Prediction markets are everywhere right now and Kalshi is in the thick of it.
Prediction market Kalshi. Companies like Kalshi, which means everything in Arabic. Kalshi. It's on the sports field, in election races, and all over your social feed, allowing people to bet on everything from which party will win the Senate at the midterms to who's going to be on the catwalk for Victoria's Secret, raising big bucks for the platform, but also big questions for American sports, politics, and society. Tarek Mansour, the co-founder and CEO of Kalshi, joins me on this week's show to talk about it all: regulatory pushback, the midterms, and market manipulation.
This is Reuters Econ World. Every week we go deep on the economic principles and ideas driving the biggest news around the world. On this week's show, prediction markets.
Tarek Mansour, welcome to Reuters Econ World. I feel like we should be sitting in Dublin having this discussion because Ireland had one of the first ever prediction markets over 20 years ago in Intrade.
That's right. Yeah. I mean, we're very excited to be here. But yeah, no, Intrade was one of the early prediction markets. That's true. And they did a really great job at sort of some of the early proof points of how it could work.
But you know what most people don't know is actually prediction markets predate Intrade by quite a lot. I mean, the first recorded prediction markets was, you know, on the pope elections back in the 1400s, where people were essentially buying and selling shares of who the pope was going to be. And that has triggered a very long history for these markets. Also, in some ways, I think any type of financial market is a special subset of prediction markets.
Like the stock market in one way to think about it is actually it is a prediction market, but the underlying question is the price of a stock. It's the net present value of your earnings, right?
That's right. That's right.
So tell us a little bit about yourself and about how Kalshi came to be.
Yeah, a little bit about myself. I was born in California, but I grew up in Lebanon, and I grew up with a single mom. So, the way I describe the environment in Lebanon is it's a very volatile environment. There's a lot of chaos. There's a lot of good, but also a lot of bad. And it's kind of a unique place to grow up in because, now that I spend enough time in the US, the thing that's really different is that you have this constant need for adaptability. You're always trying to make things a bit more predictable because things are very unpredictable.
People are very innovative there when it comes to finance. I remember editing a story a few years back about people using their dollar deposits, which were trapped, so they were using them to invest in like microbreweries and gin distilleries. Right. People are very innovative in Lebanon when it comes to their money.
That's right. And financial instruments often come into existence to make things more predictable. They're like a predictability instrument. The more things are unpredictable and the more there's chaos, the more generally you need financial instruments. And at the time, I wasn't really thinking about that, but what I liked is math. My refuge from the chaos was math, and I really got obsessed with math because what's nice about math is it's very predictable.
It's determined, right? There's no debate about whether something is correct or incorrect. It's either correct or it's not correct. And I really like that. And so that led me to okay, you know, my mom really wanted us to come back to the US. She's a bit of a tiger mom where, you know, you have to work hard and push yourself and your potential is going to be realized in the US. So we came back for school, to go through MIT, and I loved it. I started learning about stats and markets and it's really fascinating. And the first time I came across the idea of prediction markets wasn't really by thinking about prediction markets. I went to work at Goldman in 2016 and I was an intern, and a lot of the activity that was coming to us was about getting exposure to an event.
What I realized is that Wall Street trades all these complicated instruments, these assets, and there's all these fancy names like credit default swaps and swaps and options and all these different things. But at the core, they're figuring out what's going to happen next. They're figuring out whether Brexit was going to happen or not, whether Trump was going to win the election or not. And they wanted to figure out a way to trade on that to get a position like, 'Oh, I think Trump is going to win. How do I buy that view?' And so what people would do is take that view and then try to turn it into traditional financial instruments. For Trump, for example, they'd say, okay, he's a populist candidate, so the right thing to do is to short the S&P.
And come November, he won the election. People were right about that view, but they lost money because the S&P actually went up. And so this was the first time I thought it's a bad product. It's just a bad way to do things for a few reasons that really frustrated me. One, it's a proxy. So clearly you can have the right view but lose money because you're not actually trading on your view. You're trading on something that should coordinate with your view, but sometimes it doesn't. Two, it's opaque. The banks would set the price and you don't know if that was a good price or a bad price. It was a very opaque system. And three, it's inaccessible. The idea that only Wall Street institutions care about the election or are impacted by it or Brexit felt wrong. Everybody was impacted by Brexit. Everybody cared about Brexit.
