Prediction markets are making a 150-year comeback

Prediction market sites allow users to put money on everything from the war in Iran to the winner of the Super Bowl. But where did these markets come from? And what can that history tell us about where they might be going? Today on the show, how betting on popes and presidents long ago planted a seed for a “terrorism market” in the early 2000s, and how those early prediction markets shaped the industry that has taken hold today. Guests: Koleman Strumpf, economics professor at Wake Forest University Paul Rhode, economic historian at the University of Michigan. Robin Hanson, Associate Professor of Economics at George Mason University and systems architect for the Policy Analysis Market Robert Forsythe, Professor of Finance at Wayne State University and co-founder of the Iowa Political Stock Market To access bonus episodes and listen to Throughline sponsor-free, subscribe to Throughline+ via Apple Podcasts or at plus.npr.org/throughline. See pcm.adswizz.com https://pcm.adswizz.com for information about our collection and use of personal data for sponsorship and to manage your podcast sponsorship preferences. NPR Privacy Policy https://www.npr.org/about-npr/179878450/privacy-policy

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  This week on Up First, we're in the final days before the midterm elections. And this is one of the wonderful things about politics, one of the wonderful things about humanity. We have all this data, we have all this information, and nobody really knows what's gonna happen. We're gonna follow it day by day through Election Day and beyond. And you can listen to Up First every morning on the NPR app or wherever you get your podcasts.

• 0:25Rund Abdelfatah?

  Hey, everyone. Before we get into this week's episode, I want to share that Ramtin is no longer with the show. I'm thankful for all his hard work and dedication over the years, from creating the show with me to his contributions to countless episodes since. His storytelling, creative vision, and music were invaluable. Throughline will be continuing, and I will still be your host. The team and I will be making the show you know with the same care and curiosity. Thank you for listening. Your support means so much. And now, onto the show.

• 1:05Speaker 02

  Four hundred thousand dollars.

• 1:06Speaker 03

  Hundreds of thousands. Half a million dollars.

• 1:08Speaker 02

  Four hundred thousand dollars in profit.

• 1:11Rund Abdelfatah?

  Half a million dollars. That's how much money someone made a couple months ago on a risky bet.

• 1:18Speaker 04

  Will the US strike Iran by Saturday, February 28, 2026?

• 1:24Rund Abdelfatah?

  The answer, of course, was yes.

• 1:27Speaker 03

  The United States and Israel are carrying out major attacks against Iran today. Huge explosions rang out in the capital Tehran.

• 1:34Speaker 05

  Iran has retaliated by striking back at Israel and at US military targets across the Gulf in several Arab states.

• 1:40Rund Abdelfatah?

  And if that person's bet was a lucky guess, it was very lucky, because the odds the US was going to strike Iran that day hovered between 7 and 26%. And the better doubled down in the hours before President Trump announced the strike.

• 1:56Speaker 06

  Our objective is to defend the American people.

• 2:00Rund Abdelfatah?

  Since the beginning of the year, online traders have wagered more than $2 billion on events relating to the Iran war alone. It's all happening on prediction markets, websites where anyone can make an account and bet on the future. Yes or no questions like, will France win the World Cup? Or will the White House press secretary use the word heinous in her next news briefing? Both real wagers you could make in 2026. The two biggest prediction market sites, which everyone seems to be talking about these days.

• 2:32Speaker 02

  Kalshi and Polymarket. Polymarket. Polymarket.

• 2:35Speaker 03

  Polymarket. Kalshi and Polymarket.

• 2:38Rund Abdelfatah?

  Kalshi and Polymarket. Combined, they've seen more than $60 billion in trades since the beginning of this year. Their creators say you should think of prediction markets like another version of the stock market, where investors make trades just on current events instead of a company's stock price. But some of the trades you can make on prediction market sites feel a lot less buttoned up than Wall Street, even a little icky. Because you have the option to bet on bombs being dropped, on people dying, events that will have huge impacts on real people's lives.

• 3:19Speaker 03

  An unnamed trader made hundreds of thousands predicting the ouster of Venezuelan leader Nicolas Maduro in January, just hours before the US raid that captured him.

• 3:29Speaker 02

  The killing of Iran's supreme leader and a ceasefire between the US and Iran all led to six-figure profits and very few clues about who made the trades.

• 3:38Rund Abdelfatah?

  And in several cases, there's evidence suggesting that the anonymous people who made these bets may have had insider information.

• 3:48Rund Abdelfatah?

  One trader on the site Polymarket made more than $300,000 by making well-timed bets on who former President Biden would pardon. The police in France are looking into... To whether someone tampered with a weather reading device at the Charles de Gaulle Airport to win a polymarket bet. One trader made hundreds of thousands of dollars correctly guessing Maduro would soon be out of power. And in that last case, the alleged trader turned out to be a US Special Forces soldier who was involved in planning the military operation to capture Maduro. The soldier has since been indicted by the Justice Department.

• 4:26Rund Abdelfatah?

  In the wake of all this, the White House sent an email warning to its staffers, name checking prediction markets.

• 4:32Speaker 04

  Recent press reports have raised concerns about government officials using non-public government information to place wagers on online prediction markets, such as Calci or Polymarket.

• 4:44Rund Abdelfatah?

  We got a similar email from the standards team at NPR. And on Capitol Hill, the Senate has approved a bipartisan resolution saying its members and staff can't trade on prediction markets either. That's how big these markets have gotten in the last few months. Even the president is paying attention to them.

• 5:01Speaker 06

  That's like Pete Rose betting on his own team. It's a little like Pete Rose. The whole world, unfortunately, has become somewhat of a casino.

• 5:12Rund Abdelfatah?

  One of President Trump's sons, by the way, is an advisor to both Polymarket and Calci, and an investor in Polymarket. Some analysts think prediction markets are on their way to becoming a trillion-dollar industry. And like President Trump said, these markets have turned the world into a casino where anyone, anywhere, can log on and bet on the outcome of almost anything that'll happen in the future. But the prediction markets themselves aren't new. So how did we get here? Where did these markets come from? And what can that history tell us about where they might be going? I'm Rund Abdelfattah. Today on Throughline from NPR, how betting on popes

• 5:56Rund Abdelfatah?

  and presidents gave way to an assassination and terrorism market, and how, as prediction markets have grown from an idea to an industry, the moral gray areas involved have gotten bigger, too.

