Betting on the Ballot: Analyzing Demographics in Prediction Markets and Their Impact on Its Validity

Fariha T. Sneha

As the 2024 United States Presidential Election unfolded, the partisan divide grew more pronounced. Amid concerns over civil rights, geopolitics, and the economy, people found themselves on the edge of their seats, drawn into heated discourse. At the same time, many sought to profit from the outcome by placing wagers on the winner. Election betting has quickly reemerged as a frontier in political engagement. People bet on binary options, such as the winner of a presidential election and congressional control, to benefit monetarily. Leading up to the election, many political experts contended that traditional polling methods were more reliable than prediction markets. While polls indicated a tight race, prediction markets like Kalshi and Polymarket placed Trump well ahead, leaving these platforms vindicated after November 5th.

These platforms have garnered attention not only for attracting millions of dollars in wagers right after launching these contracts but also for their potential to serve as barometers of political sentiment. In a way, it mirrors traditional polling. In its resurgence, politicians have increasingly utilized prediction markets to track election outcomes. On January 13, Donald Trump Jr. posted on X, saying, “My family and close friends used the prediction market @Kalshi to know we won ahead of the fake news media,” [1] and announced that he is joining the company as a strategic advisor. This endorsement from a high-profile political figure illustrates how prediction markets are moving beyond niche financial tools and towards a domain of partisan validation, where their results may be used to challenge or legitimize official narratives. By aligning with a platform like Kalshi, Trump Jr. is not just passively endorsing its predictive capabilities but actively leveraging its perceived accuracy to undermine traditional media and institutional reporting. This convergence of political branding and financial speculation suggests a future in which prediction markets may become battlegrounds for public trust, as it can blur the line between data-driven forecasting and partisan messaging.

Election betting distinguishes itself from traditional polling in the temporal nature of the data it reflects. While polls aggregate responses over several days, prediction markets offer real-time data, with odds continually adjusted as participants alter their positions in response to new developments and shifting momentum. Beyond serving as a news source, prediction markets can also be used purely for profit, with bettors even wagering against the political party they support in pursuit of gains. These event contracts function as a hedge against political outcomes.

Economists Paul W. Rhode and Koleman Strumpf found that between the 1884 and 1940 elections, betting markets accurately predicted the winner in 73% of cases by correctly forecasting the outcome in 11 out of 15 elections. An exception occurred in the 1916 election. Despite the markets demonstrating favor for Charles Evans Hughes, Woodrow Wilson ultimately won, as late votes from California surged in his favor. The three remaining elections were too close to call in betting markets. [2] The public’s reliance on such platforms gradually diminished as state legislatures passed laws regulating gambling. Notably, in 1939, the New York State Constitution was amended to legalize pari-mutuel betting on horse races. Article I, Section 9 stated:

“No law shall be passed abridging the rights of the people peaceably to assemble and to petition the government, or any department thereof; nor shall any divorce be granted otherwise than by due judicial proceedings; except as hereinafter provided, no lottery or the sale of lottery tickets, pool-selling, book-making, or any other kind of gambling, except lotteries operated by the state… and except pari-mutuel betting on horse races.” [3]

Following the ratification of this amendment, New York’s first legal horse race betting began in April 1940, which coincided with the Presidential election year. Along with the restriction of bookmaking, which falls under betting on events like the election, the introduction of horse race betting contributed to the decline of election betting, as bettors no longer had to wait for election cycles to place wagers. With the rise of scientific polling, election betting further faded into insignificance. Since then, election betting has been done on a limited scale and in legal gray areas. This changed when, in 2022, Kalshi, a Manhattan-based prediction market platform founded by MIT graduates Tarek Mansour and Luana Lopes Lara, sought approval from the Commodity Futures Trading Commission (CFTC) to offer election contracts. In August 2022, CTFC initiated a review of election event contracts, and Commissioner Caroline D. Pham raised concerns that these contracts could constitute illegal gambling and potentially undermine the integrity of electoral processes. Many states prohibited gaming and election-related gambling, so allowing such contracts would have conflicted with public interest considerations. [4] Kalshi challenged this decision in KalshiEX LLC v. Commodity Futures Trading Commission, Civil Action No. 23-3257, filed in the DC District Court on November 1, 2023. Kalshi argued that the CFTC had exceeded its statutory authority by prohibiting its proposed election event contracts. On September 12, 2024, District Judge Jia M. Cobb ruled in Kalshi’s favor and vacated the CFTC's decision. [5] Following the district court's ruling, the Commodity Futures Trading Commission (CFTC) appealed to the Court of Appeals for the DC Circuit in the case of KalshiEX LLC v. Commodity Futures Trading Commission, No. 24-5205. On October 2, 2024, the appellate court denied the CFTC’s emergency motion for a stay pending appeal and allowed Kalshi to continue offering its election event contracts [6] As a result, the platform introduced a variety of election-related options contracts, and millions of dollars were wagered by US residents shortly after its launch. 