And so this was when I started thinking about could we create the New York Stock Exchange mechanism? What is a New York exchange? It's a platform where you're matching buyers and sellers to trade on their difference of opinions. In that case, on the price of a stock, somebody thinks the price should be higher, somebody thinks the price should be lower, and then they match each other. But instead of buying or selling a stock or buying or selling oil futures on something that asks whether the price of oil is going to go up or down, you're buying and selling shares of whether an event is going to happen or not, right?
Directly related to that event.
Directly, right? Same way oil up or down or stock up or down or bond up or down. It's like, you know, Trump win or lose or Brexit happen or doesn't happen. And it was a fascinating idea because in some ways it's a bit like the stock market, but it's for things that people care about and relate to: the weather, the economy, politics, sports, you name it.
And I started reading about it and realized that prediction markets were not new. They kind of existed, right? There was Intrade before, but long before Intrade, I think the father or the founder of prediction markets in the modern definition is Friedrich Hayek, an economist during World War II.
Right, the knowledge problem.
The knowledge problem. Exactly.
We love an economic principle on this show. So, Hayek's knowledge problem is an economic argument that says information is scattered across millions of individuals and constantly changing. So, it's impossible for one central authority to have all the information required to run an economy. Now, his solution was markets. He said they could aggregate all that scattered information into a single price. It's the economic idea behind the wisdom of crowds, and prediction markets use this so-called wisdom of crowds to aggregate expectations around future events. Users bet against each other with the platform profiting through transaction fees.
And I think prediction markets have always been an economist's dream. They were always very popular in economist circles. In the stock market, people go and research about the stock and they might think the sales are a little bit higher in this local economy and they might think the CEO is having issues and they all trade it. They take that information and they trade it. They think maybe the stock is a little bit too low, so you buy it up, and then somebody else comes in and thinks that's a bit too high, so you buy it down. And that constant fluctuation is what we call price discovery. It's kind of the self-adjustment of society to the probable. And at the time, I thought we should build an information market that asks simple questions about the future and apply financial market dynamics to those questions. It would be a financial market, but the underlying is different.
And I think that's the foundation, really when prediction markets started. And I think the idea is very profound because at the end of the day, when we think about them as truth machines, they're aggregators of information. They give an incentive for people to go out there in the wild and do research or acquire knowledge and then bring that knowledge to life by trading on it. And I think that's really the public good that comes out of prediction markets or really any financial market.
Yeah. I mean that makes sense. But when you talk about things like public goods, right? Is there any social or economic utility from knowing whether or not Cardi B is going to perform at the Super Bowl at halftime or if someone's going to be kicked off Dancing with the Stars?
I think it's interesting. I'm a free markets person, right? I think if there are two people that have a disagreement on something, they should be able to resolve it. They could resolve it by fighting on Twitter, they could resolve it via debate, or they could resolve it via trading. The whole point is that trading is a much more objective, rational way to resolve these questions. Now, the narrower view is that some markets have more clear economic impact on a larger number of people than others. So I think you would agree that a prediction market on whether inflation is going to go up or down, the economic usefulness is very clear. A prediction market on whether there's going to be a hurricane in a certain town, the economic purpose is clear. Where the World Cup is going to be played, or whether the US is going to get kicked out early, that's also pretty clear because you have advertisers and a lot of investment tied to whether the team is going to get kicked out or not.
And then, the example of Dancing with the Stars, it is relevant, but it's a smaller group of people. There are people that are intellectually interested about who's going to win, and they follow these things very religiously, and they're curious.
Ah, but it's just making money, isn't it though?
Well, it's interesting. I don't think that's right because I think a lot of people are about making money for sure. Certainly, that's true for prediction markets. It's true for the stock market as well, and it's true for the original prediction markets like grain futures, derivatives, commodity derivatives. The point is understanding the future better and then figuring out how to manage it. And so yes, a lot of people are speculating, but some people are hedging. And you cannot have hedgers without speculators because every hedger will have a speculator on the other side. And that's also true, by the way, for some of the markets that people always ask me about, like are markets about Taylor Swift really that important?
