SAN FRANCISCO — Scott Owens, an amateur watchmaker in Madison, Wis., waited years for a chance to legally bet money on U.S. politics. Earlier this month a federal court opened the way, by ruling that federal financial regulators could not block New York start-up Kalshi from accepting such wagers.
A few days later, Owens put down about $100 on several potential outcomes in the popular vote and electoral college from the presidential ballot on Election Day. He placed his bets on Kalshi’s prediction market — an online exchange where instead of buying stocks or bonds people buy stakes in future events. Bets on such platforms can be placed not just on elections but also hurricanes, Cabinet nominations and when Taylor Swift will get engaged.
Owens, 47, likened the challenge of predicting things to come to repairing antique timepieces. “They’re all a puzzle,” he said in a recent phone interview. “You need to figure out what’s the answer?”
In the puzzle that is the 2024 election, many people are turning to prediction markets offered by Kalshi and rivals such as Polymarket or PredictIt. They lure some to put down money and others as an alternative readout on the state of the presidential race to those offered by conventional pollsters, pundits and the media.
Around $2 billion in cryptocurrency has been wagered on predicting the next president on Polymarket as of Friday. The New York-based company says it receives tens of millions of visits per month.
Tarek Mansour, CEO of Kalshi, said in an interview this week that the site’s user base has been “doubling day over day” since the U.S. District Court for the District of Columbia early this month ruled against a Commodity Futures Trading Commission order banning bets on politics. The agency is appealing the decision.
Advocates and fans of prediction markets argue that the financial incentives they create and the “wisdom of crowds” allow pricing on the exchanges to provide accurate forecasts.
Instead of stocks or bonds, traders on prediction markets buy stakes in potential outcomes that return $1 if they come to pass — or nothing if they don’t. In the run-up to an event, the market price fluctuates as traders weigh how likely they consider the different outcomes are and what stakes to buy and sell at different prices.
As of Friday, pricing on Polymarket suggested former president Donald Trump had a 60 percent chance of winning the presidency and Kamala Harris had a 40 percent chance. On Kalshi, Trump was trading at 56 percent and Harris at 44 percent.
The Washington Post’s polling average, which incorporates 53 national polls, shows Harris with a lead of two percentage points over Trump. Speculation surged on social media this week about who might be behind Polymarket accounts that placed tens of millions on a Trump victory.
Prediction markets have won particular prominence in tech, finance and cryptocurrency circles. In San Francisco, a staffer for one mayoral candidate recently quoted data from conventional polls and prediction markets in the same breath.
A tech founder at a recent debate watch party in the city pulled up Polymarket to check his preferred federal candidate’s performance. In late August, Bloomberg added Polymarket odds alongside the traditional poll data in its terminal service widely used in finance.
Despite the growing visibility of prediction markets for politics, people who trade on and work for them generally acknowledge that traders on the exchanges aren’t representative of the U.S. electorate. Instead, they tend to skew male and conservative.
“There are probably some asymmetries in who trades in these markets,” pollster Nate Silver, an adviser to Polymarket and founder and former editor of FiveThirtyEight, said in a phone interview. Still, he said it’s possible that differences between conventional polls and pricing on prediction markets are less stark than they appear, after accounting for poll margins of error.
Wagering on elections and other events is gaining popularity as Americans double down on sports betting in the wake of dozens of states legalizing the pastime. In 2023, the sports betting industry had nearly $120 billion in revenue, a 44.5 percent increase from 2022, according to the American Gaming Association.
But U.S. regulators are still hammering out what’s allowed on prediction markets. The Commodity Futures Trading Commission has cracked down on election betting through a mix of proposed rules and court cases. The agency declined to comment on additional rulemaking while the Kalshi litigation is pending.
Polymarket, founded in 2020, is the largest prediction market but open only to non-U.S. investors, although tips on circumventing that rule circulate online. Polymarket said it certifies that its biggest traders are not American. The company has received more than $100 million in funding from investors including billionaire tech titan Peter Thiel, a mentor to Republican vice-presidential candidate JD Vance; and Vitalik Buterin, co-founder of the ethereum crypto network.