As the popularity of election betting grows once again, it is important to consider the geographic and demographic composition of market participants and how it influences predictive accuracy. Platforms like Kalshi are limited to Americans, which offers a more accurate reflection of American sentiment. In contrast, decentralized markets like Polymarket attract international users, and it is also not operated in the US. In 2022, the CFTC determined that Polymarket was operating an unregistered swap execution facility, violating Section 5h(a)(1) of the Commodity Exchange Act. [7] This led to a settlement where Polymarket agreed to block US users and pay a $1.4 million penalty. Polymarket overall does not provide an accurate picture of Americans' voter preferences. The difference in geographic location was particularly highlighted in the 2016 election when UK-based Betfair displayed the odds were in Hillary Clinton’s favor, but Donald Trump ultimately secured victory. Similarly, a US-based platform, PredictIt, which only allows US citizens to bet on political events, reflected similar odds. At first glance, this might raise questions about the accuracy and reliability of prediction markets, but the details are often overlooked. In 2014, the CFTC issued a no-action letter to PredictIt, allowing it to operate under specific restrictions. These included a cap of 5,000 traders per contract and a maximum investment limit of $850 per trader. [8] Given the 2016 voter turnout of 136 million, this cap represents a relatively small sample size, which hardly captures broader electoral sentiment. In contrast, Kalshi operates on a much larger scale, and in the case of election contracts, position limits were set at $7 million for individuals and up to $100 million for eligible contract participants (i.e., larger investors). [9] Given its broader market base, Kalshi can represent a much larger pool of participants than PredictIt. With higher stakes, traders on Kalshi have more skin in the game and thus are driven to take the market more seriously, staying informed by closely following the news, and adjusting their positions accordingly. 

However, in March 2025, Kalshi found itself in a legal battle with the states of New Jersey and Nevada, as both states issued cease-and-desist orders against the company. The Nevada Gaming Commission did not authorize Kalshi to offer political or sports contracts, while New Jersey's objections focused primarily on its sports contracts. In response, Kalshi sued the Nevada Gaming Control Board and the New Jersey Division of Gaming Enforcement, arguing that their actions infringe on its right to operate as a federally regulated market under the oversight of the CFTC. Kalshi contends that state authorities lack jurisdiction over its platform because federal law preempts state law. The company also pointed to the CFTC court filing, asserting that state regulations do not apply to event contracts traded on federally approved markets like Kalshi. [10] While Nevada's order directly pertains to election contracts, New Jersey could extend its restrictions beyond sports contracts to impose a broader ban. If these states move forward with such measures, it would significantly reduce participation from Kalshi’s existing user base. This could also impact election-related contracts as it will make them less reflective of the overall national sentiment. If Kalshi successfully challenges the cease-and-desist orders, it could set a major legal precedent for the future of prediction markets in the US. A favorable ruling for Kalshi could help define what constitutes a legal prediction market and establish clear conditions for their operation. 

One of the primary concerns surrounding election betting markets is the potential for manipulation. Wealthy individuals and political interest groups could exert disproportionate influence over market predictions by strategically placing large bets, potentially distorting public perception and undermining the credibility of these markets. In extreme cases, such manipulation creates misleading forecasts that do not accurately reflect the electorate’s true sentiment. Polymarket, which is a blockchain-based prediction platform, has faced scrutiny over allegations of market manipulation. Unlike traditional markets, Polymarket allows users to remain anonymous through cryptocurrency transactions. During the most recent election cycle, four anonymous accounts collectively placed $30 million in bets favoring Donald Trump. The primary trader, later revealed under the alias “Theo,” was identified as a French national who claimed he participated purely for profit rather than political allegiance. This activity triggered an investigation into market manipulation in France, ultimately resulting in a nationwide restriction of Polymarket. More recently, Polymarket attracted controversy over a contract titled “Ukraine agrees to Trump mineral deal before April?” which garnered over $7 million in bets. The contract stipulated a “Yes” resolution if an official agreement involving Ukrainian rare-earth elements was reached between the United States and Ukraine by March 31, 2025. However, as no such agreement had been reached, many bettors faced substantial financial losses. This outcome was linked to Polymarket relying on Universal Market Access (UMA). [11] UMA is a blockchain-based oracle system that determines contract resolutions through a decentralized voting process among token holders. While intended to ensure transparency, this system is vulnerable to manipulation. In this case, a surge in UMA token purchases allowed a small group of investors to sway the contract resolution to “Yes,” despite no corresponding real-world event. According to Yahoo Finance, market probabilities for the contract spiked from 9% to 100% between March 24 and 25. Reports indicate that a single entity distributed 5 million UMA tokens across three accounts, effectively securing control over the market’s outcome. Despite allegations of operational mismanagement and misconduct, Polymarket has refused to issue refunds to affected bettors. [12] Due to the anonymity of crypto-based platforms, holding individuals accountable in cases of market manipulation remains a significant challenge. The implications are particularly troubling when extended to political event contracts, as analogous forms of manipulation could distort electoral momentum and erode the accuracy of prediction markets as a forecasting tool. This incident suggests that the settlement reached in 2022 to block Polymarket for US residents was a legitimate response to the vulnerabilities inherent in blockchain-based betting markets. 

