Can We Trust Election Prediction Markets?

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, podcasts, radio, news.

**Sarah Holder** (0:08)
When Matt Mahan officially entered the race for governor of California in late January, he wasn't exactly a household name.
Mahan was the mayor of San Jose, a centrist with ties to Silicon Valley. He was polling around 4 percent. But on the morning Mahan announced his candidacy, he got a boost from an unexpected place.

**Liam Vaughan** (0:30)
On Polymarket, which is the preeminent political prediction market in the world, there's suddenly a trade for $44,000 that comes into that market to back Mahan's candidacy.

**Sarah Holder** (0:45)
That's Liam Vaughan, a reporter and editor on Bloomberg's investigations team based in London. He's been covering prediction markets, which allow users to bet on the outcomes of real world events.

**Liam Vaughan** (0:57)
Suddenly, his odds go from the low teens all the way up to 96 percent. You see this huge spike.

**Sarah Holder** (1:05)
If you bet 96 cents that Mahan would win, you'd get paid out $1 if he did. But before that big bet, you only needed to bet about 12 cents for the same payout.

**Liam Vaughan** (1:15)
Essentially, the price fluctuates between and 100, and that reflects the apparent odds, according to that market, of an event happening. So when Matt Mahan's odds go from 12% to 96%, at least for a few moments, what that market's saying is there's a 96% chance that he's going to be the governor of America's largest state.

**Sarah Holder** (1:42)
Quickly, other traders on Polymarket saw an opportunity to make money. They started taking the other side of the bet, wagering that Mahan would lose.
That started pushing his odds back down.

**Liam Vaughan** (1:54)
But the interesting thing about this market is it doesn't bring it back anywhere close to where it started. It goes to 36%, which is still very high for this guy who hasn't got much name recognition in a market full of very big, big names. And so immediately you start to see press coverage.
For example, in the New York Post, there's a piece that runs that afternoon that says Smart Money is backing Matt Mahan for California governor.

**Sarah Holder** (2:24)
Mahan did not respond to requests for comment. Ultimately, his Polymarket bump wasn't enough to win him the primary.

**Liam Vaughan** (2:31)
But eventually, kind of gravity caught up. Other candidates with more money and more name recognition prevailed. And ultimately, Mahan kind of quietly exited stage left.

**Sarah Holder** (2:43)
But the $44,000 question remained. Who had made the bet?

**Liam Vaughan** (2:48)
We don't know very much. And I think that that's telling in and of itself, because Polymarket is crypto-based. So the authorities don't know who it is. And unless this individual comes forward, nobody else knows who it is.

**Sarah Holder** (3:00)
Whoever it was had shaped the conversation around a major primary race with one big Polymarket bet. And with the US midterms fast approaching, it's just one example of how prediction markets could be gained in elections.

**Liam Vaughan** (3:15)
What's fascinating to me about this incident is that it highlights the inherent vulnerability of some of these markets to manipulation.
And so the questions that I was keen to explore were like, well, how is that able to happen? What safeguards are in place to stop it happening? And as we go into the midterms and elections globally, is this something that we're going to see much more of?

**Sarah Holder** (3:44)
I'm Sarah Holder, and this is the Big Take from Bloomberg News. Today on the show, the dangers of mixing prediction markets with politics.
Until relatively recently, gambling on politics wasn't allowed in the US.

**Liam Vaughan** (4:03)
Previously, there was only a couple of forums that were allowing political gambling, and they were associated with universities. And so it was studied, like, can these things reveal good information, and are they useful forecasting tools?

**Sarah Holder** (4:17)
For years, that restriction on political betting was enforced by the Commodity Futures Trading Commission, the federal agency responsible for regulating derivatives markets in the US. But in 2023, Kalshi, the largest prediction market platform in the US, and Polymarket's chief competitor, pushed for those restrictions to be loosened.

**Liam Vaughan** (4:38)
The CFTC undertakes a review, and ultimately it concludes, as its predecessors had, that this is a bad idea, that it's against the public interest, that it's going to potentially encourage people to either try and make money from democracy or try and influence the outcome of elections, and therefore it should be banned. That then goes before a judge. But ultimately the judge decided betting on politics is not gambling or it's not gaming as it's written in the statute.