00:00Chris, when we think about some of the narratives, whether it's AI and just different things that are constantly coming
00:04into so many different stories,
00:05I feel like the prediction markets are increasingly creeping into so many different stories.
00:10I am curious, as the financial establishment is increasingly talking about it,
00:15tell us first about what your mission was.
00:17What was your assignment for Business Week to figure out on this?
00:20Because we've had lots of conversations, but everything feels a little loosey-goosey right now.
00:24Yeah. One reason I was drawn to this topic is that there's so many different ways to come at prediction
00:30markets.
00:31But to me, the most interesting question here was, so these companies, CalSheet, Polymarket,
00:38the way they pitch themselves is as sources of truth, that this is going to be in a world where
00:44we can't agree on what's true, what's real, what's not, deep fakes, what have you.
00:50So, prediction markets are going to be something that we can trust more than the news, more than pundits.
00:58And I was just interested in to what extent that is true.
01:03And as it turns out, in a lot of cases, prediction markets can be quite accurate.
01:09You know, they're really good at predicting the outcomes of elections, especially large elections.
01:14I was going to say, 2024, got it right.
01:15Right. Yeah. And especially at the top of the ballot, scholars have shown that prediction markets are a lot more
01:23accurate than polls, less so as you go down the ballot.
01:26But I was also interested in the various ways that these prediction markets can be flawed.
01:33You know, there can be market manipulation.
01:35There can be insider trading.
01:37So that's what I wanted to explore.
01:39We want to talk about those flaws.
01:40But funnily enough, as they say, we were actually doing a segment on Warner Brothers' discovery earlier, like who's ultimately
01:47going to get the deal.
01:47And we did go to Polymarket to see on that.
01:50I just want to mention some headlines crossing the Bloomberg terminal because they continue to come.
01:54Warner Brothers says Paramount has boosted its bid to $31 a share in cash.
02:00So they're confirming the receipt of a revised Paramount proposal.
02:05Warner Brothers says the revised bid includes a $7 billion termination fee.
02:10And Warner Brothers says Paramount proposal could lead to a superior bid.
02:15And we know the Warner Brothers board is still recommending the Netflix transaction.
02:19So this continues on.
02:20So anyway, these are the kind of things, though, that are showing up on Polymarket.
02:24Is there a prediction for when this story ends?
02:27Because this has been going on for a long time.
02:28I feel like it just keeps going over, new and new bids.
02:31You get into the fraud aspect, and I think we are thinking about people who are maybe, you know, creating
02:39a bid or something and has some control over the outcome.
02:42That's a real issue.
02:44Absolutely.
02:45There's a lot of markets, especially we can get into some of the differences between CalSHI and Polymarket.
02:52There are differences, right?
02:53There are huge differences.
02:55CalSHI is entirely U.S.-based.
02:57It's regulated by the CFTC.
03:00So every market that they post needs to be at least run by the CFTC for approval.
03:07Whereas Polymarket, most of their activity is overseas, and so it's not regulated by the CFTC.
03:13So when you hear about some of the fringier markets out there, like, you know, will Jesus return in 2026?
03:20Will the U.S. discover aliens in 2026?
03:22Wait, this is fringy?
03:24Wait!
03:25Only kidding.
03:25It depends.
03:26We are getting some release from the White House, my understanding, when it comes to aliens, but that's another story.
03:31But go ahead.
03:31Yeah.
03:32I mean, those kinds of markets tend to be more on Polymarket because they would not pass muster with the
03:38CFTC.
03:38Does it make, though, the other stuff that's on the, like, any less real?
03:43Like, I don't know.
03:44I don't even know how to, like, how do you gauge the credibility of what's here?
03:49The credibility of what?
03:49Like, if Jesus is back?
03:53Is it just a game?
03:56Yeah.
03:57I would say...
03:58Like, is there any real information?
04:00Like, are there people who know what the outcome, and this goes back to...
04:03There's a spectrum of markets here.
04:06Okay.
04:06So, you'll not be surprised to learn that these companies, Calci, Polymarket, they like to emphasize the more serious markets
04:14where you can predict the outcome of elections, or you can predict what inflation is going to be, or, you
04:20know, what the Fed is going to do next quarter.
04:24And they argue that those markets actually can provide useful, predictive information to help people make decisions in the world.
04:34That's one end of the spectrum.
04:35The other end of the spectrum is much more kind of almost entertainment, like predicting whether aliens are going to
04:41appear.
04:41Well, there's also the sports betting part of this, or maybe predicting outcomes of sporting events.
04:47I don't want to say betting because I don't want to... I don't know if it is betting, but you
04:51have told me in the past that in reporting this story, you did place a bet on one of these,
04:57right?
04:57For the Patriots?
04:58Yeah, yeah.
04:59Which turned out to be a huge mistake.
05:01But yes, this is...
05:03So, the vast majority of the activity that happens on Calci is sports betting.
05:10And I think it's okay to use that word.
