Why governments are panicking about prediction markets

All-staff emails tend to announce a) the big meeting’s leftover sandwiches are now available in the conference room, b) we’re signing a birthday card for Barry from accounts, or c) a friendly reminder to complete those mandatory e-learning modules haha.

But every now and then, an all-staff email will stop us in our tracks, like the White House missive reminding staff that it’s a criminal offence to use “nonpublic government information to place wagers on online prediction markets, such as Kalshi or Polymarket.“

Why the reminder? Maybe it was the new account earning $436K by predicting Maduro’s shock ouster a day before it happened. Or maybe it was the six new accounts scoring $1.2M guessing the exact date Trump would hit Iran. Or maybe it was the trader who made $21M (!) betting on Trump’s tariff TACO 18 minutes before the announcement.

Maybe it’s all a coincidence. Or maybe it’s a level of corruption making a Burisma board role look like rookie numbers. But while the BBC now calls BS (even while fighting Trump’s $1B lawsuit), it poses a few questions for your favourite team of ex-diplomats.

First, isn’t insider trading illegal?

Yep, since at least 1934 to be precise, but much like running marathons, you get to a certain age and realise it’s surprisingly quite common. It’s also incredibly tough to prosecute (trading, not running), and more-so in the age of anonymous crypto and faceless betting platforms. That might explain why insider trading comprises barely 10% of the SEC’s annual caseload. To get caught, you’ve gotta be not just shady, but an idiot.

Then second, why does a team of ex-diplomats care?

Well just think of the geopolitical implications from all this: Polymarket actually pitches itself as an opportunity for experts “to profit from trading based on your knowledge”.

And sure, by incentivising more insights and knowledge out into the open, these platforms can theoretically generate a ‘crowd wisdom’ that outperforms the pundits and analysts, enabling better situational awareness and decision-making across capitals.

But while that’s harmless (and even helpful) if you’re a finance official optimising for likely rate cuts, or an agricultural analyst working to adapt soybean season to the likely price trajectory, it doesn’t take much imagination to see downsides like…

• i) Operational security: when folks turn classified info into tradeable alpha, you’re going to see governments start leaking like never before
• ii) Public trust: as random insiders keep getting rich off illicit info, you’re going to fuel even more populist fury that tests your institutions more
• iii) Allied trust: how many friends will still offer you a heads-up if Polymarket is just going to steal their thunder the next day
• iv) Rival advantage: it’s mostly been PR damage to date, but how long until foreign services convert that insider alpha to an operational disaster
• v) Foreign intel risk: how long until foreign spooks figure out how to cross-reference shady Kalshi clusters against other signals, all to blackmail your insiders into betraying their country for a foe rather than a Ferrari
• vi) Moral hazard: these platforms also give insiders a direct incentive to make things happen (or block them), undermining good governance, and…
• vii) Miscalculation risk: if we’ve flirted with nuclear Armageddon because someone mistook Canadian geese for Soviet bombers, how long until someone misreads a Polymarket whale (or foreign-planted bets) as the real thing, pushing a rival’s finger closer to the trigger?

It’s one thing when you’re agonising whether your soul is really worth that 300k consulting gig with HyperMegaCorp, but when you’re talking about high-ranking military and government officials wrestling with that kind of dilemma? It really starts to get scary.

Especially when the call bet is coming from inside the (white) house.

Intrigue’s Take

So many high-stakes considerations come to mind, but here are two ways this maybe isn’t so new after all.

First, we’ve written often about the ways diplomats and spooks no longer enjoy a monopoly over access, insights, or influence. And in many ways, that same trend is now just playing out through prediction markets: an entire crack team of CIA analysts can now get forecast-mogged by a 22-year-old crypto-bro with a hunch (or leak).

Second, this problem hints at deeper features in our nature — while promising to harness the wisdom of crowds, these platforms also supercharge the worst of our instincts. But if harnessed correctly — big if — they also help us humans correct something we famously suck at: truly understanding and acting on probability.

If there’s a way to harness the good and filter the bad, then sign us up. Until then, it seems pretty evident some important people belong way deep in jail.

Sound even smarter:

• Israeli journalist Emanuel Fabian received death threats after his report on an Iranian missile attack unexpectedly proved pivotal for a $20M Polymarket contract.
• Israeli authorities managed to identify and arrest at least two military officials using insider info to profit on Polymarket.