The Economists Who Built Prediction Markets Say Sports Betting Wasn't the Plan
The academics who created modern prediction markets in 1988 envisioned a tool for aggregating economically meaningful information—explicitly excluding sports. Thirty-eight years later, 84% of Kalshi's volume is sports contracts. They're not happy.
The Gap Between the Dream and the Reality
In the spring of 1988, three economists sat down for lunch at a restaurant called the Airliner in Iowa City, Iowa. The night before, Jesse Jackson had demolished Michael Dukakis in the Michigan Democratic primary—a result that the polls had completely missed. Robert Forsythe, George Neumann, and Forrest Nelson were annoyed.
"We three said, 'Well, gee, if we were going to predict an election, what would we do?'" Forsythe recalled in a recent interview with CNN. "And as economists, the thing that came most naturally to us was, 'let's run a market.'"
They launched the Iowa Political Stock Market—now called the Iowa Electronic Markets—as an experiment in whether the wisdom of crowds sharpened when real money was on the line. With 200 traders, wagers capped at $500, and an idea simple enough to sketch on a napkin, they built something that actually worked: their market forecast that George H.W. Bush would capture 53.2% of the popular vote. He got exactly 53.2%. Their Dukakis prediction was off by just two-tenths of a percentage point.
That lunch in Iowa City became the foundational moment of a multibillion-dollar industry. And according to several of its original architects, the industry looks almost nothing like what they had in mind.
The 2008 Vision
By 2008, the idea had grown enough that 22 prominent economists—including Nobel laureates, legal scholars, and the original Iowa trio—co-signed a landmark policy paper in the journal Science titled "The Promise of Prediction Markets". Cass Sunstein, Robert Shiller, Paul Milgrom, Vernon Smith, and Justin Wolfers were among the signatories. The paper made a direct plea to regulators: lift unnecessary restrictions, because prediction markets had "virtually limitless" applications for businesses and policymakers.
But the 2008 paper also came with explicit guardrails. The economists envisioned markets for "economically meaningful events"—elections, environmental risks, monetary policy. They wrote that the ideal framework would "presumably not include contracts on the outcomes of sports events." They also proposed capping individual wagers at a "modest sum, perhaps something like $2,000 per year" (roughly $3,000 in today's dollars).
Neither guardrail survived contact with the real world.
What Actually Happened
Today, sports markets dominate the platforms the 2008 paper helped inspire. Research firm TickerTracker found that over the past month, sports markets and sports-heavy parlays comprised approximately 84% of total trading volume on Kalshi, or about $18.5 billion. For Polymarket's U.S.-facing site—which launched for American users in May—sports-related markets accounted for approximately 99% of total volume, or roughly $2.1 billion.
(Kalshi pushed back on the TickerTracker figure, pointing to its public dashboard where sports—excluding parlays—makes up closer to half of the platform's volume. The discrepancy reflects different methodology: whether multi-leg parlay products are classified as sports trading.)
There are no individual wager limits on either platform.
"This is not the future any of us were hoping for," Justin Wolfers, now a professor at the University of Michigan, told CNN this week.
His frustration comes from inside the house. Wolfers was among the most vocal advocates for prediction markets throughout his career—and he still believes in their underlying logic.
"A fundamental economic problem is, how do we aggregate information?" he told CNN. "I believed back then, and I still believe, that markets are an incredibly efficient way of doing that... Most of the alternatives are pretty bad, and markets appear to be less bad."
But prediction markets with "virtually no cap on wagers," Wolfers said, and trading dominated by sports outcomes is a different instrument than the one he and his co-authors envisioned.
A Three-Way Split Among the Founders
Not everyone who signed the 2008 paper shares Wolfers' concern.
Robin Hanson, a professor at George Mason University and one of the more libertarian-leaning signatories, told CNN he doesn't mind the sports betting and is actually more worried about regulatory backlash holding back the platforms that do serve the information-aggregation mission.
"Standard decision theory says that the value of information is informing decisions, and the world is full of people making decisions where they could benefit from being better informed," Hanson said.
Eric Zitzewitz, a Dartmouth professor and another 2008 co-author, occupies the middle ground. He acknowledged that gambling-like behavior is happening on the platforms—but suggested the coverage has been unfair to the range of activity those platforms actually host.
"There's been a proliferation of really interesting markets that if you just kind of read media articles about prediction markets, you might miss," Zitzewitz told CNN. The World Cup picks and celebrity wedding bets are the front page; corporate earnings markets and Fed rate forecasts are the buried tab.
He has a point. Kalshi currently lists over 450 active non-sports markets, including contracts on unemployment, inflation, FOMC decisions, and individual company earnings. Polymarket hosts hundreds more globally. Those markets are genuinely doing what the 2008 paper envisioned. They're just getting drowned out in the volume numbers by sports.
The Public Health Dimension
The concern that most worries Wolfers—and has drawn in state attorneys general from Arizona to Kentucky—is not theoretical.
