Overview

Prediction markets like Kalshi have exploded in popularity, allowing people to bet on everything from Taylor Swift's wedding date to whether a famine will be declared in Gaza. NPR's Bobby Allyn spent months embedded in the world of prediction market traders, regulators, and critics to understand whether these platforms are genuinely adding valuable knowledge to the world—as their defenders claim—or whether they're simply gambling dressed up in a financial suit. The episode traces Kalshi's legal strategy to classify itself as a derivatives exchange rather than a gambling operation, the regulatory battles that have followed, and the uncomfortable questions about what happens when betting on the future starts to shape it.

12:34The World of Prediction Market Traders

Bobby Allyn's journey into prediction markets began when Kalshi's CEO reached out to him two years ago, and he initially confused the company name with a cereal brand. The first sign that this was a major phenomenon came when CNN partnered with Kalshi in December, simultaneously reporting news and showing what people were betting on that news. Around the same time, people were betting on whether a famine would be declared in Gaza—a collision that made Allyn realize he needed to understand what this company was doing.

When Allyn entered the Kalshi Discord community looking for stories of financial ruin and addiction, he was met with hostility. The traders called him a "narc" and accused him of looking for "degens" (degenerate traders) to ruin the industry. He quickly learned that these chat rooms were not support groups for losers but places where winners bragged. The most successful traders called themselves "sharps" (not sharks) and described their profits as "printing." They put bios like "from $10,000 to $900,000 on Kalshi" in their Twitter profiles.

Allyn had to learn an entirely new vocabulary. "Alpha" meant having an edge in predicting the future. Some traders engaged in "antenna-maxxing"—buying powerful antennas to get millisecond advantages listening to press conferences. He met Logan Sudath, a 25-year-old who quit his job at a private credit firm because he was making more money trading on Kalshi after work than from his full-time salary. Logan's alpha was simply intensive research: he made over $40,000 predicting Time magazine's Person of the Year by analyzing what the magazine covered most.

Then there was Kaden Booth, who bet on how long it would take Charlie Puth to sing the national anthem at the Super Bowl. Kaden saw that Puth was in San Francisco three days before the game, flew there immediately, bought a stopwatch and a bird-listening device, and sat outside the stadium timing the rehearsal. He won thousands of dollars and was surprised that more people hadn't shown up—to him, this was just common sense.

13:30The Gambling vs. Derivatives Debate

The central legal question is whether prediction markets are gambling or something else entirely. Allyn's firsthand experience with the platform felt unmistakably like gambling: the brightly colored app, the real-time charts, the dopamine rush of winning, the urge to chase losses, and the maddening feeling that there's always another market opening next hour. When he and co-host Mary Childs bet on which words President Trump would say in a speech about Iran, they became completely absorbed—Mary lost $5 on a "tariff" bet that never hit, while she watched Trump "play footsie" with the word without saying it.

Multiple states have sued Kalshi, accusing it of being gambling. They cite Merriam-Webster's definition: "the practice of risking money or other stakes in a game or bet." Kalshi's early ads even portrayed itself as gambling, with slogans like "bet on the NFL legal in all 50 states." All existing online sports betting apps are categorized as gambling.

But Kalshi's entire existence depends on courts agreeing that these yes-or-no questions about the future are actually derivatives—specifically, swaps. CEO Tarek Mansour makes two key arguments. First, there is no "house": Kalshi doesn't win when bettors lose. Instead, it makes money on every bet, taking a small percentage, so its incentive is to maximize the number of bets, not to beat customers. Second, Mansour argues that speculation is not the same as gambling. "If speculation is equal to gambling," he says, "then our entire financial market is gambling." He claims that on Kalshi, average individual traders have a more even playing field with professionals because people have genuine opinions about politics, culture, and sports—unlike stock markets where hedge funds have all the information.

15:23The Legal Strategy: From Goldman Sachs Intern to CFTC Approval

Tarek Mansour's vision traces back to his time as an intern at Goldman Sachs around 2016, when he kept hearing from customers who wanted to bet on big world events. Investors were desperate to know whether Brexit would happen and whether Trump would win the election—answers that affected markets and asset prices. Mansour thought: we have markets for companies, commodities, currencies, and interest rates. Why not build one for simple questions about the future?

