Incentives Make Crowds Wiser: Prediction Markets Outperform Experts

The Polymarket Effect: How Prediction Markets Are Beating The Experts

Prediction markets are outpacing traditional experts in forecasting outcomes, from political races to corporate earnings, as platforms like Polymarket and Kalshi gain traction. These markets aggregate dispersed information through real-money bets, creating a "truth signal" that often shifts faster than polls, pundits, or official reports. For instance, Polymarket correctly identified New York City's mayoral race winner weeks before media outlets reflected the trend, illustrating how decentralized betting can anticipate institutional insights.

The phenomenon is expanding beyond politics. In corporate contexts, prediction markets now wager on product launches, layoffs, and leadership transitions. A recent example is the anticipation of Meta's AI product strategy and Starbucks' potential acquisition targets, where bettors priced probabilities in real time. This mirrors broader trends: trading volume on major platforms exceeded $3 billion in Q3 2025, a fivefold increase from the same period last year. Platforms like Kalshi, which partners with Coinbase to offer event contracts, are further mainstreaming the trend.

Regulatory scrutiny, however, looms. The Commodity Futures Trading Commission (CFTC) faces questions about its oversight of prediction markets, particularly as they encroach on domains traditionally reserved for sports betting and financial derivatives. Michael Selig, the nominee to chair the CFTC, will confront this issue during his confirmation hearing, with senators debating whether event contracts - such as those for government shutdowns or celebrity retirements - constitute "gaming" under the 1936 Commodity Exchange Act.

The rise of prediction markets also challenges traditional institutions. Polling accuracy has declined, with only 22% of U.S. adults trusting the federal government to act in their best interest. Meanwhile, prediction markets offer accountability: every bet ties belief to financial risk, incentivizing accuracy over speculation. This dynamic has drawn comparisons to Iowa Electronic Markets research, which shows prediction markets often outperform expert forecasts by aggregating non-ideological, real-time data.

Leaders across sectors are grappling with the implications. CEOs and board members now monitor probability curves that shift hours before institutional reports, forcing a reevaluation of decision-making frameworks. For example, the likelihood of Amazon's next mass layoff or Taylor Swift's tour cancellation is priced by markets before analysts issue official assessments. This creates both anxiety and opportunity, as organizations adapt to a landscape where real-time signals eclipse traditional playbooks.

As the sector grows, so does its influence. The prediction market industry is projected to reach $95.5 billion by 2035, driven by applications in economics, culture, and global affairs. Platforms like Polymarket and Kalshi are not merely gambling hubs but emerging forecasting infrastructures, rivaling the speed and breadth of legacy systems. For leaders, the challenge lies in interpreting these signals proactively - before confirmation arrives - while navigating a regulatory environment still catching up to the pace of innovation.