Note: Part 1 showed how Betting Markets can complement and substitute polls.
My “Safe Bet” op-ed in the Wall Street Journal (August 1, 2003), suggested that relying on information derived from existing financial markets, and complementing it with those from “betting markets” about military and political events, would offer better ways to manage businesses than relying on military and other experts’ opinions or polls.
Since then, betting markets, particularly in the UK, ventured into political bets. In the U.S., Polymarkets and Kalshi are much in the news because of their Iran war related bets – following their real-time produced probabilities proving to have been more accurate than polling in predicting Donald Trump victory.
Although regulations of these new markets are not yet resolved, the facts have long showed that settled gambling and betting markets have solved a variety of important problems, including fraud in sports. Others, such as betting markets substituting for unreliable polls that Seymour Lipset documented so well 50 years ago, are still to come once the U.S. courts clarify their decision about these new markets.
What problems with politics and warmaking events would betting markets help solve?
Consider traditional insights derived from financial markets since the most recent war started. The Israeli shekel is at the highest level in 30 years relative to the U.S. dollar, up 25% since 2015. Since 2024, its stock market up 150% vs. S&P up 44%.
The Israeli market continued to go up as Israel was winning this and previous wars against a ruthless theocracy (ruling over 90 million people) and its networks in Gaza, Lebanon and Yemen, a theocracy declaring daily to wipe out both Israel and the U.S.; killing hundreds of Americans around the Middle East, thousands in Manhattan – and, not to be missed, declaring curse on the 16 million Jews everywhere, only 10 million of whom living in Israel, the rest being American, French and Australian citizens.
The fact that U.S. dollar is up, Nasdaq same level as before the war, and Middle Eastern stock markets having not declined much despite Iran unexpectedly attacking them, all suggest expectation of Iran regime being defeated, and that the area not moving toward greater escalation. The reactions have precedents: In the month following March 17, 2003 -- the day President Bush gave his ultimatum to Saddam Hussein -- Egypt's and Iran's stock markets rose by roughly 6%, Turkey's by 18%, Israel's by 15%. These numbers suggest that societies expect to be better off when ruthless dictators disappear, even if this requires wars to throw them out.
If stock and bond markets already price implicit risks associated with chances of regime changes – what can betting markets add? The answer is that it would generate probabilities separately, and derive prices that were previously embedded in complex financial instruments.
Back to 2003: the Pentagon then announced a plan to launch a futures-trading market to price the risk of terrorist attacks. When word of the plan got out, many attacked, called it offensive and unwise – which it was, in the sense that the Pentagon should not have even contemplated its financing.
But critics’ objection was different: that such markets’ existence would encourage people to own a purely financial interest in the events, say, of killing Osama Ben-Ladin at the time, or applied to now, killing both Khamenei and his odious entourage. Critics added that there is a sharp distinction between such market and customary financial ones, insurance and futures markets included. They stated that futures markets require that one party benefits from a future event, and another not. This is why futures markets, they said, include the producers and the consumers of commodities: They're the ones who have the most to gain or lose from the outcomes.
The arguments were mistaken then, and mistaken now. The “bets” help derive probabilities and prices that previously did not exist, allowing companies to better hedge their exposures, focusing on their lines of business, rather than staying exposed to political events not under their control.
If there were now futures markets in events -- say "U.S. victory in four weeks", or “6 months for Saud Arabia to sign the Abraham Accords,” investors could get back to pricing regular securities based on a company's fundamentals, outsourcing exposure to political and military events. The benefits would accrue to investors, to companies’ employees and customers, who would all benefit from the companies’ better ability to specialize. To be clear: betting markets do not predict the outcome of the event. The numbers generated in these markets reveal how much money people are willing to bet on particular outcomes, whether they like that outcome or not – but they spread the risk, by creating a “price” for uncertainty, that was previously not priced.
As to the perception that terrorists could profit from these new markets, the same laws that prevent terrorists going short on some stocks (airlines and hotels before 9/11), and going long on others (surveillance and defense), would also prevent them from profiting in the new futures market. Owners of betting markets would have the obligation to inform defense officials about unusual deviations – as sports betting companies have long been doing. Not perfectly – but then nothing and nobody is perfect.
Consider then the “Khamenei bets”: The bets were not designed to “profit from death” – inflammatory, emotional terms, similar to those used centuries ago when people objected to the creation of companies wanting to sell “life insurance.” Their point was that only the Creator rules in terms of life and death. The reference to “death” was to keep the question simple, and able to settle contracts easily. Perhaps future contracts on disposal of ruthless dictators will use the less emotional term - “elimination” - which does exclude “death,” but allows for the life-preserving option of a Bashar-al-Assad, Syria’s bloodthirsty dictator, leaving Syria for Russia, such rulers’ sanctuary – if they have solid bank accounts.
Indeed, Tarek Mansour, Kalshi’s CEO admitted that the words may not have been precisely defined, and the company is “reimbursing all fees from this market: If you have a position from before Khamenei died, you will be paid out on the last-traded price before his death; If you have a position from after he died, we’re going to fully reimburse your cost of entry.” Learning by doing – as expected in markets in their infancy, which the political betting markets are.
Last year prediction markets saw $47 billion in global trading volume. Still, ICE, New York Stock Exchange parent, has taken a $2 billion stake in Polymarket, and trading platform Plus500 launched prediction markets through a partnership with Kalshi. As to the recent war, $529 million was laid on Polymarket contracts tied to the timing of attacks, returning payouts to those who bet on Saturday as the date of the first strikes, with still $150 million disputed contracts on the removal of Khamenei as supreme leader.
On February 17, 2026, the Commodity Futures Trading Commission filed an Amicus Brief in the U.S. Court of Appeals for the Ninth Circuit case North American Derivatives Exchange, Inc. v. State of Nevada, marking the first formal judicial intervention over the legal status of event contracts and prediction markets. Hopefully, the courts will not repeat making the mistakes courts, politicians, ideologues and academics have been making for centuries and millennia about stock, futures and commodity markets. Inadvertently or on purpose, they turned real issues into “moral ones” for too long, playing in the hand of rulers dead set against dispersion of their powers. Yet that’s exactly what deepening financial and betting markets achieve – which is why they are still rare.