He went to the Commodity Futures Trading Commission (CFTC), the regulator of futures markets, to ask permission to run an exchange. His model was grain futures, the first futures traded almost two centuries ago—which people also initially thought was gambling. The legitimate purpose of futures is hedging: farmers lock in future prices to avoid feast-or-famine cycles, like an insurance policy against drought. Futures also help everyone figure out how much things should cost. Mansour argued they could do the same for predicting events: instead of people guessing whether Brexit would happen, a market would provide "a more objective, unbiased source of signal."

To get designated as a futures or swaps market, Kalshi had to check boxes: the market couldn't be easily rigged, and insider trading had to be prevented. In November 2020, at the very end of Trump's first term, the CFTC approved Kalshi as a marketplace. The company's press release called it "the next natural step in the evolution of trading on future events."

But this was just the first step. Kalshi still needed approval for every new market it wanted to list. During the Biden administration, the CFTC became much more skeptical, and Kalshi heard the word "no" frequently. The CFTC required that any market have "public interest value"—like how oil futures or employment data inform corporate decisions—and strictly prohibited markets related to terrorism, assassination, war, and "gaming." That last restriction prevented Kalshi from listing sports and many other events that seemed like games.

19:10The Lawsuit That Opened the Floodgates

In 2023, frustrated by the gaming restriction, Mansour proposed Kalshi's first election market: betting on which party would control Congress. Regulators blocked it, saying election betting was gaming and would open elections to interference. This time, Mansour sued.

His lawyers argued there was no specific rule against election betting, and that such markets would do what futures do best: allow hedging against harmful outcomes and provide predictive data. They cited an academic experiment from the 1980s where University of Iowa economists accepted bets on the 1988 presidential race—and it proved more accurate than polls. The wisdom of the crowds prevailed.

The courts agreed with Kalshi's legal position. That ruling was a "rocket booster" for the company. And crucially, once Kalshi got permission to list election markets, they interpreted that approval to mean they could list all kinds of markets: sports, the Golden Globes, even whether Ariana Grande's Spotify streams would be up next week.

Then came the political shift. The Trump family joined the "love fest": Donald Trump Jr. became an advisor to Kalshi. The CFTC's default setting changed from rejecting to accepting, no matter how outlandish the market. Kalshi is now recruiting on college campuses and advertising on subways. In the past year alone, 70 new prediction market companies have started, and the industry is projected to become a trillion-dollar industry within four years.

23:23The "Truth Machine" Argument and Its Problems

Tarek Mansour's public argument is that prediction markets are actually important to society. At a time when no one trusts anything, he says, these markets can be an accurate crystal ball—a "truth machine." They are better than polls because having "skin in the game" makes the wisdom of the crowd even wiser. He claims prediction markets make people better, more engaged citizens—the opposite of social media. On social media, someone with a nuanced smart take gets five likes while someone who says something racist gets 300,000 likes. On prediction markets, the incentive structure rewards "the nuanced, the unbiased, the well-calibrated takes."

But Allyn and Childs' own experience contradicted this. When they were betting on Trump's Iran speech, they weren't engaged citizens absorbing content. They were watching for words like cherries lining up in a slot machine, while Trump talked about "obliterating and decapitating an entire country." As Childs put it, "You stop absorbing the content and you're just literally watching, hearing the words as like a cherry in the slot machine."

Allyn concluded that Kalshi is working a legal loophole, governed by derivatives law instead of gambling law. "This is gambling," he says. "It's just buttoned up and in a suit." He compares it to other tech industry arguments: Airbnb isn't a hotel, it's a people-to-people marketplace; Uber isn't a taxi, it's a transportation network company. Kalshi says it's not gambling, it's something else.

26:09The Regulatory Gap and Self-Policing Problem

Amanda Fischer, former chief of staff at the SEC now at the pro-regulation advocacy group Better Markets, argues that prediction markets followed the playbook crypto perfected during the Biden administration: framing disruption of industries as technological disruption when it's really just legal disruption. "They are willing to take more legal risk and break the laws and essentially take the approach of catch me if you can," she says.

Fischer contends that prediction markets are not doing what futures markets are supposed to do: facilitate corporations in the real economy, foster price discovery, create jobs, and create stable markets—not just enable gambling and speculation. She warns that the federal government's rubber-stamping of prediction markets as futures trading is giving sports gambling apps ideas. Some sports gambling apps are launching their own prediction markets, trying to get approval as futures marketplaces, with executives publicly admitting it's a way to get sports betting into states where it's not legal.

