Chapter 1: What is the main topic discussed in this episode?
Hello, and welcome to Decoder. I'm Nilay Patel, editor-in-chief of The Verge, and Decoder is my show about big ideas and other problems. Today, let's talk about prediction markets, which continue to insert themselves into the news cycle and the news in increasingly weird, unsettling, and potentially illegal ways.
My guest today is Liz Lopato, a senior reporter here at The Verge who owns what we cheerfully call the Chaos Beat. Liz has been writing a lot about prediction markets lately, and especially why they all seem so intent on being perceived as sources of news. A position which directly incentivizes insider trading, which in turn creates a long list of very predictable problems.
For example, this past weekend after the United States and Israel went to war with Iran, leading prediction market platforms Kalshi and Polymarket erupted with activity. That included extremely contentious markets around the death of Iran's supreme leader, and some that appeared to be rife with insider trading from people with advanced knowledge of U.S.
Chapter 2: What are prediction markets and how do they function?
military actions. That's right. In 2026, you can, from the comfort of your couch, wager on when the United States will bomb a foreign country. And for Kalshi and Polymarket, that's quite literally the business model, betting on anything. Right now, sports is where they make most of their money, which is why both companies are in the crosshairs of so many state gambling authorities.
But this industry thinks of itself as something far grander. Prediction market players want to be the news, and they've devised new, frankly unconvincing frameworks for why they should be considered legitimate sources of information, instead of just anything goes casinos. Kalshi's tagline is trade on what you know. Polymarket CEO Shane Copeland has called insider trading, quote, cool.
And later on in this episode, you'll hear from Robinhood CEO Vlad Tenev, who came on the show last year to defend prediction markets as, quote, the news faster, in some cases before it even happens. Which, the last time I checked, is impossible to pull off without insider trading. Insider trading is supposed to be illegal, as is operating an unregulated sportsbook.
So you're starting to see Kalshi and Polymarket get hit from both sides of this broader regulatory debate. And 2026 is shaping up to be the year that all of it really comes to a head. To what end? It's hard to say, especially as these companies cozy up to the Trump administration.
But it's also becoming increasingly untenable for prediction markets to sit in the middle of the tension between gambling on the news and trying to self-regulate, such that they don't encourage insider trading. One quick note before we start. You can listen to this episode or any episode of Decoder completely ad-free by subscribing to The Verge. Just go to theverge.com slash subscribe.
Okay, Verge senior reporter Liz Lopato on prediction markets, gambling, and the news. Here we go. Liz Lopato, you're a senior reporter at The Verge. Welcome back to Decoder. Thank you. It's good to be back. I'm excited to talk to you about gambling. I think we're just going to talk about gambling.
I'm saying gambling because I know the people who run prediction markets hate it when we call it gambling, and I'm trying to bait them into talking to either you or me for a piece on the difference between prediction markets and gambling. What do you think the difference is? I don't think there is one.
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Chapter 3: How do prediction markets influence news and insider trading?
I'm just being honest here. I think the structural difference is what they'll point to, which is that on a prediction market, it's a contract between independent players. And with a casino, you're betting against the house. And so they're just taking a cut of these contracts rather than playing against the players.
One of the reasons you're on the show this week is because prediction markets are moving ever more aggressively into news. The inciting event here is Polymarket and Substack have launched a joint venture by which Substack writers can integrate Polymarket odds into whatever they're doing. They might get paid for that. They might not.
The tagline for this is journalism is better when it's backed by live markets. I've been staring at that tagline for a long time. What do you think is made better by live markets in the context of journalism? Well, first of all, Neil, I think we have Bloomberg at home.
But second, in the sense that markets and journalism have anything to do with each other, it is pretty much only markets reporting, right? If you're reporting on, say, the stock market, and part of your job is to put together the big movers of the day, and somebody publishes an expose on a company that sends its shares plunging, those things are sort of synergistic.
I don't understand what these contracts would have to do with news, except in a very specific context having to do with politics. And that context is basically trying to figure out who's going to win an election. Obviously, who's going to win the election is something that there are odds made about every single day. Politics coverage in many ways, you can criticize it in a lot of ways.
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Chapter 4: What controversial events have occurred in prediction markets recently?
But predicting whether or not someone's up or down or whether some candidate is on the rise such they might win an election, that's just a core part of political coverage. And the idea that you should be able to bet on that. has gone through long periods of uncertainty. Mostly we've said that's a bad idea. I think these prediction markets are saying, no, it's a pretty good idea.
There's some kernel of the conventional wisdom embedded there that is more rigorous because the money provides stakes to your bet. And those stakes means that you believe what you say is true versus just lying to a pollster. Do you think any of that holds water? No. Let me start by just explaining something.
Like that explanation you gave me about like money stakes when you believe something, that comes from economists. And I just want to be super clear. Like one thing about economists is that they tend to discover like 50 years later stuff that psychologists and sociologists have already known the whole time.
One of the things that we know from psychology is that there are a lot of people who get involved in betting and just bet for the pure...
feeling of being in a flow state and like we know a great deal about this because casinos run on this right like they they do what they can to keep you in this flow state so that you'll keep betting and keep losing money slot machines are like the ideal way of looking at it and so while prediction markets are not slot machines i do want to be clear about that they share some of these basic mechanisms specifically intermittent reinforcement so if you are somebody who's like
out there very serious about your prediction markets, you may not be betting because you believe in something. You may be betting just to bet, just to be involved, to be part of the action because you can't win if you don't play. You wrote a long piece for us this week really unpacking from the beginning what the difference between news and events and pseudo events is.
