Professor Koleman Strumpf has dedicated much of his career to studying prediction markets, earning recognition as one of the foremost experts in the field. His work with Professor Paul W. Rhode, exploring the history and performance of election traders going back to the 19th century, is a go-to resource for anyone interested in the topic. We spoke with Professor Strumpf about how Kalshi traders performed in the recent election, historical election trading, and where prediction markets are headed next.

^{This is an opinion, and is not financial advice. The author uses a pseudonym and cannot trade on Kalshi.}

Kalshi: I assume you were following our markets in the run-up to the election. Were you surprised by the outcome, or did you assume they would be pretty accurate?

Well, I mean, every election is a little bit different, so I wasn’t 100% sure what was going to happen. But, you know, my suspicion was that the markets were going to do pretty well, and that seems to be the case.

2024 was a huge vindication for the markets. I don’t know how else to say it, but all the polls and prognosticators were left in the dust. Nobody came close to the markets. They weren’t perfect, but they were an awful lot better than anything else, to say the least.

Kalshi: Based on the polls and the press, even I was a bit worried. And I work here.

I have this task for myself: I call my parents during each election night to tell them who the winner is. Obviously, I’m not watching CNN; I’m watching Kalshi and other markets.

I called my parents at 8:30, and I told them, “Donald Trump’s the next president.” They were busy being good citizens watching CNN, and, you know, CNN told them nothing.

That’s also pretty typical. If you want to know what’s happening that night, you look at the markets.

Kalshi: Did you see any parallels to previous elections from when trading was legal in the late 1800s or early 1900s?

At one point, there was this very closely contested election in 1916, and I thought this was going to be a little bit similar. Then about a week or so before the election, I changed my mind.

1916 was basically like the 2000 election. We didn’t know for months.

There were other elections that were somewhat comparable, with a relatively strong favorite that looked pretty similar.

In terms of historical parallels, one thing I’ve seen in interviews is people saying prediction market traders are a very unrepresentative group of people.

And one of the things we found in the historical markets was that the newspapers identified the names of all the people, so we were able to go back to census records and figure out who all the people trading in these markets were.

I would say every political prediction market I’ve ever seen, from the 19th century to the present, has a very unrepresentative group of traders in it. And it’s never been a problem for the markets because the goal of the market is not to express your own view but to guess what other people are going to do. So it’s not necessarily an issue for these markets, as the prices in the markets bore out.

Kalshi: So just because traders might be unrepresentative of the public doesn’t mean they’re not able to gauge public sentiment?

Right. You can have sports betting markets, you know, on games that are far away—there could be a game in California, and people on the East Coast can forecast it pretty well despite not being there and obviously not being players in the game.

Or, similarly, stock markets are composed of a very select group of people, and they do a pretty good job of forecasting things like stocks, future earnings, performance, and things like that.

So anyway, it’s not an issue specific to political futures markets. It’s a common thing in most of these financial markets.

Having said that, it’s a very tough sell. It’s very hard to explain to people who are used to only thinking about polls to wrap their head around this idea. So I try to express this when I talk to the media. I haven’t been very successful.

Kalshi: I had fears myself that perhaps our users were skewing too far for Trump. But obviously, that wasn’t the case.

I was actually in New York the weekend before the election, and I know I’d seen on Twitter all your outreach, your ads.

I was on the Upper East Side walking, and I went by a bus stop. I saw an ad with the current odds on it. So you guys were doing, in my opinion, an outstanding job doing outreach to regular people. People stop and look at that.

Kalshi: The more the merrier, obviously, from our point of view.

And at the end of the day, to get some buy-in from the media about whether these things are a good tool or not, I think it’s incumbent on us to have more people and a wider range of people in the market, even if it’s not 100% necessary for the markets to forecast.

Kalshi: Are you familiar with McSorley’s in New York? It’s one of the oldest bars in the city, and the reason I bring it up is because it’s basically a time capsule of the early 1900s, when election trading was at its previous height.

Oh, that’s interesting. I’ll look it up because it’ll be interesting to see if I can find some artifact. I’m not very good at getting around to places like that, or even historical societies, but I think a bar is more likely.

One of the things that was interesting to me when we were doing that research was, while there were these really formal markets, and these were rich stockbroker types that traded, everybody else also traded on the presidential election, as best we can figure.

And so people who either couldn’t get to the market or didn’t have money would do non-monetary bets.

Kalshi: I briefly spoke to your colleague, Paul W. Rhode. He mentioned some of these freak election bets, like literally eating crow?

Yeah, and pushing a peanut up the hill, and all that crazy stuff. And it’s hard to know exactly, but the newspapers were saying there were, like, billions of these things. I don’t think there’s anything today, not even the Super Bowl, that was as important in terms of betting as the elections were. Partly because there was no Super Bowl, and there were no polls. So this was a big spectacle to bet on.

Kalshi: It was a shared experience that you could have before mass communication like television and radio.

And it was fascinating because, like in New York—and I’m assuming the same kind of thing happened in other cities—I was like, “Well, how do they tell people what happened?”

And they had a series of klieg lights that they used, like for movies. And it was like, if the klieg light goes to the East River in this many pulses, that means the Democrat won.

There was this whole system, and people knew what these lights meant for an election outcome. So people were looking at the sky. It sounds bonkers. If I could have a time machine, it definitely would be on my list of things to go look at during elections.

Kalshi: During the run-up to the election, you kept seeing accusations of market manipulation in the press and on social media. What did you make of that?

I’ve been interested in the question of manipulation in these markets for a long time, both historical and modern. And what you just described is what happened in all the historical markets.

In the month before the election, whichever side was losing would always accuse the other side of pumping money and pushing up prices.

And when you dig into it and see, the answer was no.

So anyway, short answer to the big question: there seems to be virtually no evidence that there was manipulation in this market? There were large investments, and there’s nothing wrong with that. That’s exactly what we expect to see when people have strong convictions about an outcome.

Kalshi: What do you think about the future of prediction markets? What do you see happening? Are you optimistic?

From my perspective, all the doomsayer claims about what would happen if Kalshi was allowed to run these markets all turned out to be false.

The only barrier at this point is regulators and certain congressmen. And that part, I can’t speak to.

So, you know, we’ll see. I don’t know what regulators will do. I don’t know what politicians will do. But I imagine, from the perspective of the public and the media and other folks, the reception to these markets will continue to grow going forward.

Follow Koleman Strumpf on X: @KolemanStrumpf

Follow Terry Oldreal on X: @realoldterry

^{The opinions and perspectives presented in this article belong solely to the author, who is using a pseudonym and cannot trade on Kalshi. This is not financial advice. Trading on Kalshi involves risk and may not be appropriate for all. Members risk losing their cost to enter any transaction, including fees. You should carefully consider whether trading on Kalshi is appropriate for you in light of your investment experience and financial resources. Any trading decisions you make are solely your responsibility and at your own risk. Information is provided for convenience only on an "AS IS" basis. Past performance is not necessarily indicative of future results. Kalshi is subject to U.S. regulatory oversight by the CFTC.}