7 Myths About Prediction Markets That Need Debunking
Prediction markets are sometimes misunderstood—even derided—by critics who cling to outdated assumptions.
In 2025, as these markets achieve traction in crypto, finance, and public coverage, many myths persist.
Below are simply seven myths about prediction markets that deserve a re-examination.
“Prediction markets are simply playing”
This is maybe the most typical of all of the myths about prediction markets. Yes, prediction markets enable betting on outcomes, however the intent, incentives, and regulatory framing typically set them aside.
Platforms like Kalshi within the U.S. function below federal regulation (by way of the CFTC) and provide occasion contracts as monetary devices, not pure video games of likelihood.
Statistically, prediction markets have outperformed public polls in a number of U.S. elections. Harry Crane’s studies comparing PredictIt and FiveThirtyEight discovered that markets had been constantly nearer to last outcomes. Crane emphasised that polls seize “sentiment,” whereas markets search “accuracy and reality.”
So, the parable fails as a result of these markets are about greater than leisure—they’re instruments for forecasting danger, hedging uncertainty, and revealing aggregated perception backed by actual stakes.
“They’re straightforward to govern”
Detractors warn that low-liquidity, insider trades, or coordinated manipulation can distort market costs. While no system is ideal, many platforms construct in countermeasures: liquidity incentives, market-maker subsidies, stake weighting, and in regulated circumstances, oversight.
For instance, just some U.S. states allow contracts on sports activities occasions. Kalshi has confronted authorized pushback in states like Massachusetts and New Jersey, however in several courts the platform has defended contracts below federal oversight. These authorized rulings counsel confidence that the design and laws can mitigate manipulation.
Expert observers argue that true manipulation is most certainly solely when markets are skinny and localized. When liquidity, transparency, and regulatory compliance enhance, these dangers decline considerably.
“Only political or sports activities followers use them — not helpful for finance or governance”
One of the most typical myths about prediction markets is that it doesn’t transfer past leisure. Real-world governance, company planning, DAO choices, and danger administration are more and more woven into prediction markets’ use circumstances.
Kalshi gives markets on macroeconomic and regulatory outcomes, not simply elections or sports activities. Crypto platforms like Polymarket additionally host different occasion sorts, spanning finance, regulation, and international affairs.
These enable establishments and decentralized communities to gauge chance of regulatory adjustments or governance votes.
Researchers affirm that markets can produce forecasts which might be “actionable for establishments,” particularly after they need to anticipate taxes, regulation, or authorities coverage adjustments. The information reveals that such markets typically reply quicker and with extra nuance than conventional expert-derived forecasts.
“They produce black-box alerts — not explainable”
It’s typically believed that as a result of prediction markets mixture so many inputs, they change into opaque. On the opposite, many markets are constructed on clear mechanisms: each commerce is public, worth actions are traceable, and guidelines of settlement are recognized upfront.
Polymarket, for example, settles most markets based mostly on verifiable information sources, with dispute decision mechanisms clearly documented. Kalshi, being regulated, has to adjust to guidelines about disclosures and contract legal guidelines.
Harry Crane famous that prediction markets present the “weight of perception” in public kind, as a result of stakeholders should danger actual funds. That visibility creates accountability.
While markets don’t all the time reveal why somebody made a commerce, the collective end result is “seen in commerce quantity, costs, and shifts,” serving to customers to interpret sign power.
“Prediction markets are unlawful or will all the time be banned”
Regulation issues, sure—however legality is way from uniform, and lots of prediction markets already function below clear regulatory constructions. For instance, Kalshi has managed to get rulings in favor of its sports activities and election-event contracts in some U.S. states, and courts have blocked sure state-imposed makes an attempt to deal with such contracts as unlawful playing in different jurisdictions.
The CEO of Kalshi has additionally argued that its contracts for sporting occasions shouldn’t be categorized as playing as a result of the enterprise doesn’t achieve from its gamers’ losses, which makes a notable distinction below U.S. legislation.
So, legality is just not a uniform prohibition—it will depend on jurisdiction, contract design, and regulatory standing. With the fitting licensing, compliance, and readability, prediction markets can and do function lawfully.
“Markets are nugatory when liquidity is low”
Low liquidity does make markets much less dependable—however once more, that doesn’t imply they “fail” universally. Many platforms use instruments to mitigate the issue: liquidity suppliers, incentive packages, AMMs (automated market makers), and cross-platform aggregation.
Evidence means that markets with larger liquidity and fewer charge restrictions are typically extra correct. Crane noticed that Polymarket’s smaller charge construction and better liquidity positioned it forward of PredictIt in forecasting effectivity in latest election cycles.
Even when liquidity is low, markets can nonetheless present directional or pattern alerts slightly than exact chance values. For many customers (protocols, funds), that is sufficient to transfer choices.
(*7*)“Prediction markets all the time out-perform consultants and fashions”
One of the extra harmful myths about prediction markets. Yes, markets are highly effective, however not infallible. They typically outperform polls or easy fashions in long-horizon political or regulatory forecasting, however in near-term or extremely advanced technical domains, professional fashions can excel.
A study evaluating PredictIt markets and printed fashions for U.S. battleground states within the 2020 election confirmed that markets carried out higher a number of months out, however because the election drew nearer, model-based polling and statistical fashions generally turned extra correct. The hybrid common typically beats every part alone.
Thus, a extra nuanced view: prediction markets are finest utilized in mixture with fashions and professional perception. They shine for long-horizon, macro, regulatory, or coverage questions, whereas professional fashions may assist with technical forecasting the place information and area information dominate.
The Reality of Prediction Markets
Many myths about prediction markets are simply not true: they’re not purely playing, not inherently manipulable, not confined to politics or sports activities, nor eternally unlawful.
When well-crafted and correctly regulated, they exhibit larger accuracy, transparency, probabilistic alerts, and real-time adaptability—all of which conventional forecast strategies discover arduous to match.
As regulation, design, and adoption enhance, prediction markets can go from being little curiosities in 2025 to being the important thing forecasting infrastructure, shaping insurance policies and governance and finance, and rather more.
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