The term “prediction market” sounds so scientific, doesn’t it? Like “derivatives,” the financial instrument they resemble. On platforms like Polymarket and Kalshi, people place a bet on the likelihood of certain outcomes, whether political or sporting or anything else (want to bet on whether Jesus will return this year?). But the term “bet” in the previous sentence reveals what prediction markets actually are: Betting. In other words, gambling. Is that bad? After all, the stock market is a form of betting, and millions of people trade stocks. The same goes for other markets — currencies, commodities, etc. Derivatives like “puts” and “calls” let you bet on whether a certain stock will rise or fall without having to actually buy or sell it; instead, what you buy is the option to buy or sell it at some future date. You can also hedge bets by selling a stock “short,” meaning you borrow shares and then sell them, assuming that the price is going to fall.
Sounds like gambling, doesn’t it? However, it is also regulated, and in the past, traders needed to pass a variety of tests to engage in it, and investors had to pass certain requirements before they would be taken on as clients. The investment industry was in many ways a kind of priesthood. Over time, the barriers to trading stocks and pretty much anything else have been steadily lowered — thanks in part to regulation, and in part to the internet. Now, anyone can open an e-trading account and trade stocks with the click of a button on a mobile app. Firms like Robinhood have become huge by offering this ability to anyone, no matter how ignorant they might be about the stock market, and the result has been a kind of viral storm around certain “meme” stocks, with GameStop being the poster child. In 2021 it soared in value based largely on vibes.

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