The Original Prediction Market Was Betting on the Pope
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Hello and welcome to another episode of the Odd Lots podcast. I'm Traci Alloway. And I'm Joe Weisenthal. Joe, prediction markets. Yeah, I love them. I know you do. I find them mostly entertaining versus insightful. And I like looking up things that people are betting on. So I saw today people are betting on the temperature in New York. There's one pool for Will Doge and Elon Musk claim there's missing gold at Fort Knox before May.

There's political stuff, obviously, like who will be the next German chancellor. But we haven't actually done that many prediction markets episodes. We did one with Nate Silver late last year, but we should talk about them more. No, I totally agree. And I'll say two things in their defense. One is...

To the point, it's interesting to see what people are betting on. It's sort of an interesting news filter in and of itself because I'll look at, say, Polymark. I didn't even know people were talking about this.

Whatever it is, is someone going to have a baby? Is so-and-so going to be with so-and-so on Love is Blind or whatever, which I don't watch. But it gives you a read on like, okay, this is interesting right now. And I do really think there is something to be gleaned that's in the price in several of these.

And it's not that they're right or wrong. They've never thought about the usefulness of prediction markets from a right or wrongness standpoint. But more like, you know, if you have an opinion on something, how does it differ from conventional wisdom right now? Is there a big gap between your sense of something happening and the market sense of something? And so sort of taking the temperature approach.

of the betting public. And it is a narrow slice. Not everyone bets, but generally speaking, there isn't gold lying on the ground, right? Generally speaking, there aren't tons of obvious opportunities to make money from these markets.

So I will just say one of the big debates is whether or not this has social value. If you add financial incentives into betting, the betting mix, do you actually get better predictions? As you say, there tends to be a certain type of person who is betting on something like Polymarket and Kalshi. So maybe it's a good thing for getting a read on a particular slice of the population, but I definitely have questions. Anyway, all of it kind of got me thinking. We've probably...

had some form of early prediction market way, way back before we had things like Polymarket and Kalshi. And I guess

Getting philosophical, all markets are essentially prediction markets. People think a company will do well or bad. But there must be some early examples of people betting on very specific social things. And it turns out there is one. There's a really good example. And it is the papal prediction market. This is crazy to me. I had no idea this existed.

Yeah, so in Renaissance Rome, betting on who would be the next pope was a thing. And in fact, a very interesting market was built around it. So we should talk about that. And I'm glad to say we have the perfect guest to talk papal prediction markets. We're going to be speaking with Ryan Isico. He is the author of the No Dumb Ideas sub stack. So Ryan, welcome to the show. I'm thrilled to be here.

Why did you decide to become an expert in Renaissance papal betting markets? It's a good question. It goes back to I was writing a sub stack about prediction markets in general. I typically write about economic or social ideas through the lens of a business pitch. And I wrote one about the idea of paying lobbyists through prediction market contracts. And that got me on to Polymarket regularly to check what the latest bets were.

And I saw when the Pope was in the hospital, and I'm glad to say he's doing better, that one of the top markets... We're recording this March 11th. One of the top markets on Polymarket was New Pope in 2025. And that just seems so shocking to me. It's such an outrageous thing to bet on. And when I went to the comments, which were a mix of compassionate and tasteless, I saw this idea that you could be excommunicated for gambling on this market.

And while that's actually no longer true, that led me down this rabbit hole of trying to understand what were the dynamics around this? Why was this put into place? What did it mean? And I started looking to the academic literature and I saw there wasn't a lot of public facing writing that went any deeper than this market existed and you could be excommunicated for it. And so I figured...

If not me, then who else? So I started writing about it. All right, keep going. So what years are we talking about? At what point did the Catholic Church have a ban on betting on the next pope? Yeah, so the ban was put into place in 1591. It was called Cogitnos. That's my attempt at Latin. And this papal bull, which is sort of a decree that has the rule of law in the Catholic Church, banned all forms of betting on cardinals, duration of a pope's length,

duration of a conclave, and who the next pope would be. And in the bull, it had a punishment of automatic excommunication. There's no trial. What's the bull? Bull, yes. So bull, B-U-L-L. The animal. It's like the animal. And so it's a papal decree that essentially has the rule of law and papal bulls made up a lot of historical Catholic law until 1918, which is when there was a massive reform of the entire canon law, all the law of the Catholic Church.

