Executive Summary

Platforms like Kalshi, federally regulated exchanges that let users trade “event contracts” on real-world outcomes, have moved prediction markets from a niche academic tool into the mainstream of finance, media, and gambling. Kalshi is licensed by the U.S. Commodity Futures Trading Commission (CFTC) as a designated contract market (DCM) to offer “event contracts” on everything from macroeconomic indicators to crypto and, increasingly, sports and politics. 

At the same time, Kalshi is partnering with major news networks like CNN and CNBC, and is at the center of court fights over whether its products are federally regulated derivatives or effectively a backdoor to nationwide sports and election betting. 

This paper explores two core concerns:

The epistemic problem: when markets like Kalshi are framed as predictive—often with media amplifying their prices as “what the market thinks”—they risk being treated as authoritative truth signals rather than noisy, incentive-distorted guesses. The moral problem: what does it mean, ethically, to place money on one’s thoughts about the future, especially when those thoughts concern other people’s suffering, elections, or the careers of individuals who never consented to be wagered upon?

We argue that:

Prediction markets can create socially valuable information and hedging opportunities but They also blur lines between investment, gambling, and civic life; They pose special risks when they commodify decisions of identifiable persons (e.g., student-athletes) and public-interest events (elections, wars, deportations);  Their “predictive” aura can distort public discourse, undermine trust in elections, and exacerbate problem gambling and regressivity.

The paper concludes with design principles and policy recommendations to bound the harms while acknowledging any legitimate uses.

1. Background: What Kalshi-Type Markets Are

Kalshi is a U.S.-based event-contract exchange. It:

Operates as a CFTC-regulated designated contract market (DCM) under the Commodity Exchange Act.  Offers yes/no contracts that pay out a fixed amount if an event occurs (e.g., “Will core CPI be above 3.0% in December?”). Prices (e.g., $0.43 for “Yes”) are interpreted as implied probabilities (43%).

Since a key legal victory against the CFTC in 2024, Kalshi and similar platforms have expanded into contracts on elections, crypto, climate, financial indicators, and—most controversially—sports. 

Regulatory tensions include:

Election markets: The CFTC previously tried to block Kalshi’s congressional control contracts, citing concerns about election integrity and manipulation; courts sided with Kalshi, enabling legal election betting under federal derivatives rules.  Sports markets: Nevada and other states argue Kalshi’s sports contracts are simply unlicensed gambling, and a Nevada court recently ruled that state gambling laws do apply to Kalshi’s sports contracts despite its federal registration.  College athletes: The NCAA has publicly blasted Kalshi for pursuing contracts on whether specific athletes enter the transfer portal, warning of harassment, exploitation, and pressure on individuals. 

The result is a hybrid creature: officially “financial derivatives” in federal law, but functionally overlapping with gambling, media commentary, and political forecasting.

2. Prediction vs Gambling vs Insurance: Conceptual Distinctions

To diagnose the ethics, we need to separate three overlapping frames:

Prediction mechanisms Academic prediction markets (e.g., early university-run platforms) were designed to aggregate dispersed information and improve forecasts. In theory, traders with better information profit, and prices approach the “crowd’s best guess.” Gambling platforms Here, the primary purpose is entertainment and speculative thrill; losing money is expected for most participants. Outcomes (sports, lotteries) often have little direct economic or policy relevance to the bettors’ livelihoods. Risk-management tools (insurance/hedging) Firms (and sometimes individuals) use derivatives to hedge exposures they already have (e.g., airlines hedging fuel prices; farmers hedging crop prices).

Kalshi and similar platforms attempt to occupy all three spaces at once:

They claim information aggregation and risk management roles to justify CFTC oversight as derivatives.  Their user experience and marketing, and their partnership with news outlets, invite retail users to treat participation as both entertainment and speculative investing. 

Ethical questions become sharper precisely because these roles are blurred:

Are participants investors, gamblers, or a mixture? Are contracts a form of insurance (hedging business or personal risk) or simply bets on beliefs?

3. The Epistemic Concerns: When “Prediction” Becomes Authority

3.1 The aura of objectivity

Media partnerships that place Kalshi prices alongside polls and expert commentary implicitly frame these prices as objective, data-driven measures of “what’s really likely.” CNN and CNBC’s deals with Kalshi exemplify this shift from treating betting odds as a marginal curiosity to using them as a central forecasting tool in news coverage. 

Risks:

Over-credence: Viewers may treat market odds as more reliable than they are, disregarding structural biases, thin liquidity, or manipulation. Self-fulfilling dynamics: For elections or corporate events, appearing “favored” in markets can influence donors, turnout, or strategic decisions.

3.2 Manipulation and expressive trading

Historical cases show that political markets can be manipulated—e.g., heavy wagers on an unlikely candidate made an election look closer than it was. 