• 6:15Speaker 06

  Hello, is this through line? If it's not through line, I apologize for having the wrong number. But I just wanted to let you know that I'm Ethan Skarle in Portland, Oregon, and I listen to and appreciate very much through line programming.

• 6:34Speaker 05

  Stay tuned for the following announcements and messages from our sponsors. This election season, let the NPR Politics podcast save your time and your sanity. We'll help you understand key races, which polls you can safely ignore, and what might happen if power shifts in Congress. Our short daily episodes come out every afternoon, so you can spend less time scrolling through each chaotic news cycle. Make NPR Politics your hub for midterm election coverage. Follow our podcast on the NPR app or wherever you get your podcasts.

• 7:04Speaker 03

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• 7:25Speaker 06

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• 7:54Speaker 05

  Part One: Three Professors Walk Into a Bar.

• 7:59Rund Abdelfatah?

  On a spring afternoon in 1988, Robert Forsythe and two of his colleagues were sitting around a table at a local sports bar called The Airliner in downtown Iowa City. And like they often did, the three economics professors got to talking about the news.

• 8:15Speaker 06

  And I would say the conversation was helped because it was a three-beer lunch, which led to this creativity, I think, some days.

• 8:24Rund Abdelfatah?

  Three beers each?

• 8:24Speaker 06

  Or each of the candidates here. Each.

• 8:27Rund Abdelfatah?

  Okay. It was an election year. After Super Tuesday, Michael Dukakis was the presumptive frontrunner for the Democratic nomination. That is, until a huge surprise upset.

• 8:39Speaker 03

  The polls had predicted a Dukakis victory, but it didn't happen.

• 8:43Speaker 06

  It was the day after the Michigan caucus, which, as you may recall, Jesse Jackson won. Jesse Jackson. He scored a stunning win yesterday in Michigan's Democratic caucuses, defeating Michael Dukakis by a margin of nearly two to one in the popular vote. And that was a big surprise. The polls missed it altogether.

• 9:04Rund Abdelfatah?

  Going in, political polls had shown Jackson and Dukakis running neck and neck. But what happened was a blowout. Jackson won the Michigan caucus with 53% of the vote, and Dukakis only got 29%.

• 9:19Speaker 06

  And that's where it came from. We said, well, gee, you know, as economists, what would we do if we were going to try to predict the outcome of something? And what's natural for a bunch of economists is to say, well, let's run a market on it.

• 9:32Rund Abdelfatah?

  Run a financial market, like a stock or commodities market. So Robert and his colleagues got together a couple hundred people, students and faculty at the University of Iowa. They set up an online interface where those people could buy stock in political candidates. And just like on Wall Street, these political stocks could be traded. So for example, when George H.W. Bush and Michael Dukakis ultimately went up against each other in the general election, if you didn't like Dukakis's chances, you could sell your shares in him. The overarching idea here, the market might show what people were actually thinking, even better than polls could. The wisdom of the crowd.

• 10:12Speaker 06

  And lo and behold, at midnight the night before election day, we ended up predicting the outcome of the popular vote within two tenths of one percent.

• 10:23Rund Abdelfatah?

  That result outperformed major polls, including Gallup, Harris, and CBS New York Times. It was so effective that Robert and his colleagues thought, we'd like to do this again next election, this time with a bigger sample size.

• 10:37Speaker 06

  So we went to the Commodity Futures Trading Commission and asked them whether they would give us permission to operate nationwide.

• 10:44Rund Abdelfatah?

  And just so I understand, what was the law that you needed to get around?

• 10:48Speaker 06

  Well, anytime you have people exchanging real money on the outcome of something, the question is, is this gambling? And even though there's some form of regulation that's going to oversee you.

• 11:00Rund Abdelfatah?

  Back then and now, the body that oversees that regulation in the US is called the Commodities Futures Trading Commission, or the CFTC. It's been in charge of commodity futures, like markets that set the future price of grain, since the 1970s.

• 11:16Speaker 06

  They've issued us what they called a no-action letter.

• 11:19Rund Abdelfatah?

  That letter was basically like a permission slip. As long as the Iowa electronic markets followed a few set rules, the CFTC would allow it to do its thing.

• 11:29Speaker 06

  And the rules were we stay small. We couldn't accept the cons over $500. And we didn't engage and pay the advertising.

• 11:38Rund Abdelfatah?

  So they could only run markets on presidential elections. Sports were off the table. And the Iowa electronic markets did not make a profit. Between 1988 and 2004, the Iowa electronic markets grew from a one-off experiment to one of the most reliable predictors of American presidential elections. During that period, its predictions beat traditional polls 74% of the time. And as the market continued to grow, so did the public's interest in it.

• 12:08Speaker 03

  I'm Bob Edwards, and this is NPR's Morning Edition. If you think you know who the next president of the United States is, There's a place in Iowa where you can back up your convictions with a buck or two. What started out as a research project.

• 12:24Rund Abdelfatah?

  At what point did you realize that people outside of the University of Iowa, outside of your orbit, were starting to pay attention to what you all were doing?

• 12:34Speaker 06

  Well, we started to get a lot of national publicity. This was different enough that before we knew it, the Wall Street Journal and the Financial Times of London and.

• 12:44Rund Abdelfatah?

  NPR.

• 12:45Speaker 06

  NPR and a lot of the television media started picking us up because it was just so different. Right? I mean, who would ever made a mark on an election?

• 12:54Rund Abdelfatah?

  Oh, so they thought this was the first time something like this was happening.

• 12:58Speaker 06

  That's right. That's right.

• 13:00Rund Abdelfatah?

  But as someone else would soon discover, it wasn't the first time, not even close. Enter Coleman Strumpf.

• 13:08Speaker 03

  I am a economics professor at Wake Forest University. I've been teaching a course on prediction markets for almost 20 years.

• 13:16Rund Abdelfatah?