And the bull was not renewed as part of that reform of the law. So let's back up a bit and talk about early 1500s. What was this market exactly? And who were the participants? Who was making the bets? It's a great question. So

There were three broad types of groups that were making bets on these markets. The first was what you might call gentlemen's bets. So aristocrats, cardinals would make side bets with each other. There's records of cardinals betting things like gloves, jewelry over the outcome of the conclave. And the conclave, just to take a step back, is the process that happens where a new pope is elected. I saw the movie. It was good. I still haven't seen it. The movie is a pretty accurate representation of the process.

And so group one was just sort of, you can imagine it being kind of equivalent today to making a bet with your friends over a sports game. The second group was the biggest one. And this was a group of brokers called Sensali who would take bets from all social classes, from regular workers all the way up to aristocrats and also cardinals sometimes and their attendants. And these brokers were often people like cloth merchants, spice traders. They're often tied to the Florentine financial industry.

And they took bets on everything, not just papal elections. They took bets on the outcome of sport matches. One of the most popular games in Renaissance Rome was essentially, you could kind of translate it as boy or girl. They would find a pregnant woman and they would take bets on whether she was going to give birth to a boy or a girl. Wow. And this was an incredibly popular game. It was so popular that it actually was banned in the late 1500s. Amazing. Yeah.

And they took bets on everything from, will new cardinals be nominated? Who will the new cardinals be? How long will the Pope reign for? How long will the conclave run for? Who will the new Pope be? And alongside these market makers was a whole information ecosystem. You had handwritten newsletters. There was a lot of gossip going around, a lot of rumors spreading. And we can talk about that in a minute, maybe. It's fascinating, the rumors that went around.

And the last group was actually sort of an early form of risk hedging. So you had financial institutions, banks, that would, in the same ledger, give updates on shipping insurance that an investor had underwritten and the results of their papal bets. And so these same institutions would actually offer both. There wasn't a clear distinction between gambling and financial investments in some of these environments. And you sort of think of this as an early form of political risk hedging.

Because in the 1500s, the Pope ran a major country, the Papal States. You can think of it as covering a large part of central Italy. And when a new Pope came in, it often meant it was a new family that had political influence. It often meant that projects or taxation policy would change. You might go to war. And so there was really big policy changes that would happen as Popes switched.

It makes sense that some investors might want to hedge against that. Yeah, real money. Real money. There's so much meat here that's interesting. I mean, first of all, Tracy said in the beginning, talk about some of the social utility. There's certainly the disutility when you mentioned Cardinals betting, right? This is what we worry about with modern prediction markets, that there are actors who might try to influence the outcome of a specific event that's being bet on.

to make their bet pay off. And so that is one reason we might be concerned. I'm just fascinated by the sheer proliferation because this is the characterization of society right now, whether it's pure betting on sports, something that's a little...

then crypto, and then you get a little closer to the spectrum of like real trading or something, options, and then stocks. We have this incredible spectrum of opportunities to bet or trade. Gambling culture is what I would call it. Yeah, we live in a clear gambling culture. Talk to us more just about

that gambling culture that proliferated? Why was it so big? What was going on? Yeah, I mean, gambling goes back historically in Rome all the way back to the Roman Empire. There's lots of stories and lots of media about gambling on gladiator games or on the outcome of wars.

And in Rome, there were two big drivers of it. One was just this historical culture of gambling. The second was that it was a center of politics and intrigue. And so a lot of our information on the odds throughout the conclaves in the 1500s comes from ambassadors from Venice, from France, from Genoa. And because there was all this interest among all these other foreign powers, there was a lot of information that leaked out of the conclave.

And so when there's a lot of information and there's a market where you can try to make money off that information, you can sort of see how the incentives align to drive a lot of interest in the market. And you can also see how the incentives align to try to do market manipulation. So one of the more interesting stories was in 1555, I believe it was, Cardinal Carafa, who was one of the favorites to win.

about 70% odds to when a rumor went out after he missed mass that morning that he had died and his odds dropped down to 30%. People clearly didn't fully believe that he had died, but there was enough to see some change in the odds. And it turned out he was very much alive. He was elected pope.

