HARRISBURG, Pa. (AP) — Trading on prediction markets is increasing significantly during the election season, particularly in major races this fall, as states consider banning these platforms, which they view as unlicensed casinos. Concerns are growing among election administrators about how these financial incentives might impact American democracy and voter confidence.
This year, prediction market odds have become intertwined with actual elections, prompting discussions among election officials who have long dealt with misinformation. Jared DeMarinis, the administrator for the Maryland State Board of Elections, stated, "This is a troubling trend that election administrators across the nation must deal with."
Platforms like Polymarket and Kalshi allow users to buy and sell contracts based on the likelihood of various events, with prices typically ranging from 1 to 99 cents. These markets cover a wide array of elections, including mayoral, gubernatorial, and U.S. Senate races.
The rise in prediction market trading coincides with President Donald Trump's push for changes to voter identification and mail-in voting procedures, which he claims are necessary to combat alleged fraud. Officials from Kalshi and Polymarket argue that their platforms do not pose a threat to elections, likening their activities to stock trading.
Joshua Mitts, a professor at Columbia Law School, noted, "One can make the argument that the entire stock market, at some level, is affected by elections and outcomes."
Kalshi and Polymarket assert that they have measures in place to prevent insider trading, as required by federal law. Kalshi recently suspended and fined a North Carolina congressional candidate for trading on her own race. They claim their markets correlate strongly with actual outcomes, with events rated at a 60% chance occurring nearly 60% of the time.
However, prediction markets have faced criticism this year, such as a case where they favored a losing candidate in a Wisconsin gubernatorial primary. Additionally, during the Los Angeles mayoral primary, some accused election officials of manipulation based on market odds.
Litigation is ongoing regarding whether states can regulate or ban prediction markets under existing gambling laws. Many states have laws prohibiting betting on elections to ensure that voting is based on candidate merit rather than financial incentives.
Election administrators are discussing the need to educate the public about the differences between prediction market odds and traditional polls. In Delaware County, Pennsylvania, elections director Jim Allen proposed adding prediction market trading to the oath that election workers must take.
DeMarinis plans to request a similar requirement statewide. Analysts are concerned that prediction markets could be manipulated to influence voter behavior, with wealthy individuals potentially inflating odds for favored candidates to sway public opinion.
Research by behavioral economist Colin Camerer suggests that large bets can influence others to follow suit, temporarily skewing odds. However, prediction market officials maintain that such manipulation is unlikely to succeed in a highly liquid market.
Mitts cautioned that candidates encouraging bets on themselves could create complications for election integrity, especially in closely contested races. This situation presents challenges for law enforcement and raises questions about the future of prediction markets in the electoral process.