Actually, the price is the product
The virtuous case for prediction markets
Every six weeks, the Federal Reserve meets to make a decision about interest rates. And, in lockstep, every six weeks economics observers are served up breathless reporting about what the CME FedWatch has to say about what will happen. Everyday people make life decisions based on this information… do I buy a car now? Used or new? Do I refinance my house? Should I put more into savings or the S&P500?
It makes sense - many billions of dollars flow through these markets, so it’s safe to assume that they are pretty efficient and are a decent forecast.
What strikes me about this is that when you actually go and try to trade these futures contracts, it’s practically impossible. Your broker will make you fill out a bunch of questionnaires and can reject you if they deem that you’re not sophisticated enough to trade futures contracts.
The reality is that the vast majority of the people who engage with Fed Funds futures as a product are not market participants, but market observers… observers of the information generated by the market participants’ trading activity.
This hints at something important: the primary product of prediction markets isn’t the ability to trade. It’s the information that trading produces. The price is the product.
Think about it: why do we care how the Nasdaq is doing today? Most of us aren’t actually trading those securities. We’re using stock prices as crude proxies for “how is the world doing”: vibes, dressed up as data. But stock prices answer questions about corporate earnings and capital flows, not the questions we actually want answered. What are the odds of a recession? Who wins the election? Will this deal close? Prediction markets offer something different: specific prices for specific questions.
As market observers, we are so desirous for any signal about the state of the world that we resort to numbers that only abstractly gesture towards it. Yet, most criticism of prediction markets focuses on the act of participating—the gambling, the speculation, the potential for addiction. But this misses where most of the value actually lives. The consumer surplus flows overwhelmingly to observers, not participants1.
The fish are the product
In any exchange, the fundamental dynamic is simple: takers pay fees to trade immediately, while makers earn positive-EV and rebates for posting standing orders. But Wall Street’s traditional metrics miss what’s actually driving value in prediction markets.
A few weeks ago, I (perhaps too cynically) wrote about how the “fish” are the product when it comes to prediction markets and arguably the derivatives industry writ-large. Maybe I was wrong - the fish are just one of the products, the one that traders and market makers are interested in.
I believe the price itself is the primary product of prediction markets, and perhaps its ultimate purpose.
Skeptics are empirically correct, for now
Plainly, it is impossible to deny or minimize the outsized role of sports betting in prediction markets at the moment. It’s an empirical reality: today’s growth and revenue are about 85% sports, and companies themselves lean into sports due to an established culture and product-market-fit2.
This makes PMs an easy punching bag. It’s great fodder for the “gamblification of America” op-eds that are all too easy to pitch to the editors of high-brow media outlets. And on the pro-PM side, the missionary-esque shibboleths like “prediction markets are a truth engine” and “the future of finance” and a “new financial primitive substrate” look glib when by and large, most of the business is sports.
I believe the reality is somewhere in the middle. Here’s the thing: if you accept that the price is the product—that most value flows to information consumers, not traders—then the sports critique starts to look confused. It’s evaluating prediction markets by the wrong metric.
Millions of people check point spreads, over/unders, and game odds without ever placing a bet. They use this information to set expectations, talk to friends, decide whether a game is worth watching, or just satisfy curiosity. The information is the product, and sports information has an enormous audience.
Compare the audiences: Fed Funds futures serve a few thousand institutional traders and perhaps a larger circle of finance professionals and journalists. High-stakes per capita, but narrow reach. Sports odds? Massive reach, even if each individual decision is lower-stakes.
If consumer surplus comes from information consumption, then the relevant question isn’t “is this serious enough?” - it’s “how many people are consuming the information, and does it help them?” By that measure, sports prediction markets might be more valuable than Fed Funds futures, not less. The highbrow critique dismisses sports as “frivolous”, but frivolous questions that millions care about might generate more aggregate informational value than “serious” questions that few engage with3.
This isn’t to say that all information is equally consequential. Knowing the odds on the Chiefs-Ravens game won’t move the needle in your life as much as refinancing your mortgage. But the infrastructure that sports builds—the liquidity, the UX, the cultural familiarity with probability—enables the higher-stakes markets to follow.