  Coleman may be an economist, but his driving interest is in human behavior. On top of prediction markets, he's written papers about illegal file sharing, tax evasion, and the economics of addiction. And he says, if you want to understand where prediction markets came from, just head down to your local horse track. There are those stock orders and they're off.

• 13:40Speaker 03

  My uncle used to take me to the racetrack and have me bet on horses. I guess I was already a social scientist in training at 10 years old because, first of all, yes, back many, many years ago, you could be 10 years old and go to a racetrack and bet. And like, I couldn't even reach up to the counter and nobody seemed to care very much. But it was as interesting as much to me to watch what everybody else was doing. And a lot of things that I see when I look at markets today, I could sort of first see then.

• 14:11Rund Abdelfatah?

  Watching people read the odds and make bets taught Coleman something essential about gambling. Winning makes people feel good. And the longer the odds, the better the winners feel.

• 14:25Speaker 03

  I remember when I was younger and I was watching people do it. Somebody would bet on a long shot horse. And that horse would actually win. The person would not only win a lot of money, but they were going around to all their friends saying how smart they were because they managed to figure out this very, very unlikely thing from happening. And I sort of realized that's, you know, part of this, the sort of psychology of these markets is people like to be smart. People like to use this as a way of sort of showing off their smarts of how they figure these things out.

• 14:54Rund Abdelfatah?

  I should say here, there's been a lot of back and forth over the years about whether or not prediction markets are really just betting dressed up as something fancier. Or if you're looking at legal definitions, whether they might count as gambling. We're not here to litigate that. Coleman's point is as long as people have been putting money on things, whether it's on the stock market, in insurance, or at the racetrack, social scientists and economists have been able to learn something about us from those bets.

• 15:24Rund Abdelfatah?

  So flash forward to the 2000 presidential election. George W. Bush versus Al Gore, one of the closest presidential races in a century. Coleman was doing research about election forecasting at the University of North Carolina. And he was keeping a close eye on the Iowa electronic market.

• 15:44Speaker 03

  I was writing a paper about the Iowa electronic market when my then colleague is at the University of North Carolina at the time, Paul Rhodey, came by my office, asked me what I was doing. And I said, I'm looking at the first political prediction market we have. And Paul, who is an economic historian, said, nope, that's totally not correct.

• 16:06Speaker 03

  He was MIT and I'm Stanford.

• 16:08Rund Abdelfatah?

  And a lot of times, creative frictions happen from people with different perspectives. That's Paul Rhodey. He's an economic historian at the University of Michigan. But back in the early 2000s, he worked down the hall from Coleman at the University of North Carolina. I happened to be reading some.

• 16:28Speaker 03

  Microfilm at the library and came across news stories in October, November, 1924 about election markets. So I go up to Coleman Strumpf, to his office and say, hey, did you know this happened? And he wasn't aware that they happened. So it was an interesting surprise for both of us.

• 16:49Rund Abdelfatah?

  Paul and Coleman started digging into the archives in earnest. And it turns out, pretty much as long as there have been elections, people have been betting on them.

• 16:59Speaker 03

  Back to the 16th century. There's betting on who would become the Pope. Elections in city-states and Venice in general.

• 17:07Rund Abdelfatah?

  And in the US.

• 17:08Speaker 03

  You can like find markets going back to George Washington. How long the Stamp Act would be in place before the American Revolution.

• 17:16Rund Abdelfatah?

  Paul and Coleman say for centuries, these markets stayed relatively small. There wasn't a ton of money on the line. Sometimes the bets didn't involve money at all.

• 17:26Speaker 03

  If the candidate I support doesn't win, I'm going to cut my beard, or I'm going to walk from New York to Boston. Or you have to eat a crow if I'm right. You have to push me in a wheelbarrow down Main Street.

• 17:40Rund Abdelfatah?

  But around the turn of the 20th century, election markets in the United States really started to gain steam.

• 17:46Speaker 03

  The main place that people would trade on elections was something called the curb exchange, which literally, as the name suggests, was the curb outside the New York Stock Exchange. They'd be sitting on the curb and they'd be trading stocks and signaling to people in the offices above them.

• 18:03Rund Abdelfatah?

  Stocks, to be clear, in political candidates, people running for office.

• 18:09Speaker 03

  Reporters for The Wall Street Journal, New York Times, could go down to this pit and not only tell us what the overall price was, but the names of the people trading. And if you look, the people were trading, these were like the lead of the city. These were people. From Tammany Hall, these were bankers, Wall Street folks, people owned hotels. People would be doing this very publicly. So if you were like the head of the Republican Party or you're the head of the New York Tammany Hall, you'd be expected to go to the betting commissioner and be willing to offer money for your candidate.

• 18:44Rund Abdelfatah?

  Wow.

• 18:44Speaker 03

  So it would be part of the publicity about you're standing behind this person. You think they have a good shot of winning.

• 18:51Rund Abdelfatah?

  Were you expected to bet on your own candidate? Or could you bet against your candidate if you thought your candidate wasn't going to win?

• 18:59Speaker 03

  So we knew that like William Jennings Bryan, the populist from Nebraska, was not popular with the workers in New York. The democratic machine in New York has to like bet for him. But then the stories are behind the scenes, they're placing bets the other way to so that they cancel out.

• 19:18Rund Abdelfatah?

  Because they don't want to lose money. Like publicly, they'll say, we love him, we endorse him. But they don't want to lose their money in the market.

• 19:24Speaker 03

  Yeah, so they're gonna be like hedging or going against their candidate.

• 19:28Rund Abdelfatah?

  All of this was happening in a sort of legal gray area. Making a friendly bet on the outcome of an election wasn't against the law. But if you did that, you weren't supposed to vote.

• 19:39Speaker 03

  But I don't think anybody ever said, we're turning you away from the polls because we know that you bet on elections.

• 19:47Rund Abdelfatah?

  Were these prediction markets, as far as you can tell, good at predicting the outcomes of elections and whatever else was being bet on?

• 19:56Speaker 03

  So this was like the second thing that I was wrong about. My sense was, okay, the markets will do as well as they can, but there's not much information to be had. These markets won't really tell us anything. Well, that I was definitely wrong on. And they were always right, basically. They would tell us who would win. They could give you a sense of whether there'd be a landslide. It was really pretty remarkable.