On modern platforms:

Large actors can move prices cheaply in illiquid markets to create a perception of momentum or inevitability. Many traders trade expressively (to cheer for or against a candidate or outcome) rather than to profit, which can distort prices away from “true beliefs.” 

If Kalshi prices are given epistemic authority, yet are shaped by expressive and manipulative flows, society risks:

Mistaking emotional commitment for informed judgment; Allowing rich or organized actors to “buy the narrative.”

3.3 Information asymmetry and insider concerns

Kalshi prohibits trading by insiders who can materially influence outcomes, and bans wash trading, spoofing, and other manipulative practices. 

But ethical questions persist:

Enforcement limits: Detecting who truly has insider information—or the ability to influence a political or corporate outcome—is hard. Legitimizing monetization of privileged knowledge: Even with formal rules, there is a moral question about normalizing profit from privileged access regarding public-interest events.

4. The Moral Concerns: Betting on Futures Involving Real People

The second axis of concern is more directly ethical: what are we doing when we put money on our thoughts about the future, especially when those futures involve other people’s lives and public goods?

4.1 Commodifying harm and sensitive events

Prediction markets increasingly allow or contemplate contracts on:

Elections, wars, and deportations;  The careers and choices of individual college athletes (e.g., transfer portal decisions);  Other potentially harmful events (e.g., disasters, corporate collapses).

Ethical worries:

Moral distancing – Treating serious events (war, deportations, democratic breakdowns) as price movements can dull moral sensitivity, making tragedy feel like a trading opportunity rather than a wrong to be prevented. Incentives to root for harm – When someone stands to gain financially from a crisis, they may—at least psychologically—root for it, or become less motivated to help avert it. Exploitation of non-consenting individuals – Student-athletes, immigrants, or ordinary citizens become the subject of wagers without ever consenting to have their personal decisions or vulnerabilities turned into speculative instruments. The NCAA has explicitly warned that such markets risk harassment and exploitation. 

4.2 Democratic legitimacy and trust

Betting on elections raises additional concerns:

Perceived corruption – If large pools of capital are visibly betting on outcomes, citizens may suspect that policy and campaign decisions are driven by those with the largest bets.  Undermining confidence – If odds swing dramatically close to an election, losing sides may interpret this as evidence of manipulation or insider knowledge, eroding trust in the process.

Regulators have already cited real cases where political prediction markets were used to shape perceptions rather than simply reflect information. 

4.3 Addiction and regressivity

From a social-justice and public-health angle:

Prediction markets share core behavioral features with other forms of gambling: intermittent rewards, near-miss effects, and rapid feedback loops. Evidence from sports betting suggests such platforms can exacerbate problem gambling and have regressive impacts, with lower-income users bearing disproportionate losses. 

When prediction markets are framed as rational forecasting tools or sophisticated financial products, vulnerable users may underestimate their risk and over-commit capital.

5. Governance and Jurisdiction: Who Is Responsible?

The legal gray zone around Kalshi underscores deeper ethical questions about responsibility:

Kalshi argues its event contracts are federally regulated derivatives that enable both risk management and information discovery, not traditional gambling.  States like Nevada argue that allowing retail users nationwide to bet on sports outcomes undermines state authority to regulate gambling and protect consumers. 

This tug-of-war has normative implications:

Fragmented accountability – When federal and state regulators disagree, each can point to the other, diluting responsibility for harms (e.g., addiction, harassment of athletes). Regulatory arbitrage – Platforms can structure products to qualify as “financial instruments” federally while functioning like gambling in practice, sidestepping consumer-protection regimes designed for bettors. Media complicity – When news organizations embed odds supplied by a for-profit exchange into their coverage, they effectively participate in marketing and normalizing the betting ecosystem. 

Ethically, this calls for clearer boundaries:

What should be treated as investing versus gambling versus forecasting infrastructure? Which regulators—and which professional codes (e.g., journalism ethics)—bear primary responsibility?

6. Ethical Frameworks for Evaluating “Money on Thoughts”

Different moral frameworks highlight different aspects of “betting on beliefs about the future”:

6.1 Utilitarian / consequentialist

Key question: Do the benefits outweigh the harms?

Potential benefits:

Better forecasts that improve policy or business decisions (e.g., contracts on inflation, Fed decisions, or macroeconomic indicators).  Genuine hedging opportunities (e.g., a small business hedging interest rate risk). Price discovery about hard-to-measure probabilities.

Potential harms:

Addiction, financial ruin, and regressivity; Erosion of trust in elections and public institutions; Harassment of individuals whose personal choices become tradeable; Epistemic distortions when markets are thin or manipulated but treated as authoritative.

From a straightforward cost-benefit perspective, the strongest case for such markets is in institutional hedging and policy-relevant macro events; the weakest case is in markets on vulnerable individuals, democratic processes, or events of human suffering.

