Prediction markets as risk barometers?

Prediction markets such as Polymarket and Kalshi have evolved rapidly and transformed from niche entertainment tools to major platforms that aggregate expectations on global events. With trading volumes reaching tens of billions of dollars monthly in 2026, these markets now function as real-time indicators for politics, economics and armed conflict.

As polarized narratives and biased reporting leave trust in legacy media, governments and institutions weakened, prediction markets have emerged as parallel information systems, offering a new way for individuals to collectively process uncertainty. Participants do not simply voice opinions. They commit their own money to yes-or-no contracts on measurable events, and their aggregate bets translate to probabilities.

The financial stake differentiates prediction markets from opinion polls and surveys, where participants have nothing to lose if their opinion is proven wrong. As a result, the odds on the various contracts offered may be more reliable indicators than the findings of a poll on the same question, and they often yield assessments that move ahead of public announcements or journalistic consensus.

The financial stake differentiates prediction markets from opinion polls and surveys.

 

Prediction markets represent the manifestation and systematization of the long-established and well-studied “wisdom of the crowds” phenomenon, which describes the strong tendency of the views of the many to outperform the opinions of the few, even if the few are experts on the subject.

We have seen this play out in real time in recent months. Since the ongoing Iran war broke out, contracts on American strikes, ceasefires, regime stability and the Strait of Hormuz have resulted in hundreds of millions of dollars being wagered. In the lead-up to the February 28, 2026 United States-Israeli attack on Iran that started the conflict, the odds that the strikes would happen rose and some contracts saw heavy betting that correctly anticipated the timing.

The major platforms offered contracts on whether Ali Khamenei would be “out as Supreme Leader” by specific dates, framed around removal from power rather than death to comply with platform rules. On Kalshi, these contracts attracted over $54 million in trading volume and the odds surged in the final days before the February 28 strikes that killed him. On Polymarket, similar contracts drew hundreds of millions of dollars in bets, with reports of nearly $200 million across Khamenei-linked contracts.

Potential misuse of prediction markets

Yet one of the main concerns ignited by geopolitical bets in particular is akin to insider trading. They are clearly justified as numerous suspicious trades have already been identified involving large bets on military operations and high-stakes international events, such as repeated patterns of large trading spikes on Polymarket and Kalshi hours or even minutes before major announcements related to the Iran war.

In one prominent case, a U.S. Army Special Forces Master Sergeant was charged by the Department of Justice for allegedly using classified information about the American operation to capture Venezuelan President Nicolas Maduro to earn more than $400,000 on well-timed Polymarket bets. In a recent example, a teleprompter operator for U.S. President Donald Trump with access to the president’s prepared remarks is accused of abusing that access for prediction market profits.

Analyses by The New York Times and data firms have identified over 80 suspicious accounts on Polymarket alone and the incidents have prompted regulatory scrutiny and heightened calls for stronger oversight. The most likely outcome is that these calls will be heeded, but the question is to what extent. And while current U.S. legislation prohibits betting on military activities, workarounds such as virtual private networks (VPNs) are widely used.

Political and economic implications

Beyond the war, prediction markets correctly anticipated recent election outcomes. In the high-profile Kentucky primary – the most expensive in U.S. history with over $32 million in donations – they clearly predicted that incumbent Thomas Massie would lose (odds of victory were approximately 42 percent on Polymarket and 43 percent on Kalshi, making his opponent the clear favorite), while conventional polls had him winning or called it too close to call.

Apart from straightforward betting, these platforms play an increasingly important role as financial risk management tools, as they expand hedging options in a volatile global environment. Businesses exposed to trade policy shifts or regional conflicts can take positions that offset potential losses. An exporter concerned about new tariffs might purchase contracts betting on their implementation, turning geopolitical uncertainty into a manageable financial variable. There is cross-platform arbitrage too, with countless bots looking for discrepancies in contracts between prediction markets and profiting off them – much like old-fashioned currency arbitrage, this helps improve overall market efficiency.

The growth of prediction markets has been explosive. Kalshi, the leading regulated U.S. platform, saw its trading volume surge 12-fold in a single year to $24 billion, with over $1 billion wagered on Super Bowl Sunday alone. Offshore and crypto-powered platforms like Polymarket have drawn international participation, especially during major political flashpoints. Polymarket reached over $10.5 billion in monthly volume in March and its total volume for the first quarter of 2026 hit $26.2 billion, up more than 90 percent from the previous quarter.

This surge can partly be attributed to novelty and to the timeless appeal of betting. Prediction markets rely on the same psychological dynamics that keep casinos, racetracks and bookmakers in business. Sports-event contracts actually account for more than 80 percent of global prediction market trading activity, even as geopolitical bets and headline-grabbing contracts capture more media attention.

There are broad societal and political factors at play. The rise of these markets signals growing disillusionment with conventional polling, punditry and expert commentary. Traditional surveys and forecasts have often lagged behind rapid shifts in public mood, sometimes spectacularly – Brexit and Donald Trump’s elections being the most prominent examples. Trust in mass media hit an all-time low in the U.S. last year, according to Gallup, with only 28 percent retaining confidence in it. Trust in social media is also declining as more people recognize that algorithmic bias places them in echo chambers that exclude information and reporting that contradicts or challenges their preexisting beliefs.

Prediction markets offer an alternative to convention. They provide the online equivalent of a town square, where individuals can collectively process uncertainty and profit from their skepticism of official narratives. The example of then President Joe Biden from 2024 is instructive: After his poor debate performance, and despite repeated public insistence that he would not drop out, Polymarket and Betfair put the odds of his withdrawal at 70 to 80 percent in early July – well before the announcement that proved them right.