• 20:21Rund Abdelfatah?

  You kind of pointed out that late 19th century to World War II era is this kind of golden age almost of prediction markets. Why did they fall off after that for a while?

• 20:32Speaker 03

  It's a combination of factors. One of the things that both drove the popularity of the markets as well as the discussion of the markets was the press coverage. Through this period, all the newspapers covered it, but they were never very comfortable doing this. Then in the 1930s, that's when the scientific polls. Gallup and some other folks came around. And so the polls were doing something that was kind of the same thing. And newspapers were much more comfortable writing about polls than they were with markets.

• 21:03Speaker 03

  The other thing in some sense has to do with interest of the people trading. So if you're somebody who really likes this, for whatever reason, you like to be known as a good forecaster. You like to make money, you like the adrenaline rush, any of these factors. The problem with elections, or at least I'll just say US elections, is we don't have enough of them. This is around the time when thoroughbred racing started to really take off. And so instead of a couple of events a year, you could have 12 races a night. And I think for people who were interested in that, I think the horse track was more attractive as a thing to do. And I think some of the interest among traders kind of dissipated at that time.

• 21:44Rund Abdelfatah?

  As far as Coleman and Paul can tell, presidential election markets went dark sometime in the 1940s. And then for the next four decades, radio silence.

• 21:55Speaker 03

  I have never found one person who could have been around during that period, or even books that talked about elections during that period, that mentioned these markets. This was not some small, tiny thing. I don't know how they've managed to slip through the cracks of what's known about that time, but they seemingly did.

• 22:17Rund Abdelfatah?

  Until 1988, when three professors in Iowa went for a three beer lunch. And the Iowa electronic markets catapulted prediction markets back into the public consciousness as an alternative to political polls. Here's Robert Forsyth again, one of the founders of the Iowa electronic markets.

• 22:36Speaker 06

  Once we went nationally, two things happened. We would get phone calls from traders around the country, gotten realizing we had a $500 limit, that wanted to send us a check for several hundred thousand dollars to invest in the market. And then we'd have to say, well, gee, that'd be great, but we only can take $500 of your money. But we've got to realize that many of these people weren't speculators. These were people that were involved and were trying to hedge some political risk that would affect their company or their operations.

• 23:05Rund Abdelfatah?

  Say you're worried a certain candidate might win and pass laws that will hurt your business. You can hedge your bets. Put some money on the person you do not want to win. If they win, you cover your losses.

• 23:18Speaker 06

  So that was one kind of phone call. And then we would occasionally get a phone call saying, this is great, but you know, you have to stay small. We stayed in the United States. Why don't you come with us and come over to the Cayman Islands and we operate there? And you can run the card restriction and maybe we should have done that. I don't know. At that point in time, we were a bunch of academics who were mainly concerned with our teaching and our research. And so we turned those opportunities down.

• 23:47Rund Abdelfatah?

  Looking back on it now, why do you say, well, maybe we should have done that?

• 23:51Speaker 06

  Well, you know, there are days that I'm sort of jealous of Cauchy and the poly market. I mean, they've really taken the same idea. And they're running basically the same prediction markets we did, but on a much bigger scale. In fact, they basically use the same rules for trading and issuing contracts that we used back in 1988. But they certainly have expanded it vastly until you can just about trade on anything there.

• 24:17Rund Abdelfatah?

  The Iowa electronic market established something important. It demonstrated to modern economists that prediction markets worked. And that sparked a chain reaction, says economist Coleman Strumpf.

• 24:30Speaker 03

  Once we see, oh, look, these markets kind of work in the modern period. Could we use these markets to forecast other things? So could we look at other elections? Could we look at current events? And I think it kind of showed to the world that these things could work. But maybe it was only in this one specific domain and we didn't yet know. Would that same kind of forecasting savvy translate into other situations? So that was for other markets to help point out.

• 25:05Rund Abdelfatah?

  Coming up, another economist gets close to answering that question. But then his experiment goes off the rails. They called it terrorism futures, I think. Well, the accusations we were having.

• 25:18Speaker 03

  Markets betting on death.

• 25:23Speaker 03

  Hi, I'm Angel from Peonya, Colorado. And I listen to Throughline from NPR when I'm painting houses and it makes it feel like I'm not even working at all.

• 25:33Speaker 05

  Stay tuned for the following announcements and messages from our sponsors. This week on the NPR Politics Podcast, the midterm elections are wrapping up and millions of people have already voted. We're taking one final check of the electoral pulse with a new NPR PBS News Marist Poll. It shows Democrats still poised to make gains, but also with some warning signs for just how many. We'll explain on the NPR Politics Podcast.

• 26:01Rund Abdelfatah?

  Maya Higa built an animal sanctuary that's closed to the public, but welcomes thousands of online visitors every day.

• 26:09Speaker 05

  All the silly things that animals do when we aren't looking, or when they think

• 26:12Rund Abdelfatah?

  we're not looking, we can watch on the live cams. Ideas about understanding wild animals without getting in their way. That's on the TED Radio Hour podcast. Listen on the NPR app or wherever you get your podcasts.

• 26:25Speaker 03

  Want to survive the holiday conversation? Come prepared. Pop Culture Happy Hour gets you up to speed on the movies, music, and TV shows everyone is talking about. This way, you'll have a hot take at the table instead of quietly eating a dinner roll. Listen to Pop Culture Happy Hour on the NPR app or wherever you get your podcasts.

• 26:47Rund Abdelfatah?

  Part two, the assassination and terrorism market. In the early 1990s, Robin Hanson was a young programmer and, his words, amateur economist. He dropped out of grad school to move to Silicon Valley, where he worked two jobs, one during the day and one at night, not because he had to, but because he was that excited.

• 27:13Rund Abdelfatah?

  All around him, he saw an artificial intelligence revolution unfolding.

• 27:19Rund Abdelfatah?

