Prediction markets have been around for a long time.
16th century Italians placed bets on who the next Pope would be, and election betting in the U.S. goes (at least) as far back as the late 1800s. Amid the uncertain frenzy of major current events, people look to betting as they try to make sense of the unknown.
So, it tracks that prediction market Polymarket has become increasingly popular throughout the 2024 U.S. election, which has seen Polymarket users place $3.3 billion in bets on Trump vs. Harris. However, that massive volume is more complicated than it looks, my colleague Leo Schwartz reported recently: Two blockchain research firms, Chaos Labs and Inca Digital, have found signs that wash trading—a tactic to artificially inflate trading activity—constitutes a sizable portion of this volume.
This naturally raises concerns about Polymarket's accuracy as a prediction tool—the goal of any prediction market, fun aside, is to predict, after all. I talked to Schwartz about it over a Slack call on election day yesterday, as good a time as any to meditate on what it means to make sense of uncertainty. As I was writing this story, Polymarket was giving Donald Trump a 61% chance of winning the election. That said, odds are really just that. How seriously should we be taking prediction markets?
"I think we should just take a step back and do a little critical thinking about whether we should really be taking them seriously, or at least what other dynamics might be at play in creating those odds,” Schwartz told me.
Schwartz says prediction markets, in a way that’s not all that different from polling, are “metrics of sentiment.” And if the underdog ultimately wins, that doesn’t mean the prediction markets were wrong, either. Much like a poll, the prediction markets are a snapshot. They offer pieces of data, not promises.
"If by the time people are reading this Kamala has won, that doesn’t necessarily mean that the prediction markets were wrong,” said Schwartz. “It just means that there were more people putting money down saying 'I think there’s a better chance that Trump is going to win.'”
This seemed like a good way to re-introduce you to Leo, who’s been featured in Term Sheet before and whose work I deeply admire. I’m about to go on vacation for almost two weeks, and he’s taking up the Term Sheet mantle while I’m gone. And as a form of hazing, please spam him with all your story ideas. Here’s his email: leo.schwartz@fortune.com.
Leo will see you tomorrow,
Allie Garfinkle
Twitter: @agarfinks
Email: alexandra.garfinkle@fortune.com
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