And you have to imagine that there were some unscrupulous brokers and rumor spreaders who made a lot of money off of the shifting odds there. That reminds me, how did bookies actually make odds? Because I will admit, I don't really understand how bookies make odds nowadays on sports games and things like that. But for something like who the new pope will be, that seems even more complicated, especially when we're talking about the 1500s, where presumably information flows

flow is not as fast or as heavy as it is now. Yeah, it's an interesting point. So I think there were two big drivers from what I've been able to uncover. The first one is that there was a lot of insider information, not just carnal, but also their attendance, people involved with bringing in food or wine. They would bring back information on what had happened.

And so bookies had some level of information on what was happening in the conclave. These are also really politically contentious elections, and there were factions. And so if you know all the players and you know the dynamics with foreign powers, you have some indication of which alliances of factions might come together to elect a pope and who the kind of logical compromise candidates would be.

There was an idea, and I'm going to butcher it at the Italian, Papa Belli, I think is how of this person who was sort of seen as a potential future Pope. And so the people who were candidates who were likely to be chosen were already sort of identified in the public sphere.

And then the last dynamic that would drive odds was money flow. So if you set odds and you started getting a ton of bets on those odds you set, that would create pressure to lower those odds and to basically protect yourself from offering too good of odds on a candidate who might win.

And so there was a direct flow of that where people would adjust their odds based off of the flow of wages. There's also sort of a proto-secondary market. We have some records of people saying they sold their ticket after the odds changed. Sort of like a prediction market, right? You buy it at $0.10, you sell it at $0.50. People would sell their tickets that were at 100 to 1 odds when they went up to 10 to 1 and lock in their gains. And so that also...

I haven't been able to uncover exactly how prevalent that was, but that also could have been a driver of setting prices for these different candidates. Old trading walks into a bar. New trading raises it. Unlike some guys, tasty trade puts traders first. Maybe you're the type to hunker down on your desktop for hours. Maybe you breeze by on your browser, or maybe you just need that top rated app right by your side. However,

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One of the things that you mentioned is that there were real stakes involved for some of the participants by who the next pope was going to be because major policies could change because, you know, there was geopolitical consequence of this. And so therefore there is, you know what they would say, real money at stake. And then you can obviously have people ride along that who have nothing really at stake, but they just want to bet, which is crazy.

of all markets today, including the popular prediction markets. Some of the prediction markets, like is so-and-so going to get pregnant? There probably isn't the real money. You probably don't really see much activity there. But, you know, a lot of things, certainly areas like presidential elections or midterm elections

elections. It's some of both. But the other thing I'm really interested in is, you know, Tracy and I work in financial media, which is subsidized by people who want to sell access to investment products. And these days it's more ETFs, but et cetera. This idea that like betting has always been a subsidy, betting or investing or gambling has always been a part of what subsidizes the existence of news media. Yeah.

Yeah, 100%. I mean, it's interesting because there's a mix of the idea and then the proliferation of it. So the idea of these newsletters was really common. Again, this is a longstanding Roman culture. If you ever look up Roman graffiti, you'll see there's a long history of spreading rumors and spreading ideas in Rome.

But you're right that the demand for these newsletters was shot through the roof because it was a financial incentive. And it wasn't just the newsletters that spread information. There was also taverns. People would spread rumors and share information in taverns. So there's a statue called the Pequino, which has been for hundreds of years this place where people would leave anonymous notes to spread information. And so those notes often had information on what was happening inside of the conclave. And

The other piece that was interesting was that the diplomats, the foreign diplomats who were in Rome, would report back to their kings, monarchs, whoever, leaders on what was happening inside the conclave. And so that definitely created a lot of demand for getting that initial firsthand information, which presumably was passed off informally.

And one other piece that set odds in your question earlier, another piece that set odds was if a certain person who's considered in the know would make bets. So you had certain people like if a Venetian ambassador made a major bet, that would be a strong signal that that person had some insider information and that this person was likely to win. Yeah.