  I was hanging out with futurists and science fiction fans, who generally had a very ambitious vision of the future of how technology could do lots of things. So, for example, some of the people I was hanging out with eventually, I think, became the Bitcoin founders. Other people were doing a thing called nanotechnology, which was a

• 27:39Speaker 03

  Futuristic image of fine, detailed assembly of atoms. Other people were into space. I was in a world, all of which were trying to make the future and make it big and grand and different. And we were pursuing different technologies for it, but we all had this idea that what you wanted to do was to be part of a project that was trying to change the world in a big way.

• 28:00Rund Abdelfatah?

  Robin had moved to Silicon Valley in part to join the race to build a worldwide web. He got a job in the AI Center of Lockheed Martin, an American global security company that's one of the biggest defense contractors for the US government. And later, he consulted at Xanadu, an early internet network pioneer. But more than anything, Robin wanted to change the way we think. He was interested in information, how people get it, how they use it to make decisions. And he was frustrated because the world as he saw it was inundated with bad information.

• 28:37Speaker 03

  If you think about the topics in the news, or pundit commentary, or politician's stances, those sort of topics, we were thinking that the world just doesn't do very well. People say stupid things, other people believe them, and we don't actually figure out the truth very well. So I thought if we had betting markets on these topics, then that could be a healthier consensus that we could use to decide what we all believe. And in those sort of grand, ambitious terms, I started to think and write about how far could we go with using betting markets on many different topics.

• 29:15Rund Abdelfatah?

  Robin and one of his buddies created board games where players would bet on the outcome of a murder mystery. He built what he thinks might have been the first web-based markets where people could trade on scientific questions and policy decisions. And Robin also created a corporate prediction market within Xanadu to help the company navigate technological changes and forecast deadlines.

• 29:39Rund Abdelfatah?

  It was an intellectual exercise.

• 29:41Speaker 03

  But it's an attempt to change the world by demonstrating concepts and showing things that could happen. But again, this-

• 29:47Rund Abdelfatah?

  It wasn't a get-rich-quick scheme, is I guess what I'm trying to get at. You weren't trying to line your pockets. You were trying to really prove this idea.

• 29:53Speaker 03

  I don't mind people getting rich from improving the world. I'm an economics professor, so that's not a problem for me. But I was focused on trying to think through the issues and make demonstration projects to show people what could work.

• 30:08Rund Abdelfatah?

  Robin was imagining a system of what he called idea futures. His vision was, instead of having disagreement over decisions, what if we had a model that could process lots of data, lots of different points of view, and spit out the best possible answer? A market, he thought, could fundamentally change how people shared ideas. Eventually, Robin started to feel stunted in the corporate world, so he went back to academia. And that's where, around the year 2000, he got a call from DARPA. That's the U.S. Defense Advanced Research Projects Agency.

• 30:46Speaker 03

  DARPA, which is a blue-sky research arm of the Defense Department, it had heard about prediction markets or betting markets. And it said, gee, maybe this is something we want to look at. And it set up a proposal to say, show us that this could work for our stuff. Show us that betting markets could do something the Department of Defense would find interesting. And the person who ran that came to me personally to make sure I knew about this, because he had read about me and he saw that I was a person known in this space.

• 31:16Rund Abdelfatah?

  Getting this kind of a request from DARPA, what was your first thought of potentially working with the government and with defense specifically? And were you surprised that they would have an interest in incorporating prediction markets in some form into their strategy?

• 31:33Speaker 03

  Look, maybe I should have, but come on, I was a young and grandiose, ambitious guy. This was my grand vision and somebody was finally wanting to pursue the vision and I was very open to that. So I, I, I was not overly surprised that the world was catching on to my ideas.

• 31:50Rund Abdelfatah?

  Robin started working on a new, more sophisticated kind of prediction market. Instead of just betting on a single issue or question, traders in Robin's new market would be able to bet on combinations of related questions.

• 32:04Speaker 03

  We said, well, what would we apply that to? So we thought, well, let's take geopolitical events in the Middle East as the forum for our predictions.

• 32:14Rund Abdelfatah?

  So for example, he might ask, do you think the Saudi regime will fall in the next six months? And next question, if it does, how do you think that will affect the price of oil? Here's Robin reading directly from the project proposal.

• 32:28Speaker 03

  So it said, we plan to cover eight nations. For each nation in each quarter of a year, we plan to have traders predict military activity, political instability, economic growth, US military activity and US financial involvement.

• 32:42Rund Abdelfatah?

  Robin and his team got the green light from the Department of Defense shortly after September 11th, 2001. The project wasn't a direct response to 9/11, but as the US ramped up its war on terrorism, the work Robin was doing took on a new context. The team decided to call its project the Policy Analysis Market. It was set to launch in summer of 2003. And when it did, members of the public would be invited to trade on it. Each person could invest a maximum of $100. The Policy Analysis Market did not have permission from the CFTC to do this, but it didn't need approval because it was an agent of the US government.

• 33:23Speaker 03

  And then we made a call for proposals for testers. We said, who wants to come be early users of this website? And we will pay you to sort of test it out and help us work it out. Till it's ready for the big leagues. We made a public website where we showed the idea and a sample screen of what the thing might look like. And then we said, please come, you know, join our project.

• 33:48Rund Abdelfatah?

  That sample screen showed the sample markets organized in buckets by topic. So there was a section for military activity, one for economic growth, and so on. But there was an extra section, miscellaneous, for bets that didn't fall neatly under any of the other categories.

• 34:05Speaker 03

  And I think in the sample miscellaneous section had two miscellaneous events. One was, what if North Korea sent off a missile somewhere? And another was, what if Arafat, who at the time was an important politician, was assassinated? How would that change events?

• 34:19Rund Abdelfatah?

  Yasser Arafat wasn't just an important politician. He was the longtime leader of the Palestine Liberation Organization and president of the Palestinian Authority, placing him at the center of one of the most protracted and high stakes conflicts in the world.

• 34:34Speaker 03

  Things that we thought might be relevant for the events we were talking about.

• 34:37Rund Abdelfatah?

  I mean, that's, that's gonna attract controversy.

• 34:40Speaker 03

  Well, this was the Middle East. I mean, we were doing eight nations in the Middle East, which was gonna include Israel.

• 34:45Rund Abdelfatah?