There's some philosophy embedded in there in classic Liz Lopato fashion. Let's start at the very beginning. This is a hilarious conversation for you and I to be having, but I'm going to ask, what do you think the word news means and why are we having to redefine news in the context of prediction markets? If I were to give you like a pithy statement, it's very recent history.
I'm giving you the history of events that occurred really recently, like as recently as yesterday or 20 minutes ago. But the primary thing that you have to keep in mind is that these events occurred.
And if you look at the history of news, and I go into this more in the piece, maybe more than people want, it sort of evolves from trying to keep track of what's going on in either governments or trade. And so you're keeping track of specific events in order to orient yourself in the world. That is what news is. And at the very bottom, you know, it's about events.
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Chapter 5: How do prediction markets differentiate themselves from gambling?
I have never in my entire career given anyone a dollar for anything. It creates this weird, perverse incentive when it comes to knowledge of wrongdoing, in part because now you can make money off of that instead of just trying to live in a society.
So when you see a Substack or CNN or any of the other news organizations that are partnering with prediction markets, loudly announce their partnership, are they just undercutting their own newsroom? Or are they getting a better, more direct sense that actually some insiders think something is going to happen? I definitely think they're undercutting their own newsroom, right?
Like they're not only sort of legitimizing the prediction markets by saying, hey, these are our partners. We're endorsing them. But they're also, you know, using the information in those prediction markets in order to make the news, which, you know, in the world of pseudo events can create like this weird Ouroboros where, you
Prediction markets say, let's say, that Apple is going to buy Microsoft at thus and such date. And there's a big, weird trade on it, so that becomes news, which then folds back into the prediction market and changes the odds, which then, again, becomes news. And this sort of round and about monetization of what is essentially a rumor mill... I think it's a problem.
And, you know, that's with something like CNN, where you have people who are actually paying attention to what counts and what matters. And like with Substack, there are real reporters on Substack. And I don't want to pretend that there aren't. There definitely are people who are reliable there. But at the same time, there are a bunch of people who are just like...
whoever, like just some people, you know, if they are making news, but nobody's checking to see if it's true, you wind up with situations like we've seen with the prediction markets a couple of times now where somebody makes up a Jeff Bezos quote, it's not real. And Bezos has to come out and deny it.
So like, there's just like a way of polluting the information environment that I think this really contributes to. Why do you think Polymarket and Kalshi are so motivated to say that they're news instead of just saying that they are prediction markets?
There's something there, right, where they are absolutely drawn to insisting that they're the news, that the thing that they're giving you is information before it happens. What do you think that motivation is? Oh, they want to distinguish themselves from being casinos, right? A significant amount of their trading volume is not actually on stuff that matters. It's on stuff around sports.
We already have a sports betting industry, and it's already regulated in a very specific way on a state-by-state basis. Some of those state regulators are looking at the prediction markets and going, yo, you need to comply with our laws around sports betting because this is sports betting. And so these guys are trying to distinguish themselves and say, oh, no, no, no, no.
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Chapter 6: What are pseudo-events and how do they relate to news?
where the actual underlying value of the company was irrelevant to what was going on in the market. I feel good about the stock was essentially what you were saying when you bought the stock. And I like the stock famously is what the rallying cry was. So there is this sense in which reality doesn't matter. The representation of reality matters.
And for some of us who've read some French theory, this is a very uncomfortable place to be. But that's kind of where we are. And like this sort of sense of financial nihilism, especially among younger people, is a really important part of this.
Like both the increase in inflation and the decrease in opportunities has has sort of resulted in people being like, all right, well, if I ever want to be able to retire and I have to gamble and get really rich because I can't do it on my current salary. I'm just barely keeping my head above water.
I can't sock away enough that I know that I'm going to be able to live out my golden years comfortably. So if I want to ever have real money, I have to gamble somewhere. I see that all over. I see that in our audience. I certainly see that in crypto. There was a part of me that thought the meme stock phenomenon was just a bunch of bored people at home during the pandemic.
And now I'm increasingly convinced it's the entire economy in a way that is maybe not good. That said, it's still gambling. There are some states that collect a lot of revenue from legal gambling. There are some states that want these prediction markets to participate in that system so they can collect even more revenue.
There are some states, Republican states like Utah, that think gambling is immoral. And there's already a fight between Utah Governor Spencer Cox and the only commissioner on the Commodity Futures Trading Commission, Mike Selig. Mike Selig says he will prevent all states from regulating prediction markets legally. Governor Spencer Cox says, try me and find out.
We can see it in New Jersey and Nevada that they would like prediction markets to be regulated the same way as their existing gaming industries. What is the likelihood that this bipartisan coalition of states and gambling commissions and anti-gambling advocates is going to find a way to meaningfully regulate the prediction markets? Great question.
I don't know the answer to that, by the way, because, you know, again, I can tell you what happened. And one of the things that I can tell you has happened is that these prediction markets have hired Donald Trump Jr. as an advisor. And this administration is astonishingly corrupt. We've seen people have their SEC actions dropped essentially after donating to Donald Trump.
So, you know, the fact that Trump Jr. is involved tells me that the So we're going to end up in court. And how that turns out is anybody's guess. And whether or not we decide that we're going to actually enforce the court's ruling is still anybody's guess. So, you know, to be continued, I suppose. But I think for now, I expect this to continue on.
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