6.2 Deontological / rights-based

Here, the focus is on duties and rights, not just outcomes.

Problems include:

Using persons merely as means: Betting on a student-athlete’s transfer decision or an asylum seeker’s deportation treats their life circumstances as objects for others’ financial gain.  Violation of democratic respect: Treating elections primarily as speculative vehicles undermines the idea that citizens’ votes are expressions of equal political agency, not chips in a betting game. Consent: Individuals whose lives and choices are the underlying “asset” have not consented to this use.

On this view, some categories of event contracts are intrinsically objectionable, regardless of aggregate utility.

6.3 Virtue / character ethics

This perspective asks: What kind of character and civic culture do these practices cultivate?

Questions include:

Do prediction markets invite prudent assessment of risk, or do they encourage greed, voyeurism, and cynicism about politics and suffering? Do they foster intellectual humility (“the market might be wrong”) or epistemic arrogance (“the price is truth”)? Do they train citizens to be engaged democratic participants or spectators betting on a spectacle?

From a virtue-ethics standpoint, markets on elections, wars, or individual hardships risk cultivating the wrong sort of citizens—even if they sometimes produce decent forecasts.

7. Design Principles and Policy Recommendations

Given these concerns, what guardrails are appropriate?

7.1 Product-level constraints

Ban or strictly limit markets on vulnerable individuals Prohibit contracts on the personal decisions or status of identifiable individuals who are not public-figure professionals (e.g., student-athletes, minors, ordinary employees). Respect explicit objections from institutions representing such groups (e.g., the NCAA).  Restrict markets on elections and severe harms Limit or prohibit consumer access to markets on core democratic events (elections, fundamental rights decisions) where trust and legitimacy are paramount.  Ban contracts that directly reward the occurrence of disasters or human rights abuses (war, deportations, terrorist attacks) except in narrow, institutionally justified hedging contexts. Segmentation between hedging and speculation Create product classes reserved for bona fide hedgers (firms, NGOs, public agencies) with documented exposures. Restrict retail participants to markets that have clear entertainment or investment purposes without commodifying sensitive events. Transparency and anti-manipulation safeguards Publicly report large positions and concentration of exposure to discourage stealth manipulation. Require clear, audited internal controls on insider trading and integrity monitoring, with regular independent reviews.

7.2 Platform and UX ethics

Honest framing Avoid presenting prediction markets as easy investing or guaranteed ways to beat the crowd. Prominently disclose loss rates, volatility, and problem-gambling resources, similar to requirements in licensed gambling. Friction and limits Implement default deposit and loss limits; require extra friction for raising them. Slow down rapid-fire trading features that mimic slot-machine dynamics. Epistemic humility in interfaces Frame prices explicitly as market-implied probabilities with disclaimers about uncertainty, liquidity, and potential manipulation. Provide historical comparisons showing where markets were wrong to counteract over-credence.

7.3 Media and institutional boundaries

Journalistic ethics for odds usage News outlets should not integrate live betting odds into coverage without clear disclaimers about who supplies them, who profits, and how reliable they are.  Editorial codes should treat odds like polls: subject to skepticism, methodology disclosure, and context—not as headline-level “truth.” Firewall between editorial and commercial relationships Where media outlets partner with platforms like Kalshi, they should clearly separate editorial judgment from commercial promotion and disclose conflicts to audiences. Regulatory coordination Federal (CFTC) and state gambling regulators should jointly define criteria distinguishing financial derivatives, forecasting tools, and gambling products, reducing arbitrage and ambiguity. 

7.4 Individual ethical guidance

For individuals considering participation:

Treat event-contract trading as speculation with high loss risk, not as a reliable income source. Reflect on what you are betting on: is it a macro indicator or someone’s hardship, civic rights, or dignity? Ask whether your betting shapes your moral stance—are you rooting for an outcome that would be bad in every other respect just because you’d win money?

8. Conclusion

Platforms like Kalshi occupy a powerful and contested space at the intersection of finance, gambling, and democratic life. Their defenders emphasize information aggregation, risk management, and the “wisdom of crowds.” Their critics warn about back-door gambling, manipulation, and the commodification of events that should not be turned into tradeable entertainment.

The phrase “placing money on thoughts about the future” captures the core tension:

At best, it is a disciplined way to put skin in the game and reveal genuine beliefs. At worst, it is a way to monetize every aspect of collective life—elections, tragedies, personal decisions of strangers—turning civic seriousness and human vulnerability into just another asset class.

The key ethical task is boundary-setting: allowing the limited and careful use of prediction markets where they genuinely enhance decision-making and hedging, while drawing clear lines against markets and media practices that corrode trust, exploit individuals, or surrender public judgment to the illusion that “the price is always right.”