  Yeah, which eight nations?

• 34:46Speaker 03

  Israel and Egypt and, you know, Syria and Iraq, et cetera. Those would be part of the mix.

• 34:53Rund Abdelfatah?

  The website went live. Online registration for the policy analysis market was scheduled to go public on August 1st, 2003. But it never got that far.

• 35:04Speaker 03

  Ladies and gentlemen, first of all, thanks for being here. On a Monday morning, a very particular Monday morning, July 28th, 2003, two senators had a press conference. We have discovered something that is going on at the Department of Defense, a relatively small program run by Admiral Coin Dexter, that is almost unbelievable. And they called attention to our project. in their press conference and said, this is terrible. In fact, when you describe it to people, they say, well, this can't be the truth. I mean, obviously, this can't be going on.

• 35:35Rund Abdelfatah?

  The senator compares the policy analysis market to a headline in The Onion. You can hear laughs in the background.

• 35:44Speaker 03

  The idea of a federal betting parlor on atrocities and terrorism is ridiculous and it's grotesque. And they called it betting on terrorist attacks. They said, we were going to have betting markets on terrorist attacks, and this was a terrible thing to do. But clearly, this is morally wrong. I think this is unbelievably stupid. And a lot of pundits and people talked to each other. And so much media stuff happened that by the very next morning, the Secretary of Defense in front of Congress said, this project's dead. Within 24 hours.

• 36:19Rund Abdelfatah?

  Wow.

• 36:20Speaker 03

  And in that 24 hours, nobody asked us if the accusations were correct.

• 36:24Rund Abdelfatah?

  What was the nature of the accusations?

• 36:27Speaker 03

  Well, the accusation was we were having markets betting on death. And that was, the very idea of betting on death was bad. There was also two other kinds of complaints people had about things they thought might go wrong. But that was the most direct presenting complaint. It's just bad to bet on death.

• 36:44Rund Abdelfatah?

  Is that how you saw it? Like, on some level, isn't it betting on death?

• 36:49Speaker 03

  I mean, yes, the whole point is, if we're giving the Defense Department advice about the Middle East, about military stuff, yeah, deaths are going to be involved somewhere in the Defense Department's events in the Middle East, right? Death is likely to be involved in those consequences.

• 37:05Rund Abdelfatah?

  When Robin looked at the policy analysis market, he saw the potential good it could do. He believed it might encourage world leaders to think twice before starting shortsighted wars. It might help prevent terrorist attacks by predicting when and where they could happen. The public saw it differently.

• 37:24Speaker 03

  If this is how we're going to find out about terrorism, we don't want it. Let's not do this thing to find out about terrorism. Like, that's just going too far, was, I guess, the statement.

• 37:33Rund Abdelfatah?

  It was seen as going too far. Why? Why do you think in that moment it was seen as going too far?

• 37:39Speaker 03

  I'm an economist, and so all my life I have faced the facts that many people have, you might say, hangups or reservations about money. There are many just rules people have about where money should or shouldn't be involved in the world. And that's often a bit puzzling to we economists, because we see how powerful money can be and all the great things it can do. And this just seems to be a rule people have in their head: no betting on death. A rationale for that could be that if you bet on death, you could create incentives to cause deaths. But that wasn't very plausible in this context. These are going to be small markets without much money at stake, so nobody's going to go kill anybody for $30. I mean, I was hoping, of course, that in the future there'd be bigger markets, et

• 38:20Speaker 03

  cetera, but being concerned that this particular market would cause people to do harm to make some money didn't make much sense because of the small stakes involved.

• 38:30Rund Abdelfatah?

  It's understandable that on a kind of psychological or just sort of that feeling of like, ickiness, right? That people feel discomfort?

• 38:39Speaker 03

  That's one of these, the economists see this ickiness thing all the time, and we go, why? Why? Why is this icky? But yes, people are ickiness.

• 38:45Rund Abdelfatah?

  So you don't see it at all?

• 38:46Speaker 03

  Which is like, look, if you see a room in surgery and you see them cutting open with a scalpel, it's just icky, right? But you go, I need to suppress that reaction, because I do think surgery is legitimate. And I don't want to yell and make them all stop the surgery just because I'm having an icky reaction to seeing somebody get cut with a knife, right? I've learned that I have all sorts of maybe immediate reactions that I need to hold back and to restrain, because first I need to think about, does the reaction make sense and is it appropriate?

• 39:19Speaker 04

  Tom, that last idea to create a futures market on terrorist incidents was about as badly received on Capitol Hill as anything I can remember.

• 39:27Speaker 03

  Democrats said that market could actually give terrorist groups a way to profit from attacks they carry out. And some Republican leaders made it clear right from the start that not only would the program have to be canceled, they wanted someone to take responsibility for it, which was taken to mean at least one head would probably have to roll.

• 39:46Rund Abdelfatah?

  On July 29, 2003, just 24 hours after the media firestorm ignited, the policy analysis market went dark. The head of DARPA resigned, and the promise Robin Hanson had seen in the growing world of prediction markets came to a screeching halt. But prediction markets were not gone forever. Outside DARPA, outside universities, a seed had been planted and started to take root. Private industry was poised to capitalize on these theoretical ideas to make very real money. Hello and welcome. My name is John Delaney, and I'm the CEO of Intrade. Let me tell you a little about what we do. That's coming up.

• 40:34Speaker 03

  This is Jacob in Irvine, California, and you're listening to Throughline, NPR. Really love the show, y'all. A key factor getting me through grad school. I listen to it when I'm working in the lab. Helps keep my mind focused while I'm doing science. So thanks for all your hard work and really appreciate the way you tell stories. Bye-bye.

• 41:00Rund Abdelfatah?

  Stay tuned for the following announcements and messages from our sponsors.

• 41:05Speaker 05

  The 2026 midterm elections are upon us. On November 3, voters will determine what the next two years of their local leadership and the balance of national government will look like. Listen to the NPR News Now podcast for all the updates you need ahead of and after November 3 from NPR News.

