Prediction markets, platforms where participants trade contracts on the likelihood of future events, have a long and contested history dating back to 16th-century Rome. At that time, wagers on papal succession were so widespread that Pope Gregory XIV issued a decree in 1591 threatening excommunication for those caught betting on conclave outcomes. Despite such measures, the practice persisted underground and later resurged, with tens of millions of dollars wagered on events such as the 2025 papal election.

These markets function by allowing users to buy and sell contracts that pay out based on whether a specific event occurs. The price of a contract serves as an implied probability of the event’s outcome. For instance, a contract trading at 70 cents reflects a roughly 70 percent chance of the event happening. In recent years, particularly in the United States, this form of trading has grown dramatically. When the 2026 National Football League season began, hundreds of millions of dollars were transacted in prediction markets over a single weekend.

Despite their rise, prediction markets face legal and regulatory challenges. New York has initiated a lawsuit against Kalshi, a prominent prediction-market platform, accusing it of operating an unlicensed gambling business. Comparable legal actions are underway in other states. Critics question whether these markets should be classified as gambling, but proponents argue they serve a broader social purpose by providing real-time forecasts, accessible to the public, that aggregate collective expectations about future occurrences.

Academic research highlights some limitations of prediction markets. Studies analyzing three years of transactions on Polymarket, another major platform, reveal that a small subset of highly skilled traders—about 3 percent of participants—drive price accuracy by consistently aligning contract prices with eventual outcomes. This concentration of influence also means that these traders capture a disproportionate share of profits. While this dynamic may raise fairness concerns, experts view it as intrinsic to how such markets function.

A notable concern surrounding prediction markets is their potential to inadvertently reveal sensitive information. Prior to the U.S.-Israeli military strike against Iran in February, suspiciously large bets were placed on Polymarket contracts predicting the attack, originating from new accounts and posted when the market assigned a low probability to the event. Because these transactions are publicly visible, they acted as a potential warning signal. However, historical precedents demonstrate that informal indicators, such as unusual activity near government facilities, have long signaled impending operations. Defense officials acknowledge this visibility and monitor such data sources accordingly.

Experts caution that outright bans on prediction markets may be ineffective. Historical attempts—ranging from Pope Gregory XIV’s decree to British laws in the 18th century aimed at curbing political betting—have failed to eliminate these activities, which tend to shift into less regulated venues. Instead, targeted enforcement against manipulation and insider trading is advocated as a more pragmatic approach.

Reflecting this perspective, a bipartisan bill introduced by Senators Kirsten Gillibrand and Dave McCormick seeks to restrict trading by high-ranking officials with access to classified information while empowering the Commodity Futures Trading Commission to implement tailored insider-trading regulations for prediction markets. The proposed legislation acknowledges the value prediction markets offer and emphasizes regulation over prohibition.

While Europe has generally treated prediction markets as unlicensed gambling and imposed stringent restrictions, the United States currently faces a decision point regarding how to integrate these emerging platforms into its regulatory framework. Policymakers are weighing the historical lessons and potential benefits as they consider the future of prediction markets in the American landscape.