Colby Cosh: Coming soon to the news — betting on real life

Possible historic landmark whizzing past your window dep’t: early Wednesday morning, CNN announced that it is entering into a branding partnership with Kalshi Inc., one of the two leading companies in the emerging business space of “prediction markets.” Kalshi is an exchange, more or less exactly like a stock exchange or a betting market: it’s a place where you can bet on quantifiable outcomes of a very general variety of future events. It has become a market leader, and apparently worthy of the attention of CNN, by pursuing a strategy of legality and regulatory housebrokenness. It’s chartered in the U.S. and is subject to the American legal rules of commodity exchanges (after suing, with tentative success, to be recognized as such).

Unlike commodity exchanges, you’re not limited on the Kalshi exchange to speculating on a delivery price of frozen orange juice or a barrel of oil: you can bet on the next Trump cabinet member to quit, on measles prevalence in the U.S. on a particular date, on the spread of Waymo self-driving cars, on Oscar and Grammy winners, or on the total December snowfall in Denver. (The other fast-deepening prediction market of the same kind, Polymarket, is pursuing an offshore, unregulated, crypto-based approach.) This is certainly gambling, in more or less exactly the same sense that your investments in the stock market are gambling.

For a news company to get into bed with a giant gambling house will seem like another 21st-century horror to some sensitive souls. In economic principle, it is no different than any news organ using (and along the way advertising the bona fides of) a particular polling firm — except that a deep-enough prediction market, offering price estimates on particular political or social outcomes, will have accuracy and transparency qualities that pollsters never have. If they’re really smarter than the rest of us, the existence of political prediction markets will give pollsters a nice little sideline in harvesting the easy gains from their super-accurate betting.

Perhaps more importantly, and perhaps especially for CNN, the market prices themselves will indicate in realtime which pollsters (and other talking heads and forecasters and pundits) have opinions actually capable of moving a market whose investors have real skin in the game. In any event, it creates an enormous incentive for better polling (along with the creation of other, perhaps not-yet-imagined modelling instruments for detecting political sentiment), along with a disincentive for the politically motivated nonsense that pollsters and other professional chatterboxes may sometimes be serving us via our news diets. Don’t all applaud at once!

Open markets of sufficient depth are self-correcting: where there’s a mispricing, and prices reflect a wrong probabilistic estimate of some outcome (or an attempt at manipulation), an arbitrage opportunity is created for other market entrants to swoop in and collect the free money lying around, with the effect of correcting the price. They can also provide a signal of illegal behaviour, as legalized sports betting markets have already done in any number of cases, as well as highlighting emergent geopolitical dangers or even bad public policies.

Most of us all already understand perfectly well that equities and foreign-exchange markets do this as a matter of course. The Kalshis/Polymarkets of the future just allow for a potential infinity of finer-grained futurological instruments, which is why a lot of economists welcome them. (I ought to say “potential future”: despite the support of economists and increasing investment from venture capitalists, prediction markets have already traced a difficult and meandering multi-decade path through the jungles of regulation, and there is still no guarantee any of the existing exchanges will survive to adulthood. There’s probably a way to bet on this!) Like traditional commodities markets, new-style prediction markets more or less welcome the influence of “insider trading,” which is another way of saying “better information that, if exploited, will lead to more accurate price discovery (and thus provide information benefits to people who never go anywhere near the market).”

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