I just made a documentary about prediction markets. The thesis was clean: people bet real money on what they think will happen and the crowd’s price tells you what the informed money actually believes.
Polymarket called the 2024 election at 95% while the networks were still hedging. The case for accuracy is strong.
Something kept nagging me while I was editing the documentary.
The model goes back to Friedrich Hayek’s 1945 essay “The Use of Knowledge in Society.” The information relevant to a complex decision is scattered across millions of people. Market prices aggregate those fragments.
When traders put money behind their beliefs, the price becomes a live probability estimate. A thermometer reading the temperature of collective knowledge.
The model assumes the thermometer is passive. It reads. It reports. It stays out of the way.
But Polymarket’s odds shaped the conversation long before election night. Months before the vote:
- Pundits cited them
- Donors saw them and reallocated
- Volunteers recalculated whether it’s worth knocking on doors
The price shaped fundraising, enthusiasm and momentum. By the time it hit 95%, the loop had been running for months.
The price becomes a force in the outcome it claims to measure.
The thermometer changed the temperature.
The documentary celebrates prediction markets going mainstream. ICE, the parent company of the NYSE, invested two billion dollars. Kalshi won its CFTC battle. Robinhood embedded contracts in its app.
Mainstream adoption means more participants, more liquidity, more information. That’s what makes the price accurate.
Mainstream adoption also means more people see the price. More media outlets report it. More decision-makers respond to it. The price starts influencing the thing it claims to measure.
The same force that makes the price accurate moves the outcome.
This pattern shows up in other markets. In the stock market, a rising price gives the company cheaper capital and easier hiring. The stock price becomes part of the company’s value. The counterargument for elections: a ballot is a ballot regardless of what Polymarket says.
True. But voters see the odds and update their behavior.
- Donors give less to the candidate trailing at 35%
- Undecided voters reconsider
- Volunteers skip the rally
The ballot count runs on votes. The voters run on information, including the odds.
George Soros understood this pattern decades before prediction markets went mainstream. In 1992, he saw that the British pound was locked into the European Exchange Rate Mechanism at a rate the economy couldn’t sustain. He shorted ten billion dollars in pounds. His bet created downward pressure. Other traders saw the pressure and followed. The Bank of England couldn’t defend the peg. The pound collapsed. Soros made over a billion dollars in a single day.
He called the pattern reflexivity. His bet predicted the pound would fall. It also helped make it fall.
Prediction markets work the same way. The more people trust the price, the more the price shapes the outcome it claims to track.
I covered prediction markets for Trends.vc and made the documentary.
I believe the core thesis: crowds with skin in the game produce better forecasts than “experts.” I also think it has a hole: what people believe will happen influences what actually happens. The more people who trust the price, the more the price shapes what happens next. Soros made a billion dollars because he understood this before everyone else did.
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Which of your beliefs is already shaping what happens next?
