Is Investing in Prediction Markets Worth It?

Prediction markets are inescapable. If you crack open your brokerage app, you’ll likely encounter them: Robinhood hosts a prediction markets hub, as do Coinbase, Webull, Interactive Brokers, and Tastytrade. A lot of those trades routed through the apps flow to Kalshi, a federally licensed exchange that now pays interest on idle cash that users keep in the app, much like a traditional brokerage would.

The message is loud and clear: prediction markets constitute a fresh breed of investment, and you should jump in if you want to chase outsized returns. So, should prediction markets be part of your investment portfolio?

Well … not exactly.

When you buy a stock, you own a sliver of a company. Picture an apple—each slice represents a share you purchase to possess the whole fruit. The entire apple corresponds to the company. The company crafts goods, sells them to consumers, earns profits from those sales, and eventually, some of that profit returns to you as dividends or as a higher stock price when you sell. With a bond, you’re lending money to an entity—perhaps the U.S. government or Amazon—and you receive interest in return. Both stocks and bonds rest on underlying fundamentals that create value over time.

But an event contract, which is what prediction markets trade, has nothing beneath it that builds value over time. It’s a binary wager. Suppose you believe the Kansas City Chiefs will win on Sunday and another person believes they won’t. The contract pays $1 to the winner and $0 to the loser. There’s no real productive value, no genuine earnings. It’s simply moving money from one participant to another, with the exchange taking a fee for arranging the trade. On Kalshi, the fee is 3.5 cents per dollar for a 50-cent contract, with proportionally higher fees for long-shot bets.

Imagine you put $10 on the Chiefs and the market prices the game as a coin flip (the odds are set by other traders, not Kalshi). A contract pays $1 if the Chiefs win and costs 50 cents. Your $10 buys 20 contracts. Kalshi’s fee amounts to 7 percent of the contract price times the chance you’ll lose on each contract—so 20 × $0.50 × 0.50 × 0.07, or 35 cents. So $10.35 leaves your account: $10 for the contracts and 35 cents for Kalshi. If the Chiefs win, each contract pays $1, yielding $20. After fees, that’s a $9.65 profit. If they lose, you walk away with nothing and are out $10.35.

Now repeat that 100 times. Suppose it’s a coin flip and you win 50 of those bets, collecting $20 per win. You’d total $1,000, but you paid $1,035 in fees and stake. You’re down $35, which is the sum of 100 fees at 35 cents each. Even if your win rate matches the odds, you still lose.

Michael Mauboussin, the head of consilient research at Morgan Stanley Investment Management, offers a test for judging whether something requires skill: Can someone lose on purpose? A chess grandmaster can throw a game whenever they wish. But a roulette wheel cannot be made to lose on purpose because the physical wheel governs the outcome. Mauboussin found that investing lands closer to the luck end of the spectrum than most people realize. Picking a stock resembles a slot machine more than most think, yet a stock held long enough is expected to pay you, whereas a slot machine is expected to take from you.

For a buyer, a prediction market behaves much like a slot machine. In the example above, the scenario is genuinely a coin flip. And a coin-flip scenario is the best-case scenario here, because typical users tend to perform far worse.

A team of economists led by Karl Whelan of University College Dublin analyzed more than 300,000 Kalshi contracts using data through early 2025 and found that long-shot bets are overpriced. Contracts costing under ten cents tend to lose more than half of the money users put into them. They also found that people who post offers on the site lose about 10 percent on average across all contracts, while those who click to accept the offer lose nearly 32 percent, with the worst results concentrated in long-shot bets.

The Wall Street Journal examined 1.6 million accounts on Polymarket, Kalshi’s primary competitor, and found that 67 percent of all profits on the platform went to the top 0.1 percent of accounts. That’s fewer than 2,000 traders sharing roughly $500 million, while 70 percent of users were losing money. Kalshi’s spokeswoman told the Journal that there were 2.9 losers for every winner on its platform in a recent month. The Roosevelt Institute, a progressive think tank, reviewed 400 million Kalshi trades and estimated that everyday users had lost more than $500 million since launch, with most losses tied to sports bets. Kalshi disputes this, arguing that the study mislabels “ordinary users” and “professional users.” Kalshi says more of its users profit than would at a sportsbook or by day-trading, but that doesn’t mean the majority aren’t still losing.

So who comes out ahead?

The Journal shed light on a trading firm run by college students that spends over $200,000 annually on live data feeds and servers to execute tens of thousands of Kalshi trades each day. Prediction markets are becoming increasingly institutionalized, and someone trading on their phone at halftime has no edge against that big network.

So are prediction markets all bad?

No. Once again, Kalshi does not set odds in the manner of a sportsbook. Prices emerge from a continuous ledger of what other traders are willing to pay, and the exchange collects a fee on every trade. The fee may appear small, but on major events it certainly factors in. Securities analyst Jordan Bender found Kalshi’s all-in pricing outperformed the sportsbooks during March Madness and the FIFA World Cup.

That said, these prediction contracts aren’t investments, but they do offer a genuine hedging use case. Imagine you’re a homebuilder whose year hinges on the Federal Reserve cutting rates to reduce borrowing costs and reinvigorate the housing market. You could buy contracts on Kalshi’s Fed-meeting market that pay out if the Fed does not cut rates, so even if the outcome isn’t favorable, you still receive funds from the contract. It works similarly to a farmer hedging with crop futures.

But.

The company also operates its own affiliated market maker, Kalshi Trading, which posts prices and takes the opposite side of user trades alongside firms like the Wall Street trading giant Susquehanna. At least three class-action lawsuits argue that this constitutes a “house.” Kalshi contends that the affiliate isn’t profitable and that this is a common and regulated practice, but it isn’t what “peer-to-peer” looks like.

