The Nobel laureate who shared the 2012 economics prize for his work designing markets is skeptical that prediction markets are the “truth machines” Kalshi CEO Tarek Mansour has called them.

In an interview with Benzinga after the release of his new book Moral Economics, Stanford economist Alvin Roth said the strongest use-case for the technology may not be public platforms like Polymarket or Kalshi, but inside corporations.

He described a scenario where engineers building a product know about delays that senior executives, working from optimistic reports, do not. A prediction market inside the company can get the information to the top faster.

On Elections, The Case Is Weaker

On the public-facing markets that draw the headlines, Roth was more measured.

He said election markets are unlikely to face serious insider-trading risk, but neither are they guaranteed to beat good polling. “I don’t know that prediction markets do a lot better on elections than good polls do,” he said.

He flagged a different concern: manipulation. State actors or well-funded propaganda operations could push large sums into a market to engineer a favorable price.

The Point-Shaving Comparison

Roth drew a historical contrast with older forms of sports gambling corruption. In the point-shaving era, syndicates approached athletes and asked them to win by fewer points. Today, bettors can wager on a single play, a single pitch, a single referee call.

That shift, by his reading, dramatically increases the surface area for what he called “sinister influence” on sports.

The CFTC’s recent rulemaking proposal flags exactly these contracts, including bets on player injuries, officiating decisions and discrete in-game actions, as likely to be found contrary to the public interest.

On Insider Trading, Look Elsewhere

Some industry figures have argued that insider trading on prediction markets is a feature rather than a bug, on the grounds it makes prices more accurate. Roth partially agreed, while drawing a sharp line between prediction markets and securities markets.

Securities markets exist in part to help companies raise capital, he said, which requires public trust. Prediction markets do not carry the same burden, so the harm from insider activity is less clear.

He added that if real insider trading is happening off political news, the likelier venue is the commodities market. “The price of Brent Crude moves rapidly when the president says something,” Roth said.

When DARPA Tried To Build A Prediction Market

The first prediction market to draw public outrage, Roth said, was a 2003 proposal by the Pentagon’s research arm to forecast geopolitical events. Critics branded it a “terrorist prediction market” and it was killed inside a week.

Roth said the outcry got the mechanics wrong. Terrorists looking to profit from advance knowledge of an attack like September 11 could have made far more money, with far less traceability, by shorting airline stocks on the New York Stock Exchange.

Bans Need Social Support

Roth told the story of “The Numbers,” an illegal lottery that thrived in New York City for decades before state lotteries became legal. The operators proved their fairness to bettors by using the last four digits of a Long Island racecourse’s daily revenue, a number that appeared in the newspaper every day.

The point, he said, is that bans on markets need social support to work, the same way legal markets do. The Numbers had that support; the ban on it didn’t.

Roth floated one concrete consumer-protection idea: letting users set a hard spending cap before a game starts, locking it in so the limit holds even when the impulse to keep betting takes over.

He was more skeptical of Kalshi’s recent move requiring some traders to disclose their employer, citing privacy concerns.

About The Book

Moral Economics: From Prostitution to Organ Sales, What Controversial Transactions Reveal About How Markets Work is out now from Basic Books.

The book is about the markets society can’t quite decide whether to allow: sex work, surrogacy, drug policy, medical aid in dying, paid plasma and kidney transplants.

A recurring argument is that bans on markets, when they lack social support, give rise to black markets rather than eliminate the underlying demand. It is a fun and sharp read, and a rare economics book you will actually finish.

Image: Shutterstock

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