In March, I gave a talk on prediction markets at the NYU Stern FinTech Conference. Slides are here.
The talk focused on my recent paper with Constantin Bürgi and Wanying Deng on prices in the Kalshi prediction market. We documented a significant favourite–longshot bias: low-priced contracts tend to produce poor returns for traders, while higher-priced contracts perform considerably better.
I then turned to the future of prediction markets in the United States, a fascinating and highly uncertain topic. The talk discusses pricing accuracy, trading fees and the particular issues that arise when these markets are used for sports betting. Thanks to Kathleen DeRose for inviting me.
My forthcoming book Fine Margins: How Economics Explains Sports Betting, contains a comprehensive treatment of sports betting prediction markets. Drawing on evidence from millions of prediction market trades, it explains how these markets work, how they compare with traditional sportsbooks, and what that evidence tells us about their pricing, trading costs and future prospects.