Prediction markets seem to be everywhere these days. Now you can bet not only on the outcomes of sporting events, but also elections, wars, and natural disasters. Yet many people react to these markets with disgust. For instance, in a recent article in Jacobin, political commentator David Moscrop calls them “demented” and “grotesque.”
The main moral objection to prediction markets seems to be that it’s wrong to profit from someone’s misfortune. And intuitively there does seem to be something immoral about raking in thousands of dollars because you correctly predicted that a hurricane would hit a particular city or a particular war would break out, resulting in tremendous amounts of suffering. As Moscrop puts it, “Bettors will hold financial stakes in particular outcomes, including some of the most heinous events imaginable. It’s a fundamentally cynical and dehumanizing turn.” But as natural as the gut-level unease with prediction markets is, we shouldn’t trust it. Prediction markets are both useful and morally benign.
Prediction markets are useful precisely because they incentivize accurate forecasting. The prospect of making or losing money gives participants a strong reason to seek out new information and to process that information in an unbiased way. Think about sports betting. When you don’t have any money on the line, you probably indulge in wishful thinking that your favorite team is going to win this week, even though they’re 14 point underdogs. But if you suddenly stood to lose $1,000 if you turn out to be wrong, you’ll quickly start to think more rationally about the team’s chances.
In short, prediction markets tend to deliver accurate forecasts for the simple reason that they reward accuracy and punish inaccuracy. And at the risk of making an obvious point, accurate forecasts are useful because people plan their lives around expectations about what the future holds. For instance, if you live in an area where a hurricane will hit or a war will start, that’s important information for you to know. It could quite literally be lifesaving.
This point also helps explain why you shouldn’t accept the objection that prediction markets are morally bad because they enable people to profit from catastrophes. As the ethicists Jason Brennan and Peter Jaworski have noted, many people routinely make money by accurately predicting bad things will happen without the use of prediction markets, and no one finds them immoral. Meteorologists make money forecasting hurricanes, epidemiologists make money forecasting disease outbreaks, political analysts make money forecasting electoral outcomes and wars, and so on.
The reason why no one thinks that these forecasters are doing something morally wrong is because, as already mentioned, accurately predicting bad events is actually beneficial; accurate predictions of bad events help people prepare for the bad events. (This should go without saying, but the fact that someone earns money by being right about something bad happening doesn’t mean they caused it or wanted it to happen.) Maybe the action of the bettor feels different than the action of the meteorologist, but morally, it’s the same. Someone who correctly predicts hurricanes and profits by getting a job with the Weather Channel “makes money from a catastrophe” just as much as someone who correctly predicts hurricanes and profits by placing bets on Kalshi.
You might worry that prediction markets incentivize what is in effect insider trading — they reward people for acting on information others don’t have. But that’s a feature, not a bug. If you see someone place a huge bet on an outcome that seems highly unlikely, that suggests that the outcome is more likely than you thought; maybe someone has inside information that makes them confident it’s going to happen. You don’t have to act on this signal, of course, but at least you have it in case you want to.
Critics of prediction markets also overlook the possibility that the money bettors earn can be used to mitigate the harms of the very disasters they predict. Suppose someone correctly predicts that a hurricane will make landfall and profits from a prediction market as a result. They now have additional resources that can be used to mitigate the suffering caused by the hurricane. They can donate to emergency relief, help fund rebuilding efforts, support local clinics, or contribute to flood mitigation projects. So if you’re concerned that a catastrophe is likely to occur, making an accurate prediction and allocating your winnings to help those harmed by the catastrophe is far more productive than simply watching it unfold.
Lastly, consider the objection that using prediction markets isn’t immoral, but self-destructive. These markets allow people to make risky bets that they might lose and, in turn, put them in serious financial straits.
Note, though, that it doesn’t follow from the fact that prediction markets enable people to take unwise financial risks that government officials should ban them. Suppose your neighbor asks you to make a large investment in her startup producing perpetual motion machines. That investment would be an unwise financial risk to say the least. Nevertheless, government officials shouldn’t intervene because you have the right to take that risk. It’s your money after all.
Prediction markets don’t cause or celebrate disasters, nor do they force people to gamble recklessly. Instead, they allow people to test their predictions in a system that rewards them for being right and penalizes them for being wrong. The result is accurate information that others can use to help plan their lives. If anything, that’s a positive moral good.
