Financial journalists find endless inspiration in Wall Street adages that make for great content. A popular one is “Don’t fight the Fed,” which has certainly come in handy this year. Another is “The stock market climbs a wall of worry,” a phrase that becomes particularly useful whenever investors start fretting.
One adage I’ve yet to use in an article is “It is an old axiom in the financial district that Wall Street betting odds are ‘never wrong.'” Surprisingly, one of my anonymous predecessors at The New York Times did use that hallowed saying back on September 28, 1924. It referred to the common practice of betting on elections on Wall Street, which was extensively covered in major newspapers at the time as an important source of information about national, state, and local political contests.
Today, outright betting on elections is no longer a core part of American finance, except for indirect and elaborate financial hedges on the policy implications of election outcomes. Nonetheless, legal battles are underway to change that, and three prediction markets — PredictIt, Kalshi, and the Iowa Electronic Markets — continue to operate and generate compelling insights. With any of them, it’s possible to make bets on who will win the 2024 presidential election and other consequential matters.
Over the years, I’ve used prediction markets similar to how my predecessors presumably used Wall Street election betting markets — not to place bets but to obtain information. While I don’t solely depend on these markets, it’s impossible to ignore their illuminating insights. Some studies have found that prediction markets compare favorably with polls, especially when they occur weeks or months before voting. When an issue or election is important, one can never have enough data.
One significant distinction between polls and prediction markets is that a poll asks who the respondent prefers as a candidate, while a functioning market that demands real money for a trade asks for their prediction of who will win. This is akin to a sports fan expressing their desire to see a team win versus the pragmatic decision they’d make to place a bet based on the team’s actual likelihood of winning.
Legal restrictions and exemptions govern how these prediction markets operate. While most states don’t permit betting on political events, academic exemptions granted by the Commodity Futures Trading Commission allow sites such as PredictIt and the Iowa market to offer political wagers. However, the future of these markets remains uncertain as legal battles and regulatory challenges persist.
The creators of these markets believe that their value extends beyond mere betting and into the realm of providing critical insights into future outcomes. PredictIt, Kalshi, and the Iowa market continue to operate under academic exemptions, but their long-term viability is threatened by legal challenges and market restrictions. Despite these challenges, the information provided by these markets remains invaluable and indispensable. I’m hoping the entrepreneurs who run prediction markets will keep the information flowing, so we can continue to test the validity of the old saying, “Wall Street betting odds are never wrong.”