• 41:27Speaker 03

  Want to survive the holiday conversation? Come prepared. Pop Culture Happy Hour gets you up to speed on the movies, music and TV shows everyone is talking about. This way, you'll have a hot take at the table instead of quietly eating a dinner roll. Listen to Pop Culture Happy Hour on the NPR app or wherever you get your podcasts.

• 41:48Rund Abdelfatah?

  This week on Short Wave, truth and fraud. That is the beating heart of the movie You Can See Everything. But can you spot a liar in action? Lying doesn't come with emotional and behavioral stereotypes that we think. How to detect deception for real on Short Wave, the science podcast from NPR.

• 42:14Rund Abdelfatah?

  Part three, the world becomes a casino. Prediction markets are growing fast. Since the beginning of this year, users on Polymarket and CalShe traded more than $60 billion on both platforms. That's already more than in all of 2025. Unlike the Iowa electronic markets and DARPA's policy analysis market, Polymarket and CalShe are for-profit entities. They make money on every transaction. But they're not the first companies to try and take prediction markets commercial.

• 42:49Speaker 03

  Around 2000, two markets arose.

• 42:53Rund Abdelfatah?

  This is our prediction markets guide and historian, economist Coleman Strumpf.

• 42:57Speaker 03

  One was called Intrade, which was an Irish site, but mainly oriented towards people in the United States. And the second was a site called Betfair, which was a UK site. And it was mostly oriented to people in Britain.

• 43:13Rund Abdelfatah?

  It's not a coincidence that both Intrade and Betfair were based overseas. As the professors at the University of Iowa found out in the late 1980s, you need permission from the federal government to run a futures market in the United States. And so far, the US government had only given its blessing to one such market, the Iowa electronic market. So even though Intrade's founders were both from New York, they moved their company offshore to Ireland. But Americans still use the site. And when they started wagering money on US elections, the media took notice. Wouldn't you like to predict the future? Like, who will be the next president?

• 43:54Speaker 03

  Senator Barack Obama of Illinois be selected by this. Well, there's a website that makes more accurate predictions than any I've ever come across. You can bet not just on candidates, but on everything from box office receipts to the weather, and this is real money. When I found out that we could actually trade on politics, it was like, what? Why have they been investing in stocks all along? Intrade.com lets people bet on the future. When you trade on Intrade, you put your money where your mind is.

• 44:24Rund Abdelfatah?

  Both Intrade and Betfair were growing around the same time that Robin Hanson was helping to develop the policy analysis market at DARPA. And in 2003, just a few months after the federal government pulled the plug on the policy analysis market, Intrade made its own headlines.

• 44:41Speaker 03

  It's been a dramatic and historic day in Iraq, one that America.

• 44:44Rund Abdelfatah?

  There was a market open on Intrade about whether Saddam Hussein would be, quote, "captured or neutralized" before the end of 2003. In the fall, there wasn't much to report. It didn't look like the US military had any particularly good leads. But then, in early December, trades saying Hussein would be found spiked. And just a couple of days later. Saddam Hussein was captured Saturday, December 13th at about 8:30 PM local. The next year, in 2004, Intrade made headlines again, this time for very accurately predicting the results of the Bush v. Kerry presidential election. That media coverage triggered a bump in Intrade's American users.

• 45:26Speaker 03

  The market was going well, aside from the fact that it was not located in the United States, and the CFTC was furious about this.

• 45:36Rund Abdelfatah?

  The Commodity Futures Trading Commission, which regulates futures markets in the US, went after both Intrade and its counterpart, the British site Betfair.

• 45:45Speaker 03

  Betfair pretty much said, OK, I understand, even though, you know, we are not a US company, we will basically set up a wall that will make it harder and harder for people in the US to trade on the site. And in fact, today, Betfair still exists, if you go to the site from the United States, you won't even be able to access it.

• 46:04Rund Abdelfatah?

  But Intrade and its CEO wouldn't play ball. So between 2005 and 2013, the CFTC came back over and over again. First with a cease and desist and fines because Intrade allowed its users to trade on commodities that didn't have legal markets in the US, like crude oil and gold futures. Then Congress passed legislation cracking down on online gambling. Intrade saw a big drop in users. And finally, in 2013, the CFTC came back to hammer in the final nail in Intrade's coffin: a lawsuit.

• 46:43Speaker 03

  They were perpetually trying to get Intrade shut down.

• 46:48Speaker 04

  This week, the website Intrade, based in Ireland, said all American users must shut down their accounts by the end of the year.

• 46:56Speaker 03

  Little is known about what happened to Intrade. Their statement on its website says it stopped trading due to, quote, "circumstances recently uncovered." I think everyone's surprised. The biggest part of the surprise is we don't yet know why it is that Intrade is shut down. Eventually, a series of things happened at Intrade that led to the company's demise. The CEO died climbing Mount Everest, and that was a

• 47:19Rund Abdelfatah?

  Wow.

• 47:20Speaker 03

  big issue. And then it also turned out that the company was not following standard accounting practices for keeping the money available for people who wanted to cash out. And when that became public, that was kind of the beginning of the end of this company.

• 47:37Rund Abdelfatah?

  But the CFTC did not stop going after Intrade, even after the company had gone out of business.

• 47:43Speaker 03

  Spring of 2013, Intrade is basically nonexistent. The CFTC fined Intrade, a company that basically doesn't exist anymore, a few million dollars. There's an expression, apparently, in the financial world called "fining a corpse." So Intrade being the financial corpse in this case. And I guess the idea is to just say, look, if somebody else tries to do what in trade did, we're going to come after you.

• 48:10Rund Abdelfatah?

  They're sending a message.

• 48:11Speaker 03

  Exactly, 100%. And so clearly around, you know, through 2013, the federal regulatory agency in the US is in no way interested in having these markets.

• 48:23Rund Abdelfatah?

  That isn't to say no one tried. A few other election markets made a go of it in the US over the course of the 2010s. Sports gambling became legal in some states during this time. But on the whole, the federal government kept a very tight leash on those markets. And that includes Kalshi and Polymarket, the two prediction markets that are in the news right now. Both sides gained steam around the 2024 presidential election. Kalshi ran legally under the watchful eye of the CFTC. But Polymarket did not get that same go ahead and was completely banned by the US government in 2022 for failing to comply with federal regulations. All this until last year, when President Trump appointed a new chair to the CFTC,

• 49:09Rund Abdelfatah?

  a guy named Michael Selig. He was chief counsel of the Crypto Task Force at the Securities and Exchange Commission.