And it's so interesting because I'll give you a very specific example. My answer is yes. It's maybe at face value not as clear, but society is always a tug of war. At the time when grain futures came around, people called them gambling because they're like, what is the purpose of this? But that's what happens. Industries evolve and they grow.
I can see that, but the price of grain is important to farmers and all the rest. But like for me, for instance, whether or not Arsenal is going to win at the weekend, maybe I should hedge against it because there's a lot of Arsenal fans in my house, and if they lose, there's going to be bad tempers. But in general, there's not a value to it, really. It's not like the price of a product, right? And I mean, maybe we think about elections, right? So Reuters did a poll recently. Clearly millions of Americans are now trying their luck on Kalshi, right? Across all sorts of different contracts. But a recent poll that we did shows that most Americans oppose using them to bet on elections and other government actions. What do you say about that?
Can I address the sports question first? I'd love to address the poll. I mean, I actually completely disagree on the economic purpose of sports. I think that sports is actually one of the clearest forms of economic purpose. And we see it in our data. I just think it's one of those things where at the time people were like, well, this is just for betting. The grain futures were just for gambling, and now we're used to it as a boring financial instrument.
But sports has become an industry. Like $70 billion of private equity in America has gone into sports, and those investments are very tied to win-loss. They are. And I'm a big advertiser now. There are a lot of other big advertisers. And the difference between, you know, the Knicks in New York winning the NBA finals, our mayor basically went out and said that had a floor of $200 million of economic boost to the city, right?
That is a very measurable economic impact.
Completely real, to be clear.
But certain kicks on the game, certain...
And we could debate about the lines, right? And this goes back to this debate of, you know, we have a regulator and that's their function. The regulator is told...
And maybe let me just crystallize that point because it's very important.
What is that economic purpose? It's that you do have unpredictability that comes from the outcome of the game. So one of our biggest sources of risk transfer and hedging is sports markets. And some of it is the outcome of the game. So we have a lot of sports bars, for example, that sell more if Arsenal wins and they sell much less if Arsenal loses. It's a profit for the night if they win and a loss for the night if they lose. And so let's say you're plus 800 versus -400. They use the event contracts to basically short the team so that they are 300 no matter what.
That is precisely the same use case that airlines use oil futures for. Now you may ask, what about players? It's interesting because I think actually a lot of the player markets, the advertisers, we're one of the advertisers. A lot of the contracts have performance bonuses baked into them. So when we see hedging or insurance use cases on Kalshi, for example, LSU has a $3 million bonus that they have to pay Lane Kiffin if they make it past the playoffs or if he performs in a certain way. They hedge it at $3 million on Kalshi. Historically, they would do it on sports insurance. So sports insurance, one of the most common use cases, is basically hedging against player performances so that you don't incur the bonus. You want to be neutral to the performance, and then your bonus is insured. And now they're doing it on prediction markets. Why? Because the insurance, let's say, would cost them a million dollars on the $3 million of exposure or coverage.
Because it's one company that gives you a price. Whereas a prediction market is the same difference between hedging and insurance. Hedging is like you're putting your order for a number of other people to compete on the other side, and then instead of paying a million, they actually paid $600,000. So it's 20 cents on the dollar instead of 30. But to me, it's just a matter of time because people historically just see sports as a form of betting. But by the way, at the time, the reason why states were suing the Chicago Board of Trade about gambling and grain, they used to call it that because the bucket shops, which are the old school sports books, were operating like sports books. There was a house and they bet against the customers, and it was betting on the price of grains. People saw it as people are just betting. So it's a matter of time for this industrialization to happen and scale over time. The question about the poll is interesting.
You know, I haven't looked at the poll enough. I do think, and this is my view, the questions were leading. And I'll be honest, I know Reuters, I think there was a third party that ran the poll, but the poll kind of went like, do you like betting on war? And obviously no. And then that led to the second question, do you like betting on prediction markets?
No, it was like, do you think prediction markets should be used for voting on elections and for other government actions? There were separate questions.
