The Hidden House: Prediction Markets and How They’re Shaping Society

Prediction markets offering contracts on virtually every topic—from sports and politics to weather and current events—are one of the fastest-growing industries in the United States. Their spreading popularity raises key concerns: Who wins and loses in these markets? How is their operation shaping our society? And what rules do we need to manage them? 

In a new four-part series, The Hidden House: Prediction Markets and How They’re Shaping Society, we’re exploring all of these questions and more.

• The first installment explains how ordinary participants in prediction markets systematically lose money to the most sophisticated traders, who use distinct methods to capture the vast majority of gains.
• The second looks beyond the consumers who participate in prediction markets to the effects these markets are having on our society more broadly.
• Next, we’ll show how rapidly embedded these markets are becoming throughout key institutions such as the media, finance, and sports, highlighting the threat of path dependence—the idea that decisions made early on in the trajectory of an institution can make changing course later on harder to achieve—and the consequent urgency of regulation.
• The final installment will compare the rules that apply to prediction markets to those that apply to traditional gambling.