WASHINGTON, Sept 9 (Reuters) – Prediction markets tracking this year’s U.S. congressional elections are “extremely vulnerable” to manipulation as their forecasts can shift on even comparatively small-dollar wagers, according to research published on Wednesday.
The findings from the non-profit research group Anti-Corruption Data Collective are likely to amplify concerns from Democrats and consumer advocates that betting on political races jeopardizes public confidence in the electoral system by potentially casting doubt on outcomes or encouraging insider trading.
Representatives for Kalshi and Polymarket, which currently dominate the U.S. prediction market industry, rejected the findings, however, saying Wednesday that market forces created a financial incentive to correct distorted prices by encouraging punters to wager on the better likelihood.
The booming prediction market industry allows users to bet on the outcomes of virtually anything, including sports, war, drug trials and elections. Proponents often say the probabilities such markets indicate amount to valuable forecasts, with multiple major media outlets citing market odds in their coverage.
According to the report, for example, in more than 11,000 of the markets tracking congressional races this year across Kalshi, Polymarket and Polymarket’s U.S. platform, virtually all, or 94%, would see a movement equivalent to 10% in probability following a single bet of less than $1,000. In hundreds of cases on Polymarket, the report said, markets retained their new level for 24 hours and typically did so for around four days.
ACDC researcher Michelle Kendler-Kretsch said political prediction markets attracted large dollar volumes not motivated by short-term profits, which undermined the prediction markets’ claims to accuracy.
“The conditions for accuracy are not being met in markets about the November midterms and primaries,” she said in a statement.
A Kalshi representative said to the contrary that a recent company case study showed that, even after a trader had poured more than $1 million into a market concerning former Los Angeles mayoral candidate Spencer Pratt, “prices corrected in just nine seconds.”
A Polymarket spokesperson likewise said that mispriced odds spelled opportunity for other traders: “They are incentivized to get the price back to what you would expect it to be.”
(Reporting by Douglas Gillison in Washington; Editing by Andrea Ricci )
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