Author: John Stonestreet and Dr. Timothy D. Padgett
Earlier this year, Warren Buffet, sniped to Money magazine, “It’s tough to find values when everybody is preferring gambling.” His critique is not new. Until recently, historically speaking, philosophers and theologians argued that making money only off of investments was immoral. It’s not difficult to guess what they may have said about the proliferation of legalized gambling, whether in casinos or online, or the attempts to call if by a different name.
The most recent example is Kalshi, an online platform launched a few years ago by two MIT grads. Technically, Kalshi is not a betting service; it is a “derivative exchange,” sometimes called a “prediction market.” Instead of placing bets by a bookie or in a casino, people trade “contracts” or “shares” tied to real world events. Kalshi contracts can be on anything from political elections to financial exchanges to Oscar predictions. For example, Kalshi users could wager on whether Costco would raise the price of its hot dog combo because of inflation.
Think of Kalshi as a marketplace where, instead of buying stocks, you buy answers to future questions. Every contract is basically a Yes or No bet on whether something will happen. If you’re right, you get $1. If you’re wrong, you lose what you put in.
Due to its incredible success, Kalshi has become more than just a prediction market. For media outlets, the collective wisdom of “investors” on Kalshi and its competitor Polymarket are referenced by news sources as legitimate predictions of future events. Some small businesses have even taken to prediction markets to hedge against future risks. According to CNN, over $1.4 billion has been “traded on prediction markets” for next week’s mid-term elections.
In the past few years, the platform has handled over $52 billion and carries a valuation of over $22 billion, more than many countries. Unlike traditional betting sites, the company takes between .07% and 7% of each trade. As they say, the house always wins.
According to the letter of the law, Kalshi is not gambling. Rather than state-level gambling commissions, Kalshi is monitored by the Commodity Futures Trading Commission of the federal government. Many government agencies and watchdog groups rightly see this as a distinction without a difference. In Hawaii, for example, there are over 100,000 Kalshi users, though gambling is illegal there. Because of that and its effect on tax revenue, some state and local agencies have taken Kalshi to court to settle what it really is. Eventually, according to the company’s CEO, such questions will likely have to be settled by the Supreme Court.
The bottom line is, with Kalshi, people put up money based on their predictions of future events. If they are correct, they win. That is not investing, where one buys into a productive asset. It is gambling.
In his Sermon on the Mount, Jesus said, “Let what you say be simply ‘Yes’ or ‘No’; anything more than this comes from evil.” Contrary to what many have suggested, Jesus was not condemning oath-taking. Rather, he was challenging casuistry, the habit of using fine distinctions and technical definitions to get around telling the truth.
We might call gambling platforms “prediction markets.” We might call our bets “investments.” That will not change what Kalshi is, nor can our inventive language prevent the corruption as more and more of life is subjected to “investments” with “prediction markets.” Just as widespread sports gambling has corrupted sports, the fan experience, and even SportsCenter on ESPN, prediction markets will corrupt our elections. Even more it will corrupt users from being the kind of virtuous citizens our society so desperately needs.