The CFTC is severely understaffed compared to the SEC—the SEC has about eight times the staff. Fischer says it's relatively easy to get caught insider trading in the stock market because there are "cops on the beat," but she has no similar confidence in prediction markets. The CFTC outsources regulation to self-regulation, a structure that made sense when markets were simple—grain and soybean contracts—but not for markets on whether the Supreme Leader of Iran will be ousted.

The self-policing mechanism means prediction market companies are supposed to police their own traders. But Fischer says she's not seeing serious enforcement, only talk when big fishy wins make the news. Allyn recently reported on French sleuths who uncovered a likely insider trader on Polymarket who made a fortune on President Biden's pardons in his final hours in office—but it took weeks to untangle, and they still don't know who was behind the bets.

30:31Sinister Interest: When Prediction Markets Change the Future

Allyn found himself wrestling with a philosophical question: how much are these bets on future events changing the future? In philosophy and economics, this is known as "sinister interest," attributed to philosopher Jeremy Bentham in the late 1700s—when parties acting in their self-interest maximize their own gain over that of the public.

Allyn saw this in action. He watched a "mention market" where people were betting on what words a Federal Reserve official would say in a meeting about crypto. The meeting was on Zoom, and Allyn saw Kalshi traders submitting questions as if they were regular humans, trying to get the official to say something they were betting on. More darkly, prediction market bettors threatened a journalist over his reporting on the Iran war, saying they would kill him if he didn't change what he'd written about a military strike.

Mansour acknowledges the dangers and says Kalshi avoids markets with "perverse incentives"—like a bet on how far California wildfires will spread, which could encourage someone to set a fire. But the problem is that prediction market companies themselves decide what markets have perverse incentives. And Polymarket did have markets on the LA fires last year.

Even some of the most successful traders are worried. Evan Semit, who told Allyn he's been making close to $100,000 a month on Kalshi, said he doesn't think prediction markets are a good thing socially. "These markets are only profitable for people like me because there are people just throwing away money," he said. "I think that's probably pretty bad, to be honest." Another trader admitted that he has so much financially riding on prediction markets sticking around that he'll back whatever party or candidate lets them thrive.

Conclusion

This episode matters because it captures a moment when a multi-trillion-dollar industry is being built on a legal technicality, with profound implications for how we understand truth, democracy, and risk. The central tension remains unresolved: prediction markets might genuinely aggregate information better than polls or pundits, but they also turn every major event into a gambling opportunity, incentivize manipulation, and create a class of winners who profit from others' losses. The episode leaves the listener with the uncomfortable feeling that we are all participants in an experiment—one where the rules are being written by the companies themselves, and where the future is increasingly something to bet on rather than to shape.

Key takeaways

• Prediction markets like Kalshi have grown explosively by classifying themselves as derivatives exchanges (swaps/futures) rather than gambling operations, using a legal loophole similar to crypto's regulatory strategy.
• Kalshi CEO Tarek Mansour argues that speculation is not gambling, that the platform has no "house" advantage, and that prediction markets democratize trading by letting ordinary people bet on things they understand (politics, culture, sports) rather than competing against hedge funds.
• A 2023 court victory allowing Kalshi to list election markets opened the floodgates, and the subsequent political shift under the Trump administration changed the CFTC's default from rejecting to accepting new markets.
• Critics like former SEC staffer Amanda Fischer argue that prediction markets are simply gambling dressed up in a suit, that the CFTC is dangerously understaffed to police them, and that the self-regulation model was never designed for markets on events like wars or political assassinations.
• The "wisdom of the crowd" argument has real problems: bettors become focused on winning money rather than understanding events, and there are documented cases of traders trying to manipulate outcomes (asking planted questions in Zoom meetings, threatening journalists).
• Even successful traders acknowledge the dark side: one trader making $100,000/month admitted prediction markets are only profitable for people like him because others are "throwing away money," and that he doesn't think they're a good thing socially.
• The industry is projected to become a trillion-dollar market within four years, with 70 new prediction market companies launching in the past year alone, and the ultimate legal fate likely rests with the Supreme Court.