05:13Something like 80% or 90% of Calci is sports.
05:19Polymarket, 100% of its U.S. activity is sports-focused.
05:23Overseas is a different story.
05:25So, 100% of what you see on Polymarket in the U.S.
05:29In the U.S.
05:29Is sports-focused.
05:30Correct.
05:30Because those are the only markets they've gotten approved by the CFTC.
05:34So, then, why are people using that instead of FanDuel or DraftKings?
05:41Part of it is just the interface is a lot simpler.
05:44Like, if you go into FanDuel or DraftKings, there's a lot of complex measurements, and, you know, you have to
05:52know what a spread is, and you have to...
05:54It gives you the options to parlay different bets within a football game.
05:58Whereas, with Calci or Polymarket, it's very simple.
06:02It's, do you think this team is going to win or not?
06:05And you can make more complex bets, but it's a lot more user-friendly.
06:10You earlier referenced, and we'll talk about mentioned markets in a few minutes, but you earlier referenced the accuracy of
06:16these, especially at the top of the ballot in the scholarly articles that have cited this as being more accurate
06:21than polling.
06:22Why is that?
06:24Is it because, as proponents say, people are putting money where their mouth is?
06:29And that was kind of to my question, like, what is...
06:31Like, what's unique about the...
06:32What's the value, and, like, do they really have some insight that is valuable?
06:36Because it was pretty remarkable in some of the elections, right?
06:39Yeah.
06:40I think what it comes down to is polling and prediction markets are just completely different ways of collecting information.
06:47Polling, you're asking people what their personal opinion is.
06:50And polling, especially in the last decade or two, has in some ways gotten worse and worse because of, you
06:58know, cell phones and, you know, who responds and who doesn't.
07:02Whereas prediction markets, you're asking a different question.
07:04You're asking them, regardless of your opinion of who should win an election, what is going to happen?
07:11What do you think other people are going to do?
07:13And so, really, the idea is that you're aggregating information, like any market, but here you're aggregating different pieces of
07:24understanding about the election and how it'll play out.
07:27You know, as you speak about this, I'm thinking to a site like Wikipedia that uses the wisdom of the
07:34crowd, supposedly.
07:35This is also supposed to use the wisdom of the crowd, but Wikipedia gets in trouble for bias.
07:40Is it possible to have bias in prediction markets?
07:43Um, yes, is the short answer.
07:46And the smaller the market, the more risk there is for bias.
07:50Like, a couple years ago, when these markets were very small, some academics went on to a few election markets
07:58and placed bets, and that skewed the results.
08:01And as a result, they said, you know, this proves that these markets are not reliable.
08:05But as they've gotten bigger and bigger, you know, the presidential market for the election of 2024 was, you know,
08:13millions and millions of dollars.
08:16That potential for manipulation has been greatly reduced.
08:21We're talking with Chris Beam, contributor for Bloomberg Business Week here in our Bloomberg Interactive Broker Studio.
08:26This is on the Bloomberg Business Week cover story, his cover story, on how prediction markets, Polymarket, and Calci are
08:32gamifying the truth.
08:36Do they need to be regulated?
08:37Does there need to be oversight?
08:39Because are people, you can make money.
08:42So, are people gaming the system, potentially?
08:46Yeah.
08:47There is regulation already, to be clear.
08:48You're right.
08:49You did say there was.
08:50Forget it.
08:50So, the CFTC currently has authority over derivatives trading.
08:57And technically, these are called event contracts.
08:59That's a type of derivative.
09:01Right.
09:01So, the CFTC is in charge of what contracts are allowed and what are not.
09:07As you might know, there's this huge debate over whether the states should regulate these prediction markets as gambling.
09:15And that would be much tighter.
09:17It would be, it would probably mean taxing them a lot more than they are currently.
09:23Yeah, I mean, because to be fair, the gambling platforms, the traditional ones pay, are taxed in a way that
09:28these aren't taxed for sports betting, right?
09:31Yeah, yeah.
09:32I think when you bet on Polymarket or Calci, it's taxed as just regular income.
09:38So, let's just briefly mention mention markets.
09:41I love the way the piece opens, talking about this, what happened with Jerome Powell and this mention markets around
09:46Jerome Powell.
09:47That's sort of our audience.
09:48Explain what happened with the utterance of a word by mistake.
09:52We only have, unfortunately, about a minute or so.
09:53Oh, sure.
09:54So, you know, people know that every word that Jerome Powell says in a speech can move markets.
10:02But in this case, you have traders on Polymarket and Calci watching a speech, paying attention to literally what words
10:09will come out of his mouth.
10:10And so, you know, you had people betting that he was going to say the word renovation because they thought
10:18he might be talking about the DOJ investigation.
10:22It turns out he did end up saying it, but a lot of people didn't realize it until after the
10:28fact.
10:28So, there was this whole debate, did he actually say the word, which reveals one of the problems that comes
10:36up with these markets, which is it can often be hard to tell what the actual factual outcome is.
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