Note: This article was originally posted on Substack here.
Last week Congress passed and President Trump signed the so-called “Big Beautiful Bill,” a sprawling reconciliation package that rewires vast stretches of the federal budget. Tucked inside is a brutal outcome: the Congressional Budget Office projects the law will push at least 11 million Americans off the health-insurance rolls by 2034.
While lawmakers were busy sparring over the measure, the prediction market platform Kalshi opened a market letting users trade on the CBO’s final estimate of how many people would lose coverage once the bill went into effect.
Yet, as Brian Pempus of GamblingHarm.com observed, with only $1,406 in open interest and just shy of $4,000 in total volume the market was hardly useful as a forecast.
“Where’s the value from Kalshi?” he asked.
Reading between the lines, Pempus finds the idea of wagering on human suffering unsettling, too; after all, stripped coverage leads to poorer health, and, in the worst cases, death.
Should society even be allowed to put money on stakes so high?
It’s a fair question, and an important one.
My answer: Not only are these markets permissible, but they should be scaled — and here’s why.
We already monetize tragedy
It does indeed feel icky to wager money on someone losing access to affordable medical care, but society risking money on adverse outcomes isn’t new. Life insurance pays out on death. Catastrophe bonds wipe out investors when hurricanes flatten coastlines. Crop futures let farmers hedge against drought or blight, while speculators effectively wager on a season’s weather. Then there are “vice” ETFs that bundle alcohol, tobacco, gambling stocks, allowing returns to rise with society’s worst habits.
We tolerate and even laud those mechanisms because they transfer risk and reveal important information. Prediction markets can do the same, and more directly. What makes them principally any different?
Hedging Washington’s vote count
I can’t pretend hedgers are flocking to Kalshi to layoff risk. Not yet, anyway.
Prediction markets are still nascent, relatively unknown tools but it’s easy to see their potential to become popular hedging vehicles.
Take the tax provision in the Big Beautiful Bill that says gamblers can only deduct up to 90% of their losses, effectively killing the gambling profession in the U.S. as we know it.
If there was a market that asked Will the provision capping gambling deductions at less than 100% be in the reconciliation bill when the legislation goes into effect? advantage players would almost certainly use it to protect their livelihoods.
The underlying use case is undeniable. If your future swings on Washington’s vote count, not having a hedging tool is the riskier alternative. And when prediction markets become normalized, so too will using them to offset risk and adverse outcomes.
Talk is cheap
Prediction markets do something social media threads and cable panels don’t: they penalize being wrong. When a pundit insists “no one will lose coverage,” or, conversely, “A hundred million will!” the order book is an open challenge, or what economist Alex Tabarrock coined a “tax on bullshit,” curbing disinformation and fighting propaganda.
The benefits aren’t hypothetical. In a 2023 paper for the journal Nature Climate Change, researchers found that participation in climate prediction markets increases concerns about global warming, support for climate action, and overall knowledge about climate change.
Prediction markets can have similar impacts for other controversial topics, “allowing people to reflect their views, anonymously, through market economics rather than publicly stated opinions.”
Thin markets need more sunlight
In this case, Kalshi’s market was at best a blunt forecasting tool, but the flaw lay in its liquidity (or lack thereof), not in the question itself. Whether a single market turns out to be predictive has no bearing on whether Kalshi and other platforms like it should list real-money markets on difficult, sometimes distressing topics.
The remedy is to expand, not retreat. Prediction markets should direct market makers to seed the grim contracts that matter, cut taker fees to draw in more traders, and facilitate meaningful price discovery.
Meanwhile, the rise of prediction markets, and to the extent that they are competitors to gambling platforms such as sportsbooks and iCasinos, is a win for consumers. Luckily, more competition is on its way.
Railbird Exchange recently secured CFTC approval and will soon add another venue where traders and institutions can hedge political risk. A healthy ecosystem of prediction markets will incentivize lower fees and liquidity innovation, while offering the public wagers that serve a purpose well beyond entertainment.