So, Joe, I don't know if you've ever looked at the comments section on something like Polymarket. Yeah, I definitely have. I don't know how to describe it. A bit of a mess, maybe. But one thing that does happen there is everyone talks their own book, right? Everyone is trying to sway the odds and get their prediction right. Did we see that in Rome as well? Yeah.

Yeah, you did see a little bit of that. So you definitely saw people hype up their candidates and even saw people try to force the hand. So just take a step back. The way a papal election works is up to 120 cardinals go into a locked room. They swear not to share any information, which I think is better enforced today than it was back then.

And they vote up to four times a day. And every time they vote, if no one has a two-thirds majority, they burn the ballots, this black smoke. Oh, yeah, yeah. The famous black smoke. And they try again up to three more times that day. And some of these conclaves went on for months. They were conclaves where they had odds on how long the conclave would go for. And there was a 10% actually implied odds of never in one of the conclaves that they would never pick up hope.

And so there's also a piece where these rumors could try to force the hand of these cardinals. So in 1590, Cardinal Pagliotti was considered one of the favorites to become the next pope.

And he was about 70% chance. And someone put out a rumor that he had actually already been elected. And the rumor spread so rapidly that the city started to put up his coat of arms. It started to set up as if he had won. They sent guards to protect his house because typically after a pope was elected, people would go and raid their house. It's an interesting cultural norm. And it turned out he hadn't won. He hadn't gotten two-thirds. And so there's an implication that that was done in part to try to pressure the last few cardinals to make that bet and acclaim him. Did it work? Did not work.

Instead, we got Pope Gregory XIII, who started the crackdown in earnest on some of the papal gambling that was happening. Did the premature victory turn people against him? Would he have probably won had it not been for, or do we not know? It's a good question. I don't know for sure. Okay.

But you can imagine, for sure. So this brings me to a very important idea, which is, did all this betting actually have an impact on the church in the sense of, you know, I imagine the Catholic Church isn't a big fan of betting, and you have this huge betting culture that's pegged to the internal political dynamics of the church. Did it change people's perception of the Catholic Church?

It's a really good question. In terms of the perception of the Catholic Church, I'm not as sure, but the Catholic Church certainly felt threatened by it. And so the Catholic Church, starting even before the hammer really came down, had tried to ban these types of bets from happening. And so they'd issued bans, they'd sent police raids out, but they were never rigorously enforced because there was enough intermixing between the bettors and people in the Vatican that there wasn't a lot of impetus for aggressive enforcement.

But as we get to the late 1580s and into the early 1590s, you started to see popes do really, really aggressive crackdowns. And the level of aggression implies that there was a real threat to the church. And so they would raid broker shops and arrest everybody and torture them to find out who had placed bets. They set up a system of 30 approved brokers that were allowed to take bets on some things, not on the election of cardinals, not on the boy or girl bets for pregnant women.

And if you made bets outside of those 30 groups, the punishment was 500 scudi, which I did a little bit of calculation. I think it's about $7,500, which a year's wage for a rural worker would be about 50 scudi. So 10 times the wage of an average worker. And you can even be sentenced to serve on the galleys, except being conscripted into the military for being caught on this.

But the real crackdown came with Cogitnos, which is the papal bull banning it. And I actually brought a copy with me from the Yale Beinecke Book Library. Yeah, what is this amazing little document you have there? Yeah, so when this was issued, this papal bull was translated into Italian, posted around the city, posted on taverns, city gates, given to all of the bishops and priests around Europe.

Particularly in Italy. And if you read the translation, you can actually see that a lot of the, it kind of implies what some of the issues might have been. And if I can read a little bit from it. Yeah, please. Individuals driven by greed or fear of loss improperly seek to influence, obstruct, or delay these sacred elections or promotions through illicit means, either directly or indirectly. Others maliciously defame or slander candidates, undermining the dignity and reputation of those involved.

Such actions distract and cool the sincere prayers and devotions of Christians. And then instead, many individuals pursue temporal profit or personal gain rather than selecting candidates based solely on merit, employing numerous fraudulent schemes, lies, deceit, and manipulations. There's also pieces here where they say people are trying forbidden arts like divination or invoking demonic assistance driven by desperation and greed to figure out who is going to win.