I know because we've seen a lot of polls that show the opposite, frankly. And a lot of the polls that have come out in the last few months were also saying that a lot of people prefer federal regulation over state-by-state regulation. And it's interesting, we have 30 million customers in America. 10% of America is using Kalshi, and a much larger set of people is actually using our election markets. I'll tell you, pretty much all campaigns now use our prediction markets on the elections to inform decision-making. And why? How are we seeing this growth in prediction markets? What's happening? Well, it's part of why I started the vision: people trust them. They work, right? When you look at the calibration of prediction markets, and there have been a bunch of studies about that, they do calibrate better than other mechanisms to predict the future. They're not perfect. Nothing is perfect. I always say there's not a crystal ball. It's a probabilistic model.
If you'd like to dig further into Reuters polls and what Americans think about the president, politics, and the biggest issues facing the US, check out Reuters.com and the Reuters app. You can find all our polls there. Up next, insider trading and market manipulation on prediction markets.
They're obviously getting bigger. They're popular. People like them. But there are questions about insider trading, right? And market manipulation. How do you deal with that?
Yes. And maybe I'll get into the thing that's growing the fastest, not the traders. So 75% of our customers don't trade. They just use it for the information, that public good that we just discussed. And obviously politics and elections is one of the most common ones. And it's because they trust it more. Polls, for example, people buy polls left and right. If a candidate is down in the polls, basically they come and commission a poll that will say that they're actually doing better than expected. Whereas prediction markets, the incentive, the skin in the game, makes it much harder.
Well, yeah, except you could, if you had enough money, you could try and manipulate the odds of your preferred candidate, right? And with a poll, I mean, if you're an independent pollster asking people questions, a certain batch of people in a certain period, you're not setting out to cloud the signal, to get the answer you want.
Like, it depends. A lot of polls do cloud the system. I mean, and that's why people are increasingly trusting polls less because...
You know, I know what you mean about people putting money where their mouth is with prediction markets, but there is the issue, isn't there? There is a risk of manipulation certainly, right? We saw what George Santos, the former congressman, you know...
And that's the point. I want to address all this issue. I mean, market insider trading, just to be clear, market manipulation and insider trading is a very real risk for any type of financial market. It's regulation 101 of financial markets: how you police fraud, which is insider trading or market manipulation. And Kalshi has taken a very affirmative stance from day one. We spent the first four years, when I started the company in 2018, I didn't launch the product immediately. I spent the first four years actually getting regulated up front without a product, even though my competitors went offshore and took a very different approach. But my approach was always regulatory first, and those four years were all about how do you create a marketplace that is fair and bans insider trading. And why is that important? It's not just about some ethical anti-corruption view, which is very important. But it's also bad for business because if people don't trust that the marketplace is fair, they won't participate.
Exactly.
It is terrible. Like I always say, the opposite of free markets is corruption. Markets don't encourage people to participate.
Exactly. Free markets are the exact opposite. It's the antithesis of corruption. Corruption is the antithesis of free markets because free markets are presupposed on a competition that is a level playing field. People have the same rights and the same obligations. And so, you know, you mentioned George Santos, that's actually us catching George Santos trying to cheat.
But in a way, why would he be allowed to wager in the first place?
He wasn't, right? But he did, but he was able to.
Well, but people cheat in any system, right? Like, do people often use the banking system sometimes to move illicit funds? Certainly they do. Do people insider trade on the stock market? For sure. I mean, nobody here believes that the stock market is free of insider traders. There's insider traders left and right in the stock market. The question is, are you policing it and enforcing against the bad actors? Like any form of crime, crime is going to happen. Financial crime is going to happen. The question is, are you enforcing against the financial crime and punishing the bad actors so that you send a strong signal to the remaining ones? Now, the one thing that's important is I want to address how we actually do it. So it's not just some theoretical thing.
Yeah. No, please tell us.
First, it starts with knowing your customers. So we do customer verification like any financial broker. And then, like a lot of the banks, we use a lot of lists: okay, this person is a politically exposed person, this person is maybe working in a sports league, this person is in the military, and we ban those people proactively from trading on the categories that they may have influence over. Now, that's not enough because, oftentimes, when people commit insider trading in the stock market, if you're working at Tesla, you won't do it yourself. You'll call your cousin, right, and read to them the earnings reports. They go and do the insider trading.
