Part one of “The price of tomorrow,” a series on prediction and futures markets.
In November 2024, something unusual happened in American newsrooms. Journalists covering the U.S. presidential election began citing Polymarket alongside Reuters and the Associated Press as a meaningful indicator of electoral probability. Polymarket is not a polling organisation. It is not a modelling outfit staffed by political scientists. It is a decentralised, crypto-native prediction market, built on a blockchain, operated by no single authority, and accessible to anyone in the world willing to trade in cryptocurrency. Its prices are not produced by analysts. They emerge from anonymous participants placing bets on binary outcomes.
That a platform of this description was being treated as a credible signal by professional journalists says something about how far prediction markets have come. It also raises the question what a prediction market is actually doing, and how it differs from the futures markets that have priced uncertainty in global finance for nearly two centuries?
The two instruments look superficially similar. Both produce a number that represents a claim about the future. Both attract participants who believe they know something the market has not yet priced. But beneath that surface similarity lies a deeper divergence, one that concerns not just the mechanics of each market but the assumptions they make about the nature of uncertainty itself.
Chicago, 1848
The futures market was not born in a trading room. It was born on the shores of Lake Michigan, out of a practical problem that was rooted in soil and seasons.
In the mid-nineteenth century, American grain markets were chaotic in a seasonal way. Harvests arrived in bulk, prices collapsed, farmers bore ruinous losses. Months later, supply dried up, prices spiked, and millers bore the cost. The Chicago Board of Trade, founded in 1848, introduced a solution: a standardised contract committing buyer and seller to exchange a fixed quantity of grain at a predetermined price on a specified future date. Risk was not eliminated. It was transferred. The farmer who could not afford to gamble on December prices locked them in. A speculator who believed prices would rise took the other side.
The premise of this arrangement is not prediction. It is management. The futures market was designed for a world in which the future is uncertain but not unknowable in its broad contours, and in which the primary problem is not figuring out what will happen but deciding who should bear the consequences when it does. In this sense, futures markets treat the future as something to be managed: parcelled out, hedged against, and absorbed by those best positioned to carry it.
That logic still governs the vast machinery of modern futures markets. When an airline buys jet fuel futures, it is not forecasting the price of crude oil with any particular confidence. It is removing a variable it cannot control from its operating model. When a portfolio manager shorts equity index futures, she may be expressing a bearish view, but she may equally be hedging an existing long position for reasons entirely internal to her fund’s risk management. The price that emerges from these interactions contains information, but it is information entangled with hedging pressures, institutional flows, and the structural needs of participants who are not primarily in the business of forecasting.
A different claim entirely
Prediction markets begin from a different premise. They are not designed to transfer risk. They are designed to aggregate information and forecast the outcomes of future events.
The structure is simple enough. A contract pays out one unit of currency if a specified event occurs and nothing if it does not. If you believe the probability of the event is higher than the current price implies, you buy. If you think it is lower, you sell. The price that emerges is, in principle, a direct expression of the market’s collective probability estimate. It is not a hedging instrument. It is an instrument of collective belief.
The intellectual tradition behind this is old, even if the instrument is not. Friedrich Hayek’s 1945 essay “The Use of Knowledge in Society” remains its most eloquent statement: no central authority can possess all the information dispersed across millions of individual actors, but a price mechanism can distill that knowledge into a single number that guides behaviour. Prediction markets take this Hayekian logic and apply it to a specific question with a verifiable answer. The result, when conditions are right, is a probability estimate that reflects not any single expert’s view but the aggregated judgment of everyone who has bothered to put money behind their beliefs.
The empirical record is credible enough to take seriously. Studies comparing prediction market prices to expert panels, statistical models, and opinion polls have repeatedly found that well-functioning prediction markets produce well-calibrated probability estimates. The Iowa Electronic Markets, which have traded U.S. presidential election outcomes since 1988, have outperformed conventional polls in most cycles. The underlying mechanism is Darwinian: traders who are systematically wrong lose money and eventually exit, while those who are well-calibrated profit and remain. Over time, this should push prices toward accuracy, provided the market is liquid enough and participation is broad enough for the mechanism to operate.
Where futures markets treat the future as manageable, prediction markets treat it as knowable. That distinction is more consequential than it first appears.
The decentralisation question
Polymarket sharpens this distinction considerably, because it adds a dimension that conventional prediction exchanges do not. There is no operator setting prices, no market maker with a structural interest in a particular outcome, no regulator mandating the terms of participation. Prices emerge from a global pool of anonymous participants trading in cryptocurrency, subject to no jurisdiction and answerable to no authority beyond the logic of the market itself.
That is a fundamentally different claim about who gets to set the price. A regulated futures exchange operates within an institutional framework that constrains behaviour, enforces transparency, and provides legal recourse. Its prices are produced by actors who can be identified, audited, and held accountable. Polymarket’s prices are produced by actors who may be anywhere, trading under any identity, with any motivation. The wisdom it claims to aggregate is, by design, ungoverned.
That is not necessarily an argument against it. Ungoverned does not mean uninformed. Some of the most accurate forecasting on Polymarket has come from participants who appear to have genuine analytical depth, and the platform’s record on political outcomes has attracted attention that is difficult to dismiss as coincidence. But the absence of institutional structure also means the absence of the safeguards that institutional structure provides. Concentrated positions, information asymmetries, and the possibility of manipulation are not theoretical concerns in a market where anonymity is a feature rather than a limitation.
Cousins, not twins
There is a temptation to treat this contrast as settled: futures markets are serious, institutional, and trustworthy; prediction markets are novel, speculative, and unproven. That hierarchy deserves some scrutiny.
The Chicago Board of Trade was not born legitimate. In its early decades it was regarded by many as a venue for gambling on grain prices, which, in a certain light, it was. The futures contracts that are now the bedrock of global commodity markets were once derided as “bucket shops” by critics who saw them as divorced from productive economic activity. The institutional legitimacy that futures markets now possess was not granted to them at founding. It was accumulated over generations, through a combination of demonstrated utility, regulatory incorporation, and the simple passage of time.
Prediction markets are earlier in that arc. They have demonstrated utility in specific domains. They are beginning to attract regulatory frameworks, with exchanges like Kalshi operating under oversight from the Commodity Futures Trading Commission. Whether they will travel the full distance from novelty to institutional infrastructure is not yet clear. But it is worth remembering that the question was once asked, and answered affirmatively, about instruments that are now considered indispensable.
What Polymarket’s moment in the 2024 election coverage actually revealed is not that prediction markets have surpassed futures markets as forecasting tools. Futures markets ask who should bear the risk, and at what price. Prediction markets ask what the collective intelligence of the market believes will happen. Anyone reading either instrument without understanding which question it is answering is likely to draw the wrong conclusions from the answer. And when the two instruments diverge, as they sometimes do materially, the gap between them is itself a question worth sitting with. If both claim to price the future, what determines which one deserves more trust?
The “Price of tomorrow” continues next month with part two: “The Ethics of Knowing,” on whether pricing the future carries a moral charge, and what the 2024 election’s most controversial trader reveals about the responsibilities that prediction markets create.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should conduct their own due diligence or consult with a financial advisor before making any investment decisions.
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