High-Stakes Future of Prediction Markets

Lee Hills, CEO, SolutionsHub

Engagement has become the most valuable currency, and a new kind of marketplace merges finance, entertainment, and speculation together. These so-called prediction markets let people bet on real-world outcomes, from elections and celebrity scandals to weather and the economy, treating the future itself like a tradable asset.

At first glance, prediction markets look a lot like sports betting exchanges. However, instead of wagering against the house, participants trade shares tied to possible outcomes. Each “yes” or “no” share reflects the crowd’s collective odds, priced in real time. If the event happens, “yes” shares pay out one dollar. If it doesn’t, they drop to zero. Their growing popularity raises profound questions about regulation, gamification, and the nature of truth.

The appeal of these markets lies in their fusion of intellectual thrill and financial incentive. They make news participatory. When the U.S. presidential election heats up, or a central bank teases a rate change, users can express their confidence not just through opinion but through capital.

On Polymarket, a blockchain-based platform launched in 2020, traders speculate daily on hundreds of topics such as who will win an Oscar, whether Apple will release a foldable iPhone, or if global temperatures will break records.

Kalshi, a U.S. regulated exchange approved by the Commodity Futures Trading Commission (CFTC), focuses on policy and economic outcomes, like whether Congress will pass a tax bill or if inflation will exceed a certain rate. Where sports betting ends with a final whistle, prediction markets extend the game into every aspect of public life. The emotional loop never closes. There’s always another headline, another rumour, another datapoint that might move the odds.

Advocates argue that markets like these, by forcing people to “put their money where their mouth is,” reveal the true probability of future events more accurately than polls or pundits. Researchers at the University of Pennsylvania and MIT have long shown that aggregated prediction markets often outperform expert forecasts in areas ranging from elections to macroeconomics.

But the social and psychological cost is harder to quantify. Critics warn that the same features that make prediction markets fascinating also make them dangerously addictive.

The rush of watching odds move in real time, the feedback loop of being proved right or wrong in public, and the constant availability of new markets all mirror the mechanics of social media and day trading. It’s no coincidence that the platforms have taken off during an era of gamified finance. Robinhood made investing as simple and intuitive as a swipe, and TikTok creators built audiences by live-streaming their stock trades.

Regulators are taking notice. In 2022, the CFTC fined Polymarket for operating an unregistered market and required it to block U.S. users. While the company remains active offshore, its American counterpart Kalshi continues to navigate the gray area between finance and gambling. The distinction may be academic, but legally it matters enormously. If prediction contracts are treated as derivatives, they fall under financial law. If they’re seen as wagers, they belong in the realm of gambling.

In the United Kingdom, the Gambling Commission loosely defines betting as staking money on the likelihood of anything occurring or not occurring. Under that logic, prediction markets would qualify as gambling even if they claim to be “information markets.” Yet they lack the consumer protections, spending limits, and responsibility programs that traditional sportsbooks are required to maintain.

There’s also the question of market manipulation. In political or social prediction markets, large traders could influence perceptions simply by moving prices, signalling that one candidate’s victory is “more likely” and thus shaping media narratives or voter sentiment. The concern isn’t theoretical. Researchers studying the 2020 U.S. election found that prediction market prices were cited repeatedly in news coverage as indicators of momentum, sometimes amplifying false confidence in particular outcomes, therefore providing potentially significant power in the phantom narrative.

Another risk is emotional entanglement. Losing a wager on a football team may sting but losing money because your political or ideological worldview didn’t come true cuts closer to identity and may feel like a personal rejection. Psychologists studying online trading behavior note that users of speculative apps often experience “identity-based loss,” where financial outcomes become proxies for self-esteem and belief. In prediction markets, this may be amplified, with every loss feeling like an attack on one’s worldview.

However, optimism around the concept persists. Academics see promise in using prediction markets to crowdsource policy insight or track the likelihood of geopolitical conflict. The idea that a market might anticipate disease outbreaks or climate trends before institutions react has captured the attention of economists. Data aggregated from diverse participants, incentivized by self-interest, often cuts through bias better than committees or think tanks. As such platforms grow, the concepts of ‘trending’ and ‘going viral’ become more pertinent.

Yet the practical reality remains that most participants aren’t engaging in civic-minded forecasting. Prediction markets fit neatly into what some sociologists call “the experience economy”, where attention, emotion, and identity are as valuable as money. It is less about the accuracy of a bet and more about the narrative it sustains.

While the cultural shift raises concerns for some, engagement is nothing new and remains the core business model across digital platforms. Unlike traditional sportsbooks, prediction platforms earn revenue through transaction fees, rewarding active participation rather than passive betting. The more users trade and care about outcomes, the richer and more informative the markets become.

Supporters argue that focusing solely on potential cultural downsides misses the broader significance. Since speculation is an inherent feature of financial behavior, the mature policy response is to define clear regulatory parameters and enhance transparency. Prediction platforms, in turn, aim to normalize event trading as a legitimate financial instrument, accessible to ordinary investors much like options or futures.

Some caution that prediction markets can amplify volatility and emotion, the very forces regulators seek to manage. Still, managed responsibly, they may also offer a structured way to aggregate public information.

The key policy question is not whether these markets constitute gambling or finance, but how their mechanisms can be guided toward transparency, accountability, and public value. Properly designed, prediction platforms make forecasting both more democratic and more informed, provided regulation is appropriate and proportionate.