Danny Funt, author of Everybody Loses, a chronicle of the sports betting boom, told CNN: "The evidence is becoming undeniable that there's rising rates of addiction, especially among young men."
A study published in March by the Federal Reserve Bank of New York found that credit delinquencies—particularly among people under 40—have surged in the more than 30 states that legalized sports gambling since 2018, when the Supreme Court overturned the federal ban. Kalshi and Polymarket maintain they are not facilitating sports gambling; their opponents in court argue the distinction is cosmetic.
The legal battleground now spans 19 states. Arizona has filed criminal charges against Kalshi. The Sixth Circuit is weighing a case that could determine whether sports event contracts are CFTC-regulated swaps or state-regulated gambling products—a question that has already produced a circuit split, with the Third Circuit ruling in Kalshi's favor and a federal district court in Michigan ruling against Polymarket.
The CFTC itself published a Notice of Proposed Rulemaking on June 12 proposing a formal framework for evaluating event contracts—which, while not targeting sports specifically, reflects the regulatory pressure building around the sector.
The Cost-Benefit Calculation
Wolfers laid out his framework plainly. Take 100 people betting on a baseball game: most of them are recreational. But even a small percentage of problem gamblers changes the math.
"So then the question is: Is it worth 98 people enjoying the game a little bit more to open up the possibility of two destroying their lives?"
He's not calling for a ban—but he's not pretending the calculus is obviously positive. "If you give me the choice of unfettered laissez-faire gambling versus shut it all down," he said, "I think there's still a reasonable case for shut it all down."
The platforms, for their part, push back on the framing. Both Kalshi and Polymarket argue that their products are structurally distinct from sportsbooks: no house, no bookmaker, no built-in edge. Unlike FanDuel or DraftKings, the platforms don't profit from losing bets—they collect a fee on winning positions (Kalshi's formula: 7¢ per dollar of contract value × P × (1 − P), capped at 1.75¢ per contract). Traders set prices; the platform facilitates the market.
And some of their success cases are exactly what the economists wanted. Polymarket's 2024 presidential market consistently tracked Donald Trump's advantage weeks before the polls caught on. Kalshi's pre-FOMC markets priced in the June 2026 hold at 99¢ while economic commentators debated a possible cut. That is the "economically meaningful" use case.
What the Numbers Actually Show
For a concrete picture of where things stand today:
| Platform | Est. Sports % of Volume | Monthly Volume (est.) | US Access |
|---|---|---|---|
| Kalshi | 84% incl. parlays; ~50% excl. (per platform) | ~$22B | 42 states |
| Polymarket US (QCX LLC) | ~99% (TickerTracker) | ~$2.1B | 48 states + DC |
| Polymarket Global | <50% annually | >$2B | Non-US users |
Sports volume data: TickerTracker via CNN (June 2026). Platform access data: official platform pages (June 2026).
A note on US access: Polymarket's US platform (operated by QCX LLC) is a sports-only offering. Non-sports markets on polymarket.com are not accessible to US users. Kalshi offers both sports and non-sports event contracts to eligible US users in 42 states.
The Verdict From the Architects
The economists who built prediction markets are not united. Wolfers is worried. Hanson is not. Zitzewitz is somewhere in between. Robert Forsythe—one of the three who came up with the idea over lunch in 1988—still believes in the fundamental utility, even if the current shape of the industry isn't quite what he imagined.
The markets they launched predicted George H.W. Bush's popular vote share to four significant figures with 200 traders and a $500 cap. The platforms they inspired now clear tens of billions of dollars a month, aggregate information in real time on events from World Cup matches to Federal Reserve decisions, and have sparked the most consequential regulatory battle in derivatives markets in a generation.
Whether that's a success story or a cautionary tale depends largely on which line of the ledger you read first.
Sources & Verification
- CNN, June 21, 2026: "Economists have long pushed for prediction markets. The reality is not what they'd hoped for" — Allison Morrow, Marshall Cohen — cnn.com/2026/06/21/business/prediction-markets-economists (Note: CNN has a data partnership with Kalshi; CNN editorial employees are not permitted to purchase contracts on prediction markets, per disclosure in the article.)
- Science, May 16, 2008, Vol. 320, pp. 877–878: "The Promise of Prediction Markets" — Arrow, Forsythe, Hanson, Wolfers, Zitzewitz et al. — science.org/doi/10.1126/science.1157679
- Iowa Electronic Markets: iemweb.biz.uiowa.edu — University of Iowa ( primary source)
- Federal Register, June 12, 2026: CFTC NPRM 2026-11854 — federalregister.gov
- NY Federal Reserve, March 2026: Credit delinquency study — cited via CNN reporting
- Kalshi platform dashboard: kalshi.com — primary source for volume and fee data
- Polymarket (polymarket.com): primary source — US platform operated by QCX LLC