Given the growing influence of these markets, the US government should adopt a more structured regulatory approach by using diplomatic efforts to restrict foreign-based election betting through multilateral agreements and engagement with international regulatory bodies. Additionally, the government should seek an agreement with Polymarket to either remove election-related contracts from its platform or comply with CFTC transparency guidelines while limiting participation to US citizens. However, given the size of the market and the potential financial losses for Polymarket, the shareholders will more than likely object to the terms. To enhance Kalshi's reliability as a forecasting tool, it should incorporate methodologies similar to traditional polling, such as requiring demographic-based questions during registration. This would improve its credibility and help address potential concerns about biases amongst users. Ultimately, the future of election betting will hinge on the legislative ability to balance market fairness with electoral integrity. Without a well-defined regulatory framework, prediction markets risk becoming tools for financial fraud and political distortion rather than legitimate predictors of political outcomes, and can erode public trust in the democratic process.

[1] Donald Trump Jr., X (Jan. 13, 2025, 10:28 AM), https://x.com/DonaldJTrumpJr/status/1878826445771813112/.

[2] Paul W. Rhode & Koleman Strumpf, Historical Presidential Betting Markets, 18 J. Econ. Persp. 127, 127-141 (2004).

[3] N.Y. Const. art. I, § 9.

[4] Caroline D. Pham, Statement of Commissioner Caroline D. Pham in Response to Polymarket Settlement, U.S. Commodity Futures Trading Comm’n (Aug. 26, 2022), https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement082622/.

[5] KALSHIEX LLC v. Commodity Futures Trading Comm’n (“CFTC”), No. 1:2023cv03257 (D.D.C. 2024), https://law.justia.com/cases/federal/district-courts/district-of-columbia/dcdce/1:2023cv03257/261465/51/.

[6] KalshiEX LLC v. Commodity Futures Trading Comm’n (“CFTC”), No. 24-5205, 2024 WL 4364204 (D.C. Cir. Oct. 2, 2024).

[7] In Re Blockratize, Inc. d/b/a Polymarket.com, CFTC No. 22-09 (Jan. 3, 2022).

[8] CFTC, No-Action Letter No. 14-130 (Oct. 29, 2014), available at https://www.cftc.gov/node/213146/.

[9] Robyn McNeil, Fact Check: Can Kalshi Users Really Wager Up to $100 Million on the Election?, Bonus.com (Nov. 4, 2024), https://www.bonus.com/news/fact-check-can-kalshi-users-really-wager-up-to-100-million-on-the-election/.

[10] Todd Shriber, Kalshi Takes Legal Action Against Nevada, New Jersey Regulators, Casino.org (Mar. 31, 2025, 1:43 PM), https://www.casino.org/news/kalshi-takes-legal-action-against-nevada-new-jersey-regulators/.

[11] Kamina Bashir, Polymarket Faces Backlash After $7 Million Market Manipulation Scandal, BeinCrypto (Mar. 26, 2025, 11:33 AM) https://beincrypto.com/polymarket-manipulation-attack-ukraine-trump-deal/.

[12] Ayesha Aziz, Polymarket Faces Backlash as $7M Ukraine Mineral Deal Bet Resolves Incorrectly, Raising Manipulation Concerns, Yahoo Finance (Mar. 26, 2025, 9:03 PM EDT), https://finance.yahoo.com/news/polymarket-faces-backlash-7m-ukraine-010306627.html?fr=yhssrp_catchall.