Prediction Markets: A Scandal Hiding in Plain Sight
- Mark M. Goldberg
- Nov 26, 2025
- 4 min read
Updated: Jan 30
November 26, 2025
A prediction market is nothing more or less than a wager on Monday Night Football. Whether the subject is an election, an economic report, or a celebrity outcome, the structure is identical: two parties take opposite sides of a binary event. One wins. One loses. Nothing is created in the process. Yet these products are now being integrated into the same interfaces where Americans hold their retirement savings.
Robinhood has launched a dedicated prediction-market hub and is expanding further through its acquisition of LedgerX. Their stated objective is to scale access to event-based contracts. Interactive Brokers (IBKR) has introduced its own “forecast markets,” allowing eligible clients to trade event contracts tied to elections, economic data releases, geopolitical events, and climate-related outcomes. These are not fringe experiments. These are regulated brokerage firms with millions of accounts—now offering products that appear like investments but act like wagers.
The scandal is not that prediction markets exist. The scandal is that they are embedded in investment accounts alongside ETFs, municipal bonds, and long-term savings vehicles, erasing the line that once separated investing from gambling.
A House Rake That Guarantees Losses
Prediction markets charge a house fee of about 1 percent on each trade. This means even if a participant is correct half the time—splitting wins and losses evenly—they still lose money, consistently and predictably. These are not investment markets with expected positive returns; they are engineered negative-return systems. The only way to come out ahead is to outperform the crowd and overcome the platform’s structural rake. That is gambling by definition, not investing.
The Opportunity Cost: Capital That Never Compounds
The most harmful effect is not the loss from any single contract. It is the quiet, steady diversion of household savings away from long-duration investment vehicles and into activities where every dollar wagered is a dollar that never becomes anything. That dollar does not build a semiconductor plant, support a clean-energy project, fund R&D, finance housing, or contribute to a family’s long-term wealth. It simply moves from one individual to another but only after the platform collects it “scrape” every single time.
Most Americans are already underinvested in productive, long-duration assets. Shrinking household balance sheets cannot support the level of capital investment this country requires. It is reflected in corporations' increasing use of debt capital. Yet we are diverting investor equity to making wagering frictionless!
This is capital misallocation at scale.
A Distortion of Market Purpose
Prediction markets do more than consume capital, they distort the purpose of markets themselves. Public markets are meant to reflect information, allocate capital, and reward productive enterprise. Prediction markets reflect sentiment, not value; emotion, not fundamentals.
They monetize events such as elections, economic releases, and policy shifts. They transform civic life into a betting pool and likely contribute to polarizing the populace all the while adding nothing to our quality of living. Even if the contract is masked as an outcome of a financial forecast, “Will GDP Growth exceed 2.5% in Q4?” it isn’t investing, it’s just betting.
This is not market innovation. It is the financialization of distraction.
The Regulatory Blind Spot
We regulate long-duration, professionally managed public and private market funds with extraordinary rigor. We impose extensive oversight on banks. We debate fiduciary standards for advisors and the suitability of investment products for retail investors.
Yet at the same time, we allow 18-year-olds to trade contracts on political outcomes, retail investors to speculate on binary events, and brokerage platforms to blur the line between investing and wagering. If the goal is investor protection, this makes no sense. This is the opposite of a coherent capital-formation policy.
A Better Direction: Guardrails, Not Bans
Prediction markets should not be housed inside investment brokerage accounts. Event-based trading should be subject to meaningful disclosures and suitability standards. Financial-education requirements should precede access to these products. Regulators should explicitly evaluate whether platform design induces wagering behavior within investment accounts. Policymakers should acknowledge the opportunity cost of household capital lost to zero-sum systems.
Conclusion: Choose Companies, Not Casinos
The United States became the world’s economic engine because it excelled at capital allocation. Rewarding the best ideas and companies to attract investment capital and grow.
That engine is now competing against frictionless machines that consume capital and produce nothing.
Prediction markets are not democratized finance. They are not investments. They are not sources of economic value. They are wagers embedded in platforms that were once designed for a different purpose. As we gather this Thanksgiving, younger generations will sit around tables with the people who built their lives not on wagers, but on work, saving, patience, and investment. It is worth reminding ourselves and them that wealth in America was created by building companies, not by betting on outcomes. Prediction markets risk teaching the opposite lesson. In a season meant for gratitude and perspective, we should be clear-eyed about what strengthens our future and what quietly drains it. The next generation deserves an economy rooted in opportunity, not odds.
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