Will prediction markets live up to the hype?

THE LINE between investing and gambling has always been thin. This is especially true for prediction markets, where punters bet on events ranging from the banal (“will average gas prices be higher this week than last week?”) to the light-hearted (“who will win best actress at the Oscars?”). Prediction markets have something of a cult following among finance types who rave about the value of putting a price on any event, anywhere in the world. Such prices capture insights into the likelihood of something happening by forcing betters to put money where their mouths are. But critics argue such markets will fail to grow beyond a niche group, reducing the value of their predictions in the process.The debate has been reignited by a new “event contract” exchange–a market where traders can buy and sell contracts tied to event outcomes—run by Kalshi, a New York-based startup. The firm has made headlines because it earned approval to run America’s first such exchange without regulatory limits on the scale of activity—a feat that has long eluded its predecessors. PredictIt, one of the most popular American prediction markets, operates as a non-profit research project limited to 5,000 betters for each event. The size of bets is capped too, at $850 per person, per question. Kalshi overcame such hurdles by consulting American regulators for two years to earn their trust, says its boss, Tarek Mansour. He believes this could make event contracts a real asset class, like options.