And that's why our surveillance systems come into place, which are actually very similar to what the NASDAQ uses. We actually have a partnership with the NASDAQ on our surveillance systems that flag any type of suspicious patterns, and then that gets escalated to our investigation team that can impose fines all the way to criminal prosecution. Now that is very important because the thing about fraud is people always do something that is suspicious. And all of our trading activity is transparent. Prediction markets are so transparent that our traders, which are the people that are most harmed by insider traders, immediately send us whistleblower complaints when something is off.
So the White House teleprompter is an example. George Santos is another. Yeah.
When those trades happen, we got hundreds of whistleblower complaints saying, look at that trade, something is suspicious. And that's a good thing because you want a system that is very transparent and auditable where everybody can see the crime in broad daylight, because that makes sure that we can rule out the bad types of behaviors.
Right, that teleprompter at the White House who's now currently being investigated by the CFTC. I think there was some action taken against him, and I think that investigation is being escalated. And that's actually, I always say, any system, it's like with AI right now, there's going to be cyber problems and cyber attacks. The question is not whether people are going to try to use a tool to do harm. Pretty much most technology can be used to do harm. The question is, is it regulated in the right way so that you are actually catching the bad actors and enforcing against those bad actors? You mentioned the manipulation thing, which is a super interesting question about someone trying to manipulate the public perception of something, which is a very important topic.
You know, in the Spencer Pratt mayor race in LA, I don't know if you've followed that race at all. But Spencer Pratt was a very charismatic candidate, and he was trading at 10% at some point, and somebody tried to move the odds from 10% to 25% on Kalshi. They put millions of dollars to move the price up in a somewhat unnatural way. And that's an example of market manipulation. You're manipulating the price out of what the fair value, the true price should be, to influence in a way that is outside of purely just trading to make profit. You're trying to get some other goal, maybe influence public perception or something else. Within 9 seconds, the price reverted back to 10%. Immediately. And the reason why is it's markets, right? It's financial markets. There's an incentive now for all the smart money and the traders in that market to look at it and say, well, there's a 15% incentive to bring it back to 10%.
And it mean-reverted immediately. The market's calibrated in that way. And then people send us whistleblower complaints saying something was weird in that trade, and we looked at it, investigated, and so on and so forth. And I always think that that million or $2 million would be much better used on spending on ads or giving to campaigns or commissioning your own polls than using prediction markets because it just doesn't work.
Right? What about, I mean, you guys are very clear you don't think this is gambling, right? This is trading. But for a lot of people, they can't see any difference between say your platform or a FanDuel or a DraftKings. It looks like gambling. It's gambling, right? What do you say to that?
I don't think if something looks like gambling it means it's gambling. I mean, again, I go back to the grain futures. At the time, a bunch of states sued the Chicago Board of Trade, and society was calling it gambling. And actually, I'll read something to you that's super interesting. I've been talking about this recently. This is a court opinion from the Illinois Supreme Court from 1888 about grain futures, to be clear. And this was where society was at the time. It was essentially saying we are clear of the opinion that dealing in futures or options is void by the common law because it's contrary to public policy. It's not only contrary to public policy, it's a crime against the state, a crime against the general welfare and happiness of people, a crime against religion, morality, and a crime against all legitimate trade and business. The species of gambling has become emphatically and preeminently the national sin. The species of gambling has become the national sin about grain futures, right? And it's so interesting to me because it looked like gambling. The thing is, financial markets have always had a flirtatious relationship with gambling because speculation looks and quacks like gambling. Why? Because what's the definition of speculation? You're putting money to make more money on something you don't control. That's the definition of gambling in pretty much 30 out of 50 states in America and a bunch of other statutes, right? So, how do you draw the line? The speculation cannot possibly be the line that is drawn to define gambling.
