first TV ads to ever be entirely generated by AI, and its content quickly was met with a slew of parodies and jokes all over the internet.
I must agree the ad was quite funny. I admire Kalshi and Polymarket in terms of their business, but I have some concerns about the objective of the ad.
It’s not that you can’t lose an enormous amount of money on prediction markets, but the win rate and general “fairness of the game” is much more optimal for the average trader. Prediction markets also provide some sort of valuable utility in the form of calibrated forecasts (i.e. events predicted by market at X% resolve YES X% of the time), rather than sportsbooks that offer miscalibrated odds that are essentially meaningless. Therefore, we should be shifting away from sportsbooks and towards PMs, while also trying to not fuel gambling additions, which many hoped would be solved by more reasonable advertising, not the slop we’ve been getting recently.
Sportsbooks such as Fanduel and DraftKings should not be legal. I believe, as most do, that a country’s first and foremost goal is to protect their citizens. What are we allowing now? We are permitting degens who aren’t using any form of logic or reasoning to take negative EV positions against the house that needs to rig special offers to turn a profit, like a casino (which should also not be legal, but that’s besides the point).
Sportsbooks are negative EV because they slightly inflate probabilities so they sum to >100%. If the true probability of a football game is 50% one team wins, 50% the other, a sportsbook would inflate those probabilities to something like 52% and 52%. Here’s an expected value calculation in that scenario:
No matter how skilled you are, it’s highly improbable to win unless you manipulate bonuses.
Prediction markets offer bets against counterparties such as human traders, bots, and AMMs. On average, PM positions are neutral expected value.1 It offers more opportunities to make a profit by using advanced strategies and unique worldviews. This is the core difference between PMs and sportsbooks, and it’s why they should be treated legally under their own individual class.
But an alien in a Kalshi jersey downing a pint of beer seems less like a display of the product and more of a heartless, thrifty way to attract what some people would call “dumb money.” While this may be good for smarter traders, it leans to the more unethical side of degenerate gambling, and probably doesn’t help Kalshi’s legal cases.
Modern prediction market exchanges should remain a commonplace for trading futures contracts, not hubs for mindlessly depreciating the value of your bank account.
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