The Long History and Modern Evolution of Prediction Markets

Although prediction markets may seem like a novelty, the practice of betting on the outcomes of important events has a long history in fields such as politics. Informal prediction markets can be traced back thousands of years, involving various events such as the outcomes of military wars, the selection of the next king, and even the results of the Chinese imperial examination.

In the early 16th century, a more formal prediction market emerged in Italy, where people predicted the next pope's candidate through the market and quoted odds in letters. In 1591, Pope Gregory XIV issued the first formal "regulation" regarding prediction markets, prohibiting betting on the outcomes of the pope's secret meetings.

In the early 18th century, coffee houses in London began trading information about parliamentary scandals and changes in prime ministers. This kind of trading became commonplace in high society, with odds even published in newspapers. British Member of Parliament Charles James Fox became the first recorded "whale" figure, investing heavily in political event predictions and ultimately going bankrupt.

In the early 19th century, prediction market betting also appeared in the United States. James Buchanan, who later became president, lost three plots of land due to a failed election wager. John Van Buren became the first recorded American "gambler," placing large bets in the 1834 midterm elections.

The more formal prediction market in the United States is centered around billiard halls in New York City. After the disputed results of the 1876 election, the billiard hall owner "Old Smoke" Morrissey decided to refund all bets but retain the commission. At that time, the betting odds were often cited in journals, becoming an important indicator of public opinion.

Until 1936, Gallup polls replaced betting odds as a reliable indicator. Since then, the reporting of odds has drastically decreased, and New York's betting market became taboo during and after World War II.

In the 1960s, British bookmakers began to gamble on elections. The tradition of the British regularly betting on elections continues to this day, with Betfair Exchange becoming the largest peer-to-peer betting market in the world.

In 1988, the Iowa Electronic Market was launched as an academic experiment, using a 0-100 pricing model. In 2002, Intrade/Tradesports went live, offering peer-to-peer binary contract trading based on event outcomes. The website became the preferred source for political odds during the presidential elections in 2004, 2008, and 2012.

In 2014, PredictIt became the successor to Intrade in the United States, but was issued a "no action" letter in 2022 for providing market data that the CFTC deemed overly geared towards gambling.

The year 2020 witnessed the birth of contemporary prediction markets: Polymarket and Kalshi. By 2025, these two companies dominated the prediction market industry. Kalshi received full approval from the CFTC to conduct market trading based on events; Polymarket, on the other hand, is a website based on cryptocurrency where all transactions are conducted on-chain.

The future of the prediction market may depend on how these two companies compete for dominance. Regulatory issues remain a significant challenge in the United States, especially considering that Kalshi is challenging the legal boundaries in the sports sector.

Overall, prediction markets may face suppression, but they will continue to emerge whenever there is an opportunity. They provide a platform for people to support their opinions with money, helping to unlock collective wisdom. However, we should not view prediction markets as a panacea for foreseeing the future, but rather as a better tool to help us gain insights into possible future directions.