Well, I think it's what does the market set out to achieve? So, like the stock market, right? Don't disagree. You're effectively trading on what you think the net present value is of a company's earnings, right? But also, it's a market that you need people to go in there, companies need to raise capital, to raise funding, right? So it has to be a very well-run market where there's full transparency, where there's rules around insider trading, around anti-money laundering, all of that has to be regulated. Like, I think it needs to look at what the... but well, and I think this is where you and I maybe would disagree over some of the contracts. I just don't think they have any economic or social value. But in that ruling, they talked about happiness. I mean, one issue of course is that there's a big concern around it seems like young men in particular using online betting apps and using the prediction markets. It's a big public health question, isn't it?
Could I answer the first one before jumping into topics? Because I actually completely disagree. I think yes, the stock market is about capital allocation, but the derivatives market is not about capital allocation. Grain futures don't allocate capital.
They don't, no, you're right. But in that case, you're right. There's massive speculation, but then there's also the question of hedging, right? And providing...
That's right. But there is hedging on sports markets, that's undeniable. And there's a lot of it that's public, a lot of it that's not public.
Like the line is not about the topic. That is the point. There is economic purpose to the sporting event. There is economic purpose to whether it's going to rain tomorrow. There's economic purpose to whether rates are going to go up. And there's economic purpose to whether Taylor Swift is going to sing in a certain city or not. That is true, undeniable. And you could see that from the dollar deltas that happen. And you can see from there are legitimate businesses and institutions that are hedging on Kalshi today on all these different topics that I just mentioned. Some of it is public, and they've come out publicly to talk about that, and some of it is not. So the line is not about how much hedging is happening because if you look at the grain futures or the oil futures, the general rule of thumb is 97% of the transactions are speculative, which you could call gambling, and 3% is hedging.
So the question cannot be about the topic. That's my point. You may disagree and not like a certain topic, and I may also like some topics and not like others. The question is about the structure. Is it a structure that promotes price discovery, that rewards people for informed trading? Or is it a structure that punishes people for informed trading, which is gambling? Like if you're a card counter in the casino and you're doing smart, you're trying to do research and be smart, you get kicked out of the casino because the sole purpose of the activity is entertainment. It's moving money from the person that's being entertained to the casino. The casino makes bets against the customers and makes money if you lose and loses money if you win. So they rule out the winners, the smart informed people, and they want just people to come and keep losing to the casino. And the open marketplace is very different because we actually want the card counters. Like 70-80% of our trades are the people that have 18 monitors and are modeling the weather and Moneyball.
We reward truth-seeking. Markets reward people for their knowledge instead of punish them, which is a fundamentally different model, different business model.
The issue of young men is a real issue. Yeah, I think that's it. Because I take your point. There is, you know, quote unquote smart money out there. There are professional sort of people that might get kicked out of a casino because they keep winning, right? But then there's also the issue of this being available 24/7. It's everywhere. It's on your phone. You've got kids in college dorms. It definitely punishes people who find it hard to stop, right? Yeah. And we've seen with social media platforms, cases taken against them for damaging kids' mental health, right? I mean...
I want to say this, right? To me, I always like... there's been a lot of coverage on this, and the coverage tends to be, in my view, pretty superficial. Like, do you want to actually solve the issue or do you want to just clickbait around the issue, like oh, young men have a problem and ban everything? And here's what I would say: banning everything is the ultimate way to deregulate everything because when we didn't have election markets, they were all going offshore. The same exact customers are turning to offshore where there's no accountability, no regulation, and so on and so forth.
My view, and this is a big message I always send, Kalshi is pro-regulation. I think these risks are real, and I want to be very clear about that. And I always describe it this way: any of these types of products, this is prediction markets, this is sports books, but it's also zero data expiry options on Robinhood, it's meme coins on crypto on Coinbase, it's 100x levered futures that retail has access to on CME to trade on S&P futures. All these are speculative...
And they're all regulated, right? I mean, the CFTC regulates...
Instruments. Some people are hedging, some people are speculating. And when you have speculative instruments sold to retail, the problem is not people losing money. That's competition. Some people are going to win money, some people are going to lose money. That's competition. And that's, you know, 80% of hedge funds don't outperform the S&P and the stock market. That's not—it's a competition. Some people are going to be better than others. The problem is irresponsible use, right? Irresponsible use exists, and it's an issue that we have to contend with. And my view for regulation—and when I engage with policymakers, and I'm engaging with everyone—what we're doing already as self-regulation on Kalshi is that irresponsible use needs to be regulated out of the system, right? And what is irresponsible use? It's people that are essentially doing things that will harm them, lose more than you can afford, do things that will kind of put you in an uncomfortable financial situation, like addiction—all these issues.
