The case for prediction markets as price-discovery tools rests on the wisdom of crowds. The complication: that crowd now includes thousands of people who already know the answer, and almost nothing stops them from trading on it.
When the insider is not the trader you expect
In a column published this week, commentator David Marcus frames the regulatory problem plainly. The conventional picture of an insider trader is a wood-paneled office, Paul Revere silver, a five-thousand-dollar suit. Platforms like Kalshi and Polymarket have made that picture obsolete. A soldier this year used non-public information to profit from a bet on the timing of military action in Venezuela. The person who operates the White House teleprompter earned money from foreknowledge of President Donald Trump's speeches. Neither fits the profile that existing enforcement was designed to catch.
Marcus paraphrases Andy Warhol to make the point: in the future, everyone will have inside information on a prediction market for 15 minutes. Consider a market on who wins the reality TV show "Big Brother." Dozens of people know the result outright. Thousands more have partial information. If one tells a cousin to place a bet, the cousin has broken no explicit rule that currently exists.
The manipulation angle in political markets
The read-through for political markets is different from the insider problem, and arguably harder to police. Marcus notes that prediction market wagers can function close to a campaign donation in smaller congressional or local races. A coordinated bet pushes a candidate's apparent probability upward, even briefly, creating the impression of momentum whether or not that momentum is real. The Supreme Court recently struck down limits on party campaign spending in coordination with candidates, a ruling that sits alongside, and arguably amplifies, the manipulation risk Marcus identifies.
The counterargument
The counterargument is that prediction markets carry genuine value as an alternative to polling and focus groups. Short of shutting them down entirely, regulation cannot stop tens of thousands of markets from operating with hundreds of thousands of participants who hold some form of non-public information. State and federal regulatory efforts are already forming, Marcus acknowledges, but the industry's growth has not slowed. DraftKings closing its Wrigley Field sportsbook at the end of May over an Illinois tax dispute shows that traditional betting venues face institutional friction. Prediction market platforms, operating in a less-settled legal space, have so far faced less of it.
On balance
The self-policing question Marcus leaves open is the sharpest one. If the business you work for, the campaign you consult for, or the reality TV show your best friend appeared in becomes a prediction market, the decision about whether to place that bet is currently yours alone. The legal exposure is ambiguous. The ethical one is not.
The line to watch is whether federal regulators move to define insider trading in a way that covers prediction market participants, or whether the default remains what it is now: very little stopping anyone from acting on what they know.