And so the bowl is really strict. It says they permanently forbid all forms of wagering, betting, or speculation regarding papal elections, the promotion of cardinals. It nullifies any existing bets or wages that have already happened.

They declare all future agreements null, void, and invalid. They say that any funds or valuables involved in those should be given to charitable institutions with no allowances. And anyone who does this is automatically excommunicated from the church.

Which was a big deal back then, right? It was a big deal. So it wasn't just about, obviously today it's still a massive deal to be excommunicated, but from a religious perspective. Back then, excommunication could mean ostracization. You could be kicked out of your community. They could seize your property. Occasionally you could even be killed for being excommunicated. And so your protections, especially in the papal states, mostly went away if you're excommunicated.

And then one other piece that's really fascinating is that any clergy or figures who violate the decree are immediately stripped of their office and are incapable of being reassigned. And so...

When you think about the intensity of it, you can sort of infer some of the feelings the church had about the effect this was having on these processes over time. I'm actually... There are a lot of obviously sort of negative aspects of it. It is interesting, this idea that gambling drives people towards mystical divination, that there are some other...

spiritual forces out the world that could reveal information other than the church, the church losing its monopoly on this sort of understanding of the cosmos. Like it's a minor thing, but it's also like a sort of fascinating thing. And of course that is what gambling drives people to do and lucky numbers blowing on the dice, like all these things that reveal a certain metaphysical reality other than the one prescribed by the church. Super interesting. Talk to us about like,

I don't know how we got from there to where we are today. The through line. The through line. Yeah. So after this Papal Bowl came out, the public gambling markets mostly went away.

We still have some evidence that people were gambling kind of on the black market or the gray market over time, but it was not anywhere near as widespread as it had been. As you get into the 1870s, so the Papal States ceased to exist in 1870. Italy was unified as one country. And the 1878 election is one where we have New York Times reports that there's this massive gambling on the new pope in the next election. And so you can start to see that the spiritual authority by itself was not enough to stop this gambling after several hundred years of success.

And as you move through the 20th century, the next big milestone was 1978, which is the first time the UK bet makers offered odds on the next pope. And what's interesting is that if you talk about prediction markets as a way of seeing the future, they weren't very effective. John Paul I and II weren't offered odds at all in that year. And so that implies that it actually was not very good at picking candidates who were not expected. John Paul II especially was not expected to become pope going into the conclave.

And then as we go through the rest of the 20th century, 2005, I sort of remember this when I was pretty young, but I sort of remember in 2005, kind of scandalized press about Paddy Power offering odds on the Pope. And I looked it up before I came in here. It was about $400,000 was bet just through Paddy Power on who the next Pope would be in 2005. That was Pope Benedict. And that actually was fairly accurate. It was three to one odds that Benedict would win. 2013, Pope Francis, the current Pope,

It was about a $7 million market through Patty Power alone. And so you can see it's already growing exponentially. And I remember a very scandalized press about this. And what's interesting is that the current Pope Francis started off at 55 to 1 odds and never did better than 32 to 1. And so for these closed door decisions, like Supreme Court decisions, papal conclaves, things where the public information is much more limited than, say, an election, the prediction markets have a very mixed record of accuracy.

And talking about the through line of some of these same dynamics, Vatican Insider leaked that the current Pope Francis was starting to get momentum in the conclave, and they didn't really move the market very much. And it's one of those interesting things with closed-door decisions where insider information, especially when people aren't familiar with the dynamics around the decision, it's hard for outsiders to get a good sense of, is the information actionable or not? ♪

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Tracy, it's interesting thinking back to Pope Francis's election and the relationship between the winning candidate and the time on the conclave as another derivative bet that you can make. Because I do remember one thing that was going on at the time. There was some interest in whether or not they would pick an Italian. And because obviously, you know, the prior pope had been, I guess,

German, right, Ratzinger, and prior pope to that had been Polish. And so this idea is like, oh, and so the fact that it went a long time, I remember some people were saying, oh, maybe this means they haven't settled on an Italian. And so you could sort of see, you know, how people try to relate conclave duration with outcome. Right.

