Back to the future

The problem of prediction markets

On the 6^th April the temperature in Paris suddenly jumped six degrees before falling back over the next hour. The same thing happened on the 15^th, except this time it jumped nine degrees. Given this is not a normal weather phenomenon and no one in Paris noticed it getting rapidly hotter, it led to much speculation about what was going on. Then somebody noticed suspiciously timed trades on prediction markets about how warm it was going to get on those days. It looks like a trader was making thousands of dollars by tampering with the equipment used to measure the temperature at Charles de Gaulle airport, possibly with a hairdryer.

Last month also saw the first arrest in America for insider trading on prediction markets. Gannon Ken Van Dyke, a master sergeant with US special forces involved in the raid to capture Venezuelan President Nicolás Maduro, made $400k “predicting” when the operation would take place. Something similar happened last year in Israel when a soldier, working with a civilian friend, was caught making bets on the timing of air strikes against Iran and Yemen.

There has been plenty of other suspicious activity that hasn’t led to arrests. The day before the 28^th February attack on Iran, 150 people made trades of at least $1,000 predicting an imminent strike. CNN identified one anonymous account that has made $1 million with a series of unerringly accurate bets on military action in the Middle East. It’s not just wars and weather, there have been suspicious trades on everything from the launch of OpenAI products, to Google searches, to posting on Mr Beast’s YouTube channel.

Insider trading is not, of course, a new phenomenon, there have been plenty of financial and sporting scandals over the years. But the explosion in gambling via prediction markets since 2024 has dramatically increased the risk over a much wider range of activities. Trading volume on the two largest – Polymarket and Kalshi – was $50 billion in 2025, up from $16 billion the year before, and will be much higher again this year.

The potential risks go well beyond insider trading. The more lucrative these markets become, the more predictions about the future will affect decision-making and behaviour, creating perverse feedback loops. Particularly when political actors are directly involved in the companies running the markets, as the Trump family are. In the rest of the post I’ll look at why there’s been such growth in this form of gambling, how it works, the risks that are starting to manifest, and what governments can do about them.