Why Prediction Markets Are a Safe Bet
What are the odds that the U.S. Supreme Court will finally resolve state disputes over peer-to-peer trading platforms?
In the Nevada Gaming Control Board’s lawsuit against Kalshi, a federally regulated San Francisco-based company that facilitates peer-to-peer wagers on the outcomes of future events, the agency complains that the company offers a “gambling game” that “allows users to wager on the outcome of sporting events and other events for which the outcome is uncertain.”
The state of Nevada — obviously home to the largest gambling industry in the United States — wanted to ban the company and some other similar firms to protect Nevadans from the ill effects of gambling. The often-wrongheaded 9th Circuit Court of Appeals agreed that Kalshi’s sports bets do not qualify as a “swap” under federal law and allowed the state to institute its ban, even though the Commodity Futures Trading Commission considers them as such. Nevada is one of nine states that have banned or tightly restricted access to the platform.
This, of course, brings to mind Captain Louis Renault’s famous quotation from “Casablanca” before he was handed his winnings at Rick’s casino: “I’m shocked, shocked to find that gambling is going on in here.” Nevada officials insist their action is purely about protecting the public from unregulated gambling, but it’s an obvious effort to protect from competition the state’s political powerful hometown industry, with its paltry odds for players. By the way, Kalshi is indeed regulated by the feds.
Casinos.com offered a recent analysis that likely explains the Silver State’s actions: “As of early 2026, prediction markets have overtaken traditional online gambling in 30 states. That’s not a trend anymore. It’s a takeover.” And prediction markets could prove an existential threat: “The house edge was never a secret. It’s a mathematical guarantee that, given enough time, the casino wins. For decades, that was simply the cost of playing. But a new breed of speculator isn’t willing to pay it anymore.”
Kalshi and other similar companies such as Polymarket insist they aren’t gambling — although the definitions are more about navigating gaming laws than they are about common word usage. (I’d argue that buying stocks, especially with mobile trading apps, could also be considered a form of gambling.) I’ve waded through disputes between card rooms, Indian casinos, and sport-betting companies where the definition determines legality. Typically, those with an established betting business oppose definitions that allow upstarts to threaten their market share.
Nevertheless, prediction markets have a reasonable claim that they aren’t gambling enterprises. The company is a neutral exchange platform, or broker, that has no vested interest in the outcome of any trade. It is paid by a small transaction fee on each “contract.” Participants make a “yes” or “no” prediction on some outcome such as a football game, weather event, or election result. One is always trading against other participants, not the house.
Every contract is framed as a question, such as “Will the Democrats gain control of the Senate in November?” The contracts are priced between one cent and 99 cents. As AI explained to me, “The price acts as the crowd-sourced probability of that event happening. For example, a ‘yes’ contract trading at 62¢ means the market estimates a roughly 62% chance the event will happen.” Despite my lack of interest in wagering, gaming, or whatever one calls such things, the crowd-sourcing aspect triggers my interest as a political and public policy geek.
Public opinion polls often are inaccurate. I never respond to calls, texts, or emails from pollsters given my aversion to all the spammers and scammers. I imagine many other Americans behave in a similar manner. But these markets could upend the polling industry, as people who take out contracts on these outcomes have skin in the game. It’s one thing to say you expect Democrats to prevail, quite another to put money on the outcome.
“In recent history, typical polling estimates have largely lacked precision in predicting election outcomes,” according to a Vanderbilt University study last year. One prediction market it studied “was superior to polling in predicting the outcome of the 2024 presidential election, particularly in swing states. Results are in alignment with research on ‘Wisdom of Crowds’ theory, which suggests a large group of people are often accurate in predicting outcomes, even if they are not necessarily experts or closely aligned with the issue at hand.”
From a political observer’s perspective, it would be a shame to severely limit such a promising concept simply to protect established gaming markets. I’m sensitive to critics’ concerns about gambling addiction, but why pick on the least objectionable platform in a world of endless online betting and cardrooms and casinos? Those who make the public “protection” argument (such as the Nevada gaming commission) often are the cat’s paw for existing “the house always wins” enterprises.
The great possibilities from prediction markets go beyond better polling. As a 2008 article in Science explained, “These markets could assist private firms and public institutions in managing economic risks, such as declines in consumer demand, and social risk, such as flu outbreaks and environmental disasters, more efficiently.” A recent Reason Foundation piece cited that report and concluded that “excessive government regulation” and conflicting state and federal regulatory regimens pose a real threat.
Despite the 9th circuit’s problematic ruling, an Illinois federal judge this month blocked Illinois’ efforts to restrict Kalshi contracts and keep them federal regulated, although a Wisconsin judge came to the opposite conclusion. This should ultimately reach the U.S. Supreme Court. That should send us to Kalshi, where we can closely watch trades related to this question: “Will the Supreme Court allow this exciting experiment in prediction markets to continue?”