In this era of hyper-information, caused in part by smartphones and the ubiquitousness of social media, one of the interesting byproducts has been the polarization of opinion on so many topics.
Consider anything topical today – Donald Trump, the Democrats, the Federal Reserve, the European Union, the Iran War, and so on – and you can be sure that it would be easy to find someone with the diametrically opposite point of view; perhaps in your own family.
We live in a time when all this information leads us to hold hardened views on subjects that are sometimes at odds with large portions of the public. Thus, it feels understandable that this era has also seen a huge surge in the popularity of predictions markets. These platforms basically allow traders to place wagers on the outcome of almost anything, but there is a steady trade in betting on politics and current affairs.
Technically, a predictions market works like this: Someone opens up a trade – say, for instance, the price of Brent crude oil (very topical) to be over $150 by April 30th, 2026. Then someone who doesn’t think that will be the case, perhaps because they see conflict resolution in the Middle East coming sooner than others, takes the other end of the trade. The traders continue to place their wagers. The odds, so to speak, are determined by the weight of wagers on either side. On April 30th, going by our hypothetical example, the market would be settled, paying the traders who guessed correctly.
DraftKings Recently Launched Online Predictions Markets
That is just one example of how these markets work. Of course, financial traders will be well aware that you can already ‘bet’ on oil and other commodities, but prediction markets are consumer-facing, allowing very small wagers in the same manner as a sports bet. Indeed, the fantasy sports and sports betting giant, DraftKings, has just opened a new predictions market online, alongside its sportsbook and casino. It covers politics, financial, and similar topics, as well as sports betting predictions.
The key, however, is to appreciate that these markets are offering people the chance to bet against the herd. For instance, right now, nearly all pollsters for the Midterms in November point to a Democratic landslide, or at least a small Blue Wave. If you think that is going to change over the next six months or so, prediction markets are open for those trades, and you’d probably make a healthy profit if you correctly went against the market and backed the GOP to succeed (not financial or political advice, by the way).
Of course, it’s not always going to become the case that you find easy pickings. Some people might open up markets on novelty ideas – let’s say something ridiculous like Elvis Presley to be found alive and well – but these are usually low-volume markets where it is impossible to make a healthy profit. What you are really looking for is to weigh up the real-world probabilities with the odds offered in the market. That might take a little research to go alongside your gut feeling.
As mentioned earlier, it feels like no coincidence that predictions markets are ballooning in popularity in an era where we are politically charged and, as a society, heavily opinionated. Yet, the key to using them properly is through being objective, unbiased and cool-headed. The crowd can be wrong at times, and that’s when there is an opportunity to swoop in. But you should not use them when you ‘want’ the crowd to be wrong. Be level-headed, use your knowledge and experience to have a stab and predicting the future, and don’t forget that a week is a long time in politics.