• 49:17Speaker 03

  And he is very, very favorably inclined to prediction markets. And it is a diametric opposite of anything I'd ever seen in my 30 years of looking at prediction markets. So he is very much on the side of all the prediction markets. And as of now, in 2026, this is a very favorable space for prediction markets.

• 49:39Rund Abdelfatah?

  But others say there are real concerns about how prediction markets are being used. For example, The New York Times recently did a close examination of Polymarket users. It identified some 11,000 accounts that raised, quote, "warning signs." That included successful long shot bets, extremely well timed wagers by new accounts, and bettors who gambled on a specific topic without ever losing. A lot of these users focused on military operations. So there's reason to believe the traders may have been people who work for the US military or the government. Paul Rhodey, Coleman Strum's former colleague, has been following prediction markets for decades.

• 50:22Rund Abdelfatah?

  And he says this ethical question is one he thinks about, not just in terms of what's happening with prediction markets now, but where they're likely to go in the future.

• 50:33Speaker 03

  The logic of you're betting on whether somebody's assassinated, that's really ugly. The idea that you're profiting from somebody else's misfortune, that arises disgust. That arises this kind of reaction that you can help somebody out in their time of trouble, but you should not be gaining from their time of trouble, their misfortune, and betting in favor of or that you believe somebody's going to be assassinated, or you have private information that they're going to be assassinated. That just, there is a disgust reaction to that. It seems really dark and really immoral.

• 51:21Rund Abdelfatah?

  Back in 2003, the economist Robin Hanson looked on as that feeling of disgust swallowed up his DARPA project, the policy analysis market. But watching what's happening with prediction markets today, he says he's excited. He hopes this is just the beginning of a future where prediction markets are a much bigger part of our lives.

• 51:42Speaker 03

  For example, we could have a market for each company. And if you keep the CEO, what's the stock price? And if you get rid of the CEO, what's the stock price? We could have markets for students about what schools to go to or what majors to take. You could have markets to individuals about if you dated somebody, how long would the relationship last? You could have it about whether to change government policies in an area. Calcium and poly market blowing up have now enabled other people to be more comfortable with trying the things that I think is the most promising.

• 52:09Rund Abdelfatah?

  You sound so optimistic and then there's this part of me that's like, do I want to calculate every decision I ever make? Like, gives me anxiety.

• 52:17Speaker 03

  Many people do feel this awkwardness about money being involved, things and numbers. And we're getting both of them here. We are somewhat uncomfortable with the idea that we replace personal relationships and personal habits with structured systems. But over centuries, we've made enormous changes in what systems we are comfortable with and that we have around us. And if at one time, something was too early, later on, it might no longer be too early and people might be ready to accept it. So that's a question about prediction markets now. Are we ready to accept them now? I hope. Another possibility is some combination of social backlash, regulatory backlash, a change in administration in the White House and/or Congress, and these things are prohibited.

• 53:02Speaker 03

  And then they go to zero.

• 53:04Rund Abdelfatah?

  Coleman Strumpf went from watching horse racing as a kid to studying prediction markets and says economists have almost always felt more optimistic about prediction markets than regular Americans. Every time these markets make a comeback, economists want to believe they're back for good. But as long as Coleman's been studying this history, he says that's never been the case. It's a repeating cycle, a boom in popularity, followed by a crash out. Because the more money and power prediction markets hold, the more controversy they attract. Are you surprised at how far we have come in the last, you know, 30 years from

• 53:46Rund Abdelfatah?

  those three professors walking into a bar in Iowa to now people betting on pretty much everything, right?

• 53:53Speaker 03

  I'm as mystified as anyone who's going to be listening to this show. I'm as surprised at where We are in 2026 as anyone else. If you had asked me in 2023, would we be here? I would have been nowhere close to this.

• 54:11Rund Abdelfatah?

  As far as what might happen next, Coleman says he's glad he doesn't have to put money on it.

• 54:29Rund Abdelfatah?

  And that's it for this week's show. I'm Randa Abdelfatah. Throughline was created by me and Ramtin Arablouei. This episode was produced by me and Sarah Wyman.

• 54:40Speaker 05

  Julia Redpath. Casey Minor. Christina Kim.

• 54:44Speaker 04

  Devin Kadyama. Kiana Mulholland.

• 54:46Speaker 05

  Irene Noguchi. Julie Kay.

• 54:49Rund Abdelfatah?

  Thank you to David Biery, Brett Neely, Johannes Sturgie, Dylan Kurtz, Rebecca Farrar, Yolanda Sanghweni, and Tommy Evans. And shout out to Michael Strumpf. Fact checking for this episode was done by Kevin Vogel. This episode was mixed by Maggie Luthar. Music for this episode was composed by Ramtin and his band, Drop Electric, which includes Naveed Marvi. Sho Fujiwara. Anya Mizani. And finally, if you have an idea or liked something you heard on the show, please write us at [email protected]. And if you're open to us giving you a call back, leave your number, too. We might feature your idea in an upcoming episode. Also, make sure to follow us on Apple, Spotify, or the NPR app.

• 55:35Rund Abdelfatah?

  That way, you'll never miss an episode. Thanks for listening.

• 55:44Rund Abdelfatah?

  Stay tuned for the following announcements and messages from our sponsors. On the latest episode of Sources and Methods, in Israel this week, an election with no clear winner. Next week, in the US, an election that could shift the balance of power in Washington.

• 55:59Speaker 03

  And in both countries, a defining issue for voters, the war in Iran. We look at where things could be headed in that conflict. Listen this week to Sources and Methods, the national security podcast from NPR. Want to survive the holiday conversation? Come prepared. Pop Culture Happy Hour gets you up to speed on the movies, music and TV shows everyone is talking about. This way, you'll have a hot take at the table instead of quietly eating a dinner roll. Listen to Pop Culture Happy Hour on the NPR app or wherever you get your podcasts.