Vice is often a prelude to virtue
There’s a historical pattern where stigmatized early demand accelerates general-purpose infrastructure:
Games of chance seeded key ideas in probability, which matured into the mathematics behind forecasting and risk transfer.
Adult content helped normalize paying for digital goods, advancing subscription mechanics and payments UX under real, privacy-sensitive demand.
Bitcoin’s early adoption was tightly linked to darknet markets, effectively stress-testing censorship-resistant settlement in the harshest environment, long before “crypto” had mainstream legitimacy.
Sports betting and mention markets are prediction markets’ “vice wedge”: the stigmatized use case that funds the infrastructure for everything else. The progenitors of today’s platforms (a group that includes myself) believed in, traded, and even sued for non-sports markets like elections long before the current boom. The volume and profits comes from sports today, but the long term vision hasn’t changed.
Kalshi’s recent deals with CNN and CNBC are a bellwether. The pitch isn’t “come gamble with us”, it’s “here’s a probability you can show your viewers.” Kalshi will probably never recoup whatever they paid these networks through trading fee revenue generated by the exposure. The idea is bigger: the information layer, packaged for mass consumption to revolutionize news media.
Securities, options, insurance, consulting, politics, entertainment or culture may be next, and that’s just off the top of my head. If sports betting helps usher in more socially useful market structure, I can live with that.
A virtuous product, if we build it
The legendary Charlie Munger had a useful framework for distinguishing systems that improve civilization from those that degrade it. He called them “virtue effects” and “vice effects.”
A system that’s very hard to defraud, like a cash register, helps the economic performance of a civilization by reducing vice, but very few people within economics talk about it in those terms.
Charlie Munger, 2003
His canonical virtue example was the cash register: a system engineered to make fraud difficult, which in turn raised the reliability ethos of the entire retail economy. The vice examples were casinos and gambling machines as systems designed to exploit compulsion.
Prediction markets sit uncomfortably between the two. The critics who see gambling aren’t wrong; those incentives are real and powerful. But there’s a virtue case too, and it’s structural: prediction markets financially reward being right and punish being wrong. Your P&L keeps score.
This is rare. Pundits can be confidently incorrect for decades and keep their platforms. Social media rewards engagement, not accuracy. PMs are different: they create hard incentives for calibration and updating when evidence changes.
But Munger would only credit those virtues if the system is engineered to be hard to defraud4. That’s the line between virtue instrument and vice engine. If prediction market prices are the product, then the product’s quality depends entirely on whether those prices can be trusted.
This is where the real work lies. Platforms must invest in market integrity, manipulation resistance, and robust settlement. The ecosystem around them—traders, analysts, journalists— must treat prices as epistemic tools worth explaining, not just numbers to flash on screen or potential payouts designed to hijack our dopamine receptors.
The price is the product. The question is whether we’ll build a product worth buying.
And, for what it’s worth, this is explicitly part of the strategy of ICE’s investment in Polymarket.
Sports scaled quickly because there was already a culture suited for binary contracts and huge infrastructure around it that was ripe for disruption.
I can’t help but think of that cartoonish trope of when someone eats something bigger than themselves only to look like the thing they just ate. It is just the appetizer, the first really big thing that prediction markets ate. So that’s why, prima facie, it appears to be sports betting. Sports may be the appetizer; news, politics, economics, and culture are the next courses.
I also think there is an (understandable) over-fixation on the revenues and valuations of Kalshi and Polymarket. It actually takes very little trading activity to produce extremely salient forecast information via markets.
There’s this dissonance between the way the enterprise value and the informational value of these companies is formed. So what if election markets trade just a fraction of what sports trade? It doesn’t make the market any less valuable to the world of observers, just less valuable to Kalshi’s stakeholders. And I say this as someone whose entire net worth is Kalshi equity: the markets I care about, that got me into this field 5 years ago, that I believe may redefine our social fabric… are not the markets making me rich.
So, why are critics so concerned with where Kalshi’s money is coming from and conflating it with the broader mission of prediction markets? If I may be blunt, it is simply pocket-watching.
And I don’t think it’s a stretch to say that billions of people feel that the current state of news media is meant to defraud them, to led with an agenda and leverage dishonesty. Prediction markets may cut through that.
A very eloquent expression of this intuition many of us have, but that is rarely written down neatly and intelligently. Great writing!
Well written sir