Prediction markets are exploding across the country, doing $24 billion in trades each month.  Almost $2 billion of that was on contracts predicting who would win the midterm elections alone.

Now, many members of Congress and state officials want to regulate these markets like casinos. Except that, unlike casinos, prediction markets serve a valuable information role in a free-market economy by helping hedge against risks.  The classic example is trading contracts on where last month’s hurricane off the coast of Florida would hit and how much damage it would do.

Another one is predicting the likelihood that Donald Trump will repeal his steel and aluminum tariffs.

With better information about the future, businesses and people can make more informed decisions.

We got hold of an analysis of some 2 million Kalshi market predictions at any point in time.  This experiment compared Kalshi’s market odds of future events happening with actual outcomes.

You can see from the charts below, these market odds were almost perfectly predictive of observed outcomes.  For example, when Kalshi traders one month out in the future set the market price at a 30% chance of an outcome happening, it was accurate within less than a 1% margin of error. In other words, that event happened between 29 and 31% of the time in almost all instances.

You can also notice that the longer period between trades and the actual event, the more variability in the predictions versus the outcome. The one day “lines” are virtually perfectly aligned with the outcome.

These markets are pricing uncertainty with incredible accuracy, which provides us all with useful information about the future. You don’t have to be one of the traders to benefit from the existence of these markets – or to understand how excessive federal and state regulation could be harmful.