Even better pricing doesn’t necessarily translate into better outcomes, as Jordan Bender’s analysis of data from a bet-tracking app showed. He found that the median prediction-market user lost about 8 percent between July 2025 and March 2026, which is worse than the roughly 5 percent sportsbook bettors lost. The only cohort turning a profit consisted of traders moving more than $500,000, and they made money on prediction markets rather than sportsbooks, which could have banned them. According to CoinDesk reporting, two professional bettors stated in a Citizens JMP call that the allure of prediction markets is that retail users—those betting on their phones during games—provide the liquidity.

And there’s no genuine hedging taking place. Prediction markets began as venues for election bets, but today they’re largely a sportsbook-centric arena. The 9th Circuit Court of Appeals ruled against Kalshi last month in a suit brought by the state of Nevada, concluding that sports represented more than 90 percent of Kalshi’s trades and about 95 percent of its revenue in 2025. Since sports betting is regulated by states, states have stepped in to regulate it themselves.

Kalshi earned the right to operate election markets in 2024, when a federal judge in Washington, D.C., determined that betting on elections did not constitute “gaming” under the law governing commodities exchanges. Regulators appealed, then dropped the appeal in May 2025 under new leadership. Kalshi began listing sports contracts that January, and by March several states sought to force the platform to halt those activities, since sports betting is typically regulated at the state level.

Kalshi argued that it is an event-contract company regulated by the Commodity Futures Trading Commission (CFTC), and that federal licensing supersedes state gambling laws. The CFTC agrees and has sued Illinois, Connecticut, and Arizona, which have issued cease-and-desist letters to Kalshi and other prediction-market operators. President Donald Trump weighed in in May, saying the CFTC should be the sole regulator.

The courts remain divided. More than a dozen states are locked in litigation with Kalshi, some as plaintiffs and others because Kalshi sued them first. A bipartisan coalition of nearly 40 attorneys general filed a brief supporting the states. On April 6, the 3rd Circuit sided with Kalshi and blocked New Jersey. On August 28, the 9th Circuit ruled in Nevada’s favor, finding that a contract on who wins a football game constitutes betting. The opinion quotes Kalshi’s ad that claimed it was “the first app for legal sports betting in all 50 states.” The Supreme Court is likely to become involved, leaving the legal landscape tangled with numerous lawsuits and potential prohibitions.

Gambling remains a state matter, and the 9th Circuit’s reasoning is that sports contracts offered by prediction markets are gambling and should be regulated as such. A federal agency’s blessing of a product should not strip Nevada of its authority to regulate sports betting within its borders. States deserve a say.

So how can this be fixed?

The first remedy is to abandon the parlay-style bets. Kalshi calls them “combos,” where you link several bets—Chiefs to win, game total above a threshold, quarterback to throw two touchdowns, and a majestic eagle crossing the skyline—and you only win if every single component hits. The odds deteriorate with more legs, and the Roosevelt Institute found that these accounted for more than $100 million of losses by everyday users (Kalshi’s own accuracy study excludes them entirely).

The second remedy is to rethink what’s offered and how it’s offered. The historian Jonathan D. Cohen, author of Losing Big, which documents how legal sports betting affected a generation of young men, offered a practical list when I spoke with him last year. “I don’t think you should be able to wager on minor-league British darts. I don’t think you should be able to bet as much as you want without providing proof of income and financial standing.” Prediction markets should be more selective about the markets they host, impose a deposit waiting period, and perform an affordability check before people stake substantial sums.

Polymarket released a commercial featuring LeBron James and Eli Manning that reframes sports betting as “sports trading” and betting as “buying.” Increasingly, more money is funneled into marketing these products as something that belongs in an investment portfolio. But the math behind it does not justify the claim.

Among the best-performing food brands in a year dominated by AI headlines is a nearly 130-year-old jam maker from Orrville, Ohio. It produces Folgers, Dunkin coffee, Jif peanut butter, Smucker’s preserves, Hostess snacks, Milk-Bone, and Meow Mix, yet its biggest growth story is a crust-free frozen peanut-butter sandwich.

J.M. Smucker disclosed last month that Uncrustables sales rose 12 percent year over year. The share of U.S. households purchasing them has continued to climb—household penetration sits at 27 percent, according to the latest earnings release—and the brand surpassed $1 billion in annual sales in fiscal 2026. Smucker has rolled out several innovations for Uncrustables, including a peanut butter and raspberry spread alongside a higher-protein variant (savvy about the protein trend).

The company also captured $115 million in tariff refunds, which it’s reinvesting in marketing and debt reduction. The stock has risen nearly 40 percent this year. In a world obsessed with AI, a crustless sandwich might serve as a prudent hedge.

The share of Americans either employed or actively seeking work fell by 0.9 percentage points to 61.6 percent between December 2025 and June 2026. Excluding the pandemic era, that’s the lowest figure since 1976, and it helps explain why unemployment hovers near 4 percent. Fewer job seekers translate into fewer people counted as unemployed, nudging the jobless rate lower.

There’s a common interpretation that people are abandoning the labor market. Alexander Bick at the St. Louis Federal Reserve broke the 0.9-point drop into components: about 0.35 points come from a bookkeeping adjustment with updated population estimates. Fewer working-age immigrants and more people aged 65+ mean the survey is reweighted, pulling the participation rate down. Another 0.14 points are due to aging, which subtracts roughly a quarter-point each year. That leaves about 0.33 points of people exiting the labor force, nearly all of it concentrated in June.

The August employment report showed labor-force participation bouncing back to 61.6 percent from 61.4 percent in July, with 683,000 individuals rejoining the labor force. Yet participation remains about 0.5 points below January levels, and the prevailing trends—an aging population and tighter immigration policies—suggest this challenge could worsen before it improves.