The majority of Polymarket’s 210,000 users have lost modest amounts of money on the platform, according to the analytics site LayerHub, and as of Friday only 12 percent of users have made a profit.
Some observers fear directly attaching money to political outcomes will be harmful. “We live in a time where our democracy is fragile,” Cantrell Dumas, director of derivatives policy at Better Markets, a financial reform advocacy group, said in a phone interview.
Dumas worries flush supporters could sway the markets with large bets. He’s also concerned that the specter of a large payout could feed accusations of voter fraud or incentivize attempts to manipulate an election using AI deepfakes or other nefarious tactics.
The CFTC has opposed trading on politics for years and said that election betting is “contrary to the public interest.” Such activity would “essentially reduce key facets of the democratic process to a source of revenue for some, fascination and entertainment for others,” its chair, Rostin Behnam, said in a September 2023 statement.
Trump and his billionaire supporter Elon Musk have already shone a spotlight on prediction markets. Earlier this month, as Polymarket’s pricing for the presidential race swung from a tight contest to a clear lead for the former president, Musk posted on X, claiming that prediction markets are “more accurate” than polls. Days later, Trump shared an image of his 55 percent to 44 percent Polymarket odds on Truth Social.
Joshua, a 37-year-old tech founder in San Francisco, who spoke on condition of using only his first name because of legal uncertainty surrounding prediction markets, said Musk and other conservative influencers seizing on Trump’s performance on the exchanges made him reconsider his view that they are “efficient” and trustworthy. “I’m way more cautious than before about believing the market,” Joshua said.
Dedicated bettors often counter concerns about skewed prediction markets by arguing that they naturally self-correct. They reason that investors who spot a chance to profit from any price discrepancies — either by adjusting their previous position in the market or entering the fray for the first time — will shift the market back into balance. “The markets are huge, and there is a massive incentive and financial reward to correct the odds,” Matt Valcourt, who goes by Valko online, said in a phone interview.
While some traders argue that polls may have worse biases than prediction markets, a 2012 study that contrasted the two suggests otherwise.
“The usual discrepancy between polls and markets is that markets overvalue underdogs,” Robert Erikson, a political science professor at Columbia University who conducted the study with Christopher Wlezien of the University of Texas at Austin, wrote in an email to The Post. “People expect more volatility in voter preferences during the time between the bet and Election Day than is likely based on history.”
A recent visit to a casino sportsbook on the Las Vegas Strip showed that not everyone comfortable betting on games is ready to wager money on politics.
Eric, who spoke on condition of using only his first name because he doesn’t want his wife to know he bets about $500 per week on NFL and college football games, said betting on the election feels different. If your candidate loses, “you can just say it was rigged,” he said while standing in the sportsbook section of the Venetian hotel. He said he wasn’t sure if he would place money on the election, “but I’m open to it.”
Amanda Sanders, a 44-year-old undecided Florida voter who works for a company that sells ATMs and was in Las Vegas for the Global Gaming Expo, said she wouldn’t bet on the election because she doesn’t like the odds. “I like to put my money on a sure bet,” she said, and the election is just too close to call. “You really can’t tell what people are going to do when it comes time,” she added.
Less than a month before the election, after he first spoke with The Post, Owens, the amateur watchmaker, received a message from a Kalshi employee. It asked if he would consider giving up trading on the platform to work for the company. The company bars its staff from trading on the exchange.
Owens said yes that day, and started the next. He now helps improve Kalshi’s platform and fields users’ questions.
A high school dropout, Owens said he’s previously felt “unhireable” because he lacks degrees. Now he’s part of a hiring surge as Kalshi tries to meet growing demand. “It feels really good that because of this prediction market, somebody saw that I had value,” Owens said.
He wrapped up some of his trades before starting his new job. His bets on the election are frozen until the results are known. “I was confident in my predictions,” Owens said.
Caitlin Gilbert and Jeremy Merrill contributed to this report.