Prediction Markets Reputation Faces a Crucial Test in the Midterms

America’s political establishment is heading toward an election that some fear could become another major failure for public opinion polling.

Prediction markets are stepping into the spotlight.

Wall Street’s most talked-about startups, particularly Kalshi and Polymarket, have long positioned themselves as leaders in the forecasting industry, arguing that people are more likely to reveal their true expectations when money is at stake. Now, the upcoming midterm elections will put their predictive abilities to the test.

Hundreds of millions of dollars are being wagered on prediction markets covering Senate, House and gubernatorial races across the country. Both markets and opinion polls indicate that Democrats could celebrate a return to power, but next Tuesday’s elections may become a defining moment for the industry. Growing concerns about the reliability of polls are giving prediction markets an opportunity to demonstrate whether they can deliver on their promise of becoming so-called truth machines rather than simply serving as sports betting platforms.

“This is truly the first prediction-market election,” Kalshi CEO Tarek Mansour said in an interview. “The best way to get informed about what’s happening with our elections is not giving the microphone to a select few. It’s just to let the market speak. It’s to let the people speak. And that’s what the prediction markets do.”

The industry gained widespread attention two years ago when, just weeks before President Donald Trump returned to the White House, prediction markets were legally permitted to offer wagers on U.S. elections. While opinion polls portrayed the 2024 presidential race as a close contest throughout much of the campaign, prediction markets were among the first to clearly signal Trump’s victory on election night.

Since then, the emerging industry has become one of finance’s hottest sectors, attracting investment from prominent Silicon Valley backers, major Wall Street players and the Trump family itself. Donald Trump Jr. serves as an adviser to Kalshi. However, the industry is also engaged in an intense battle with a bipartisan group of political professionals over its role in the financial system. Supporters view prediction markets as the next evolution of financial exchanges, while critics argue that they are simply modern gambling platforms.

Another strong performance in 2024, with early and accurate forecasts across races nationwide, could strengthen the industry's credibility among political professionals. This comes as public opinion polling faces increased scrutiny following a series of high-profile forecasting failures over the past decade.

“On the night, [the markets are] going to feel like they’re calling these races faster,” said Chuck Todd, the former NBC News political director and host of “Meet the Press,” who has Kalshi as a sponsor for one of his podcasts. “Ultimately, you get a big enough crowd then, yeah, the crowd’s going to be smarter about politics than us trying to project the vote count before we’re finished counting the votes.”

“If the markets end up being as prescient as we think they will be for this cycle,” he added, “then that should start speeding up acceptance.”

Prediction markets are not polls, and it is important to recognize that they are not infallible. Brazilian President Luiz Inácio Lula da Silva’s historic victory on Sunday surprised many prediction market traders, who had placed his chances of winning at around 20% before the election. Pollsters question whether prediction markets will ever replace traditional polling, partly because these markets also incorporate polling data. Republican pollster Brent Buchanan argued that polling relies on speaking directly with voters and applying “the science of statistics.”

Kalshi, by contrast, “operates on vibes,” he said.

Nevertheless, prediction markets maintain that the wisdom of crowds can be a powerful tool. Markets can rapidly gather information and separate meaningful signals from the noise in news coverage. This ability also helped drive the industry's growth following the 2024 election.

Kalshi CEO Tarek Mansour is not concerned about questions surrounding forecasting accuracy. He said the company has a “big responsibility” to ensure its markets operate fairly and safely, while the responsibility for accurately predicting election outcomes rests with the traders and bettors participating in them.

When asked about Lula’s unexpected victory, Kalshi spokesperson Elisabeth Diana said that a 20% probability “doesn’t mean it won’t happen.” She added, “It means it should happen 1 in 5 times. If 20% candidates never won, the markets would be broken.”

However, prediction markets and opinion polls largely agree that Democrats could achieve a blue wave in next week’s elections. If a major Democratic victory fails to materialize, both industries could face criticism from the public, potentially damaging the credibility of prediction markets alongside traditional polling. Aristotle CEO John Phillips, whose company operates the political prediction market PredictIt, said that even if prediction markets are being compared with polls unfairly, “credibility is always on the line.”

“This will be the first election where you have prediction market odds and so forth being part of the conversation,” said Pratik Chougule, a longtime prediction market trader who leads the Coalition for Political Forecasting. “The question is: Do we wake up the day after [or] the week after the election and view the prediction markets as something that is now a necessary, important staple of how we follow elections, or are they just seen as another form of gambling?”