But the thing that's been happening, and you know we have a very organized casino lobby against us—they've been selling the narrative: prediction markets, young men. It's just not true, because you know our median age is 31 years old, our average age is 33 years old. The percentage of volume that we have from, you know, the 18 to 20 bucket is like 1 to 2% of our volume. It's literally negligible. The issue in my view has been the abundance of marketing and the discriminatory targeting that the sportsbooks have done. There was a story three weeks ago in the New York Times about some sportsbooks using AI to target some of the most vulnerable type of customers to keep them coming, because of that incentive structure—you know, if you're doing something smart you get banned, and if you're clearly at harm and you have signs of addiction, you're a very profitable customer for the sportsbook. So they keep targeting you with these types of credits and all of that sort of stuff, which is an incentive that doesn't exist in the prediction markets for all the reasons I described. So my view is we need to add stiffer regulations around these issues—like minors should not be in these products, it's already illegal, but we have to have more accountability in the platforms around that. And I think those same AI tools that are being used by some of the sportsbooks for predatory marketing practices, they should actually be used to limit those types of accounts, to do the very opposite of what it's being used for. And I think we have an opportunity at the federal level to establish a uniform set of rules that ups the floor of regulation to deal with that issue.
Okay, quiz time. So, you've heard us talk a lot about futures on the show. They're a contract or an agreement to buy and sell an asset at a predetermined price at a future date, hence the name. They're used to trade a whole host of things like oil, gold, cattle, even frozen concentrated orange juice. But what's the one agricultural commodity for which futures trading is prohibited in the US? Is it A. sunflower seeds, B. onions, or C. carrots? I'll have the answer for you at the end of the show, although Tarek gives the game away before we get there, so anyone listening closely will know what it is. Stay tuned. In the next part of the show, we look at elections and prediction markets.
Tarek, this is your first midterm election. How's it going? How's business?
It's great. I mean, we're very, very excited. I describe these midterms as—we broke out in '24 around the election, right? And I feel like this is the first, say, prediction market election. Because the consensus—like, the 2024 presidential election doesn't count. It was new, right? I think it was like people were still—it's exciting. It's new. I think now it's more institutionalized, it's established, and this time we really feel like the campaigns—it's become a habit to use it. Like, pretty much all campaigns are using prediction markets now to inform decisions: what they should do next, how they're doing, because it's accurate, it's real-time, and there's a trust that was built. And so it feels different this time. And I think what's important is what we're working on, because my view over time is, you know, people always think prediction markets versus the polls, prediction markets versus news. And I think that's like a bit of a reductionist view. It's like, well, you should look at all of them. Think about it: should you look at the price of Apple stock or should you read news about Apple? It's like they don't have anything to do with each other, right? Like, it's both.
But you're partnering—I mean, many media outlets are partnering with prediction markets, right? So it's not like that; there is that kind of partnership.
No, I think you should, because it kind of reinforces the point, which is you should look at both. It's like, because you know CNBC pulls a bunch of stocks when they do an analysis about the stock—they look at the stock price, and some people disagree. They think, okay, Apple is overpriced or underpriced. And that's the way we move. It's like, okay, the market is saying 62% Democrats are going to take over the Senate. And you can have people on TV debating like, 'I think that's too high and here's why; that's too low and here's why.' But that constant challenge of consensus, this debate—this, you know, 'I agree with the market, I disagree with the market, the polls are here, the markets are here, they're agreeing, sometimes they're disagreeing'—sometimes that is a good thing. You want more information. You want a healthier, increasingly healthier discourse. In some ways, that debate is actually the thing that you want over time, because the truth comes from debate, from the nuance, thoughtful debate rather than the extremes.
The truth tends to be in the middle. Is it a little early yet? Like, given that election prediction markets in their current iteration are only about two years old—is it maybe staking too much on them before they're ready, like these partnerships with these media companies, right?
