Should betting on elections be legal?
As pundits were sharing sometimes wildly different takes on how Kamala Harris and Donald Trump performed in Tuesday’s presidential debate, traders were putting money on which candidate would win the election. Those bets also told a story about the debate: On both PredictIt and Polymarket, two so-called prediction markets, the odds were swinging toward Harris.
Screenshots of the markets were seemingly everywhere — across social media, embedded in news articles and cited by television anchors.
You’ll be hearing more about them. Platforms that facilitate wagers on politics have largely operated offshore because they were prohibited in the United States. But on Thursday, a company called Kalshi was briefly allowed to take bets from Americans on November’s elections.
Within hours of a U.S. District Court giving Kalshi the green light to offer election contracts — which regulators had tried to block — the company had posted what its CEO called “the first trade made on regulated election markets in nearly a century.”
Shortly after that, the popular trading platform Interactive Brokers announced that it planned to allow similar wagers.
A federal appeals court has since temporarily blocked the bets. But the U.S. District Court decision has essentially opened the door for legal gambling on politics.
People who run predictive markets say regulated election betting could provide better forecasting data and a valuable way for businesses to hedge election risk. Detractors say such markets are prone to manipulation and bad for democracy.
Some background. Kalshi and platforms like it are designated contract markets regulated by the Commodity Futures Trading Commission. Kalshi sued when the agency tried to block it from offering contracts that would allow wagers on which political party will control the House and Senate in 2025. A federal judge sided with the company, saying the CFTC didn’t have authority to block the contracts. She lifted a temporary stay of her decision Thursday.
The CFTC had previously proposed a rule that would ban election bets, which is now up in the air.
The big fear is market manipulation. Last week, a group of traders appeared to attempt a scheme on Polymarket that involved betting heavily that Harris would win the election. Their objective seemed to be to artificially increase her odds of winning so they could win a separate bet based on those odds.
A group of lawmakers including Sens. Jeff Merkley of Oregon and Elizabeth Warren of Massachusetts, both Democrats, spelled out the most potentially dangerous ways that such markets could be manipulated in a letter to the CFTC last month. They wrote that such markets could allow “billionaires to wager extraordinary bets while simultaneously contributing to a specific candidate or party, and political insiders to bet on elections using nonpublic information.”
It’s not clear that these markets are easy to manipulate. During a hearing on the case, Kalshi’s lawyer pointed to the Polymarket example to highlight that the scheme ultimately didn’t work. After a short spike in Harris’ odds, the market corrected, and the potential market manipulator lost.
When researchers at the University of Arizona and University of Kansas looked at three historical examples of attacks on political stock markets, they found a similar pattern. After an initial jump, prices soon returned to normal. They looked at the same phenomena in modern prediction markets. “Our evidence suggests that manipulating political stock markets is difficult and expensive to do for more than a short period,” they wrote in a working paper about their analysis.
Predictive markets say election bets are valuable. Instead of asking people whom they will vote for, like a poll, they ask people who they think will win, which some argue produces a better prediction. Rajiv Sethi, an economist at Barnard College who has studied how prediction markets fared against statistical models in predicting outcomes in the 2020 and 2022 elections, said that “the jury is still out” on which is more accurate.
It’s clearer that markets can provide different types of information, he said. For example, they’re much faster than polls or statistical models, and they can more easily pick up on signals in uncharted waters, like a presidential candidate stepping out of the race just months before Election Day.
Some see election bets as a useful hedge. Angelo Lisboa, a managing director at JPMorgan Chase, wrote to the CFTC in favor of Kalshi’s filing to list political event contracts. He argued that such markets could provide an accessible hedge for election risk. A green energy startup, for example, could place a bet on Trump, who has said he would reverse many of President Joe Biden’s climate policies if elected in November.
“Large banks offer these to high-net-worth and ultrarich clients, Kalshi is not the first to wonder how impactful it would be to bring these capabilities to the rest of the population,” Lisboa wrote.
Permitting election betting would raise difficult questions for regulators. Should a contract on a small local race have a different position limit from one on who controls Congress? What happens if an election isn’t certified?
Rostin Behnam, the chair of the CFTC, has said the agency doesn’t have the expertise to monitor for fraud and manipulation related to election contracts: “To be blunt, such contracts would put the CFTC in the role of an election cop,” he said in a May statement.
Another argument: These markets already exist. Polymarket, for example, saw more than $473 million of trading volume in June, according to the crypto data platform Dune Analytics.
“These markets are important, and they’re inevitable,” John Aristotle Phillips, the CEO of PredictIt, a prediction market operated by academics, told The New York Times. “It’s only a question right now of whether or not they’re going to be regulated in the United States or they’re going to be forced offshore where there’s no regulation.”
This article originally appeared in The New York Times.
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