How Ideology Could Hijack Betting Markets: The Risks Behind 2024 Presidential Bets
The 2024 presidential election isn't just a battle for America's future; it's also fertile ground for those bold enough to place bets on the outcome. Betting markets, such as Polymarket and Kalshi, promise fortunes to those who think they can predict what half the country seemingly can't. I, like many others, was recently lured by the fascinating spread between these two betting markets. Kalshi's line stood at 63% favoring Trump, while Polymarket pegged Trump's chances at 66%. There appeared to be an opportunity to arbitrage the differences—but the exercise sent me down a surprising rabbit hole.
The essence of arbitrage lies in exploiting discrepancies to generate profit with minimal risk. Assuming I had $50,000 to bet, I calculated that I could bet $32,474.23 on Trump to win on Kalshi at 63% and $17,525.77 on Trump to lose (or Harris to win) on Polymarket at 34%, and, regardless of the victor, secure a gross profit of $1,546. If Trump won, my gross earnings from Kalshi would be $51,548.77, and if Harris won, my gross earnings from Polymarket would be $51,546. Accounting for fees, that profit would net me $1,221.65 if Trump won, or $865.97 if Harris emerged victorious. The numbers were enticing, if not exactly fortune-making.
However, there was another factor to consider: the risk-free rate of return. If I had simply left the $50,000 in a bank account with a 5% interest rate, I would have made $502.47 with zero risk. This comparison highlighted that my arbitrage opportunity was not significantly more profitable than simply parking the money in a savings account. The modest gains and added complexity made me question whether the risks involved were truly worth it. It was this realization that led me to take a closer look at the inherent risks, particularly the risks of actually getting paid in a timely and fair manner.
The devil—as it usually is in politics—was in the details. The winning criteria for each market differed subtly but significantly. Polymarket determines its winner once all three major news networks (AP, FOX, NBC) declare a victor. If they don't reach a consensus, the eventual occupant of the Oval Office prevails. Kalshi, on the other hand, bases its decision solely on the candidate sworn in on January 20th. Suddenly, my modest profit became a moving target. If Trump won, Polymarket could pay me out on November 5th or 6th, whereas Kalshi wouldn't finalize until January 20th. This meant that, assuming Trump won, I would be holding onto my Kalshi bet until January, while already having received the payout from Polymarket—thus increasing my net profit to $1,485.75 if Trump won. The differential—in terms of time and compounded uncertainties—made an already slender margin even more precarious. And in this moment of clarity, I realized my bets were not just against political fate but against the whims of powerful institutions with dubious motivations.
This revelation propelled me to examine recent precedents. The Venezuelan election debacle on Polymarket came to mind—a reminder that betting markets are not purely transactional entities. Venezuela's government had declared Maduro the victor, and yet Polymarket, influenced by U.S. media narratives, opted to crown the opposition, Emundo Gonzalez, as the true winner. This meant that the man actually occupying the presidency, Maduro, was not recognized as the winner by Polymarket, even though he held the position of power and control in Venezuela. Polymarket decided that the rightful winner should have been Gonzalez, based on U.S. reports of fraud by Maduro. As a result, they gave the winnings to people who bet on the loser—simply because Polymarket decided that, absent Maduro's cheating, Gonzalez would have won. Gonzalez now lives in Spain in a seaside villa—not in the presidential palace. This is not a way to run a betting market.
Imagine if you placed a bet on the Super Bowl and the team you bet to lose benefited from a bad call—a bad call that was confirmed after the game ended and the title was awarded. Imagine if Polymarket then decided the true winner, had it not been for that call, was the team that lost, and thus awarded the payout to those who bet on the losing team. What kind of turmoil would this cause? The truth is that bettors factor in risks, including fraud, mistakes, and unexpected events when they make their bets. If a betting market can decide that the 'wrong' person was inaugurated on January 20th, it undermines the foundational assumption of betting: that reality, as it happens, is what determines outcomes.
Furthermore, consider the scenario where Polymarket's three chosen news outlets (AP, FOX, NBC) declare Harris the winner, but ultimately Trump is the one inaugurated. Polymarket would have already paid out based on the media declarations. How would they deal with such a situation? This isn't just a hypothetical risk; it is a fundamental flaw in how these markets operate when faced with complex political realities.
The incident presented a cautionary tale. The danger wasn’t limited to the disarray of Venezuelan politics; it was a glimpse into how malleable these betting markets could be, especially when motivated by sentiment or ideology. After all, what happens when ideology is wielded as a cudgel, dismissing objective reality? Could Polymarket have declared Hillary Clinton the winner in 2016 if enough news outlets deemed Trump's victory fraudulent?
For all the statistical beauty of arbitrage, it soon became evident that trusting these markets required a leap of faith beyond mere mathematics. With billions of dollars riding on the outcome of the 2024 election, one has to wonder: How impartial are these platforms? Could executive biases shape outcomes to fit personal or political ends? After a deep dive into Federal Election Commission (FEC) records, the biases of these companies became alarmingly clear. The leadership of Polymarket showed overwhelming support for anti-Trump entities, with significant contributions to anti-Trump PACs, the DNC, and Kamala Harris's campaign. Kalshi, conversely, leaned towards Trump. The impartiality one expects from a market-maker was absent—replaced by a politicized game of chance—if history is any guide.
This skepticism about betting markets is echoed by numerous analysts and commentators. Many argue that betting markets can offer a more accurate reflection of political sentiment compared to traditional polls. This argument hinges on the idea that those placing bets are literally putting their money where their mouths are, making them potentially more informed and less biased than respondents answering pollsters' questions. A recent study suggested that betting markets, when they attract substantial volume, can indeed reflect a collective wisdom superior to that of individual polls. This is particularly true when conventional polling struggles with non-response biases or when social desirability skews the responses.
For instance, during the 2020 election cycle, betting markets such as Polymarket were lauded by some analysts for having better accuracy in predicting state-by-state outcomes compared to traditional polling averages. The logic is simple: people are financially motivated to be correct, not merely express their hopes. However, critics of betting markets point out that these platforms are not immune to manipulation. As volumes grow—such as the billions of dollars now being wagered on the 2024 race—it becomes increasingly challenging to ensure that no entity is using its financial weight to sway the odds and thereby influence public perception.
Critics also point to the Venezuelan election as a warning sign: if markets can be swayed by narratives rather than facts, they risk becoming more susceptible to manipulation than traditional polling. Where polls at least attempt methodological rigor—sampling a cross-section of the population and employing statistical adjustments—betting markets can reflect the loudest or richest voices rather than a genuine consensus. This vulnerability raises concerns about whether high-volume betting markets are a true representation of public sentiment or just a mirage crafted by those with vested interests.
The greatest risk of all—as the Venezuelan incident suggested—was the very possibility that these markets would ignore the actual, certified outcome. If Maduro, who controls Venezuela and presides over its governance, could be disregarded, what hope is there for a fair evaluation of a U.S. election result where partisan claims of fraud will be rampant regardless of the outcome? Democrats and Republicans have already planted the seeds, preparing their followers to claim victory or denounce fraud, depending on the results.
In such an environment, the legitimacy of a winner is as much a matter of public perception as it is a matter of actual votes cast. And therein lies the risk of betting markets for highly contentious political races. The danger isn’t just in a marginal profit disappearing into transaction fees or time delays. The true peril lies in the hijacking of reality itself. When a market-maker can choose to ignore the certified victor, and instead decide on the basis of ideological leaning, then the very foundation of what is being bet upon becomes quicksand.
Thus, my foray into the arbitrage between Polymarket and Kalshi was less an exploration of profit potential than a cautionary expedition into the murky depths of partisanship, influence, and outright manipulation. Betting on the 2024 presidential election isn't simply about picking a winner. It's about deciding whom you trust to tell you who the winner is—and in this brave new world, even that choice may not belong to you.