Yeah, I remember that debate. Okay, so speaking of Pope Francis, looking on Polymarket right now, the odds are currently 42% for a new pope in 2025. Obviously, we don't know if that's going to be right or not, but...

Do you get a sense, perhaps, that the modern PayPal prediction market is somewhat improved in terms of its predictive power? Is there, for instance, more liquidity? There must be more people betting in general than there were when Patty Power started doing this.

I think not yet. I have to imagine that if a conclave does start, whenever that happens, it's going to be the biggest one ever. And $7 million is the goal to beat. The 2024 presidential election, I think, was $3.5 billion. And so in terms of accuracy, though, if you look at the comments, I don't know how people are betting. The comments are almost entirely based off of Vatican news releases.

And I do think that there's this dynamic that's going to start happening more and more where, like you said, we've gone into a gambling culture again today and pretty rapidly. I mean, 10 years ago, I think online poker had the big landmark case that made it illegal. And we're seeing prediction markets, which used to be capped as academic tools at $850, are starting to become unrestricted. Crypto lets people bet on polymarket internationally, even if it's illegal in the U.S.,

And I think that we've, you know, in 1918, part of the reason why it wasn't written into the new canon law is that it hadn't been a problem. The papal bull had done its job in stamping this out as an activity. And I do think there's going to be a big social discussion of

do we want this type of market for everything? And where does it become an issue of taste, morality, other pieces? And it is interesting because I think society has largely agreed we're okay with sports betting. We're okay with even political betting. Casinos are being legalized in more and more places. There's generally a move towards gambling culture as a rule.

And I think we haven't quite found the limits of where we're willing to accept it. And I wouldn't be surprised if in the next couple of years, if not this, something else starts that conversation of what's the limit of where we're willing to let these markets run. I mean, two things stand out here. One is that at this point, any polymarket bet that exists, I mean, it's more just, you know, it's macabre, but it's a bet on the health of Pope Francis more than any informed insight bet.

And his age and so forth. And so the sort of more interesting question will be,

Whenever there's time to select a new pope, what those odds look like for the conclave itself and the names and the candidates that come up. Obviously, the sort of real money economic stakes don't exist in the same way that they used to. So it would be pure speculative. In the end, there's nothing that governments can do to crack down on sort of offshore crypto-based prediction markets that are decentralized, decentralized.

The Catholic Church itself can come up with a new bull that statements that its adherents are, you know, choose to either abide by or not. But, you know, it is interesting just to your point about the limits. Like, you know, it's weird because even with sports gambling, we find ourselves in this simultaneous moment where we've accepted there's nothing we can do. It's legalized. This just exists.

at the same time that many people are disgusted and disturbed by the numbers that come out about gambling addiction and ruined lives and so forth. And yet there's this feeling of societal helplessness that, well, this is just what it is. We legalize it and it's the culture. And so-

I do find that to be a sort of fascinating thing that many people across ideological realms, across power can say this is terrible. And yet at the same time feel like and yet there is nothing we can do about it legally. It's just a very strange dynamic. It's extremely strange. And if you think 10 years ago, you had to go to Vegas to do it. And there was some level of inconvenience involved with it. And I saw last year that Robinhood was trying to put prediction markets into their app and

And so it's interesting because it's not just a matter of legalization as a binary yes or no, it's also questions of social stigma and then also questions of access and ease of access. Being in your pockets obviously is a significantly different thing than having to fly somewhere to make a bet like that.

So speaking of social consequences, there is an argument that people make. Joe kind of made it earlier in the intro. The argument is predictions are useful, right? And getting a sense of what will happen or at the very least what people think will happen might have some social value. In fact, I've seen people take this so far that they argue that insider trading is good for prediction markets, right? Because you want more accurate predictions.

predictions. And so if people have insider info, that's one way of potentially getting there. But do you see any social benefit to these types of platforms? What would be the social benefit of, for instance, betting on whether we'll have a new pope? It's a good, I think,

My personal answer is I think there's not a lot of social benefit to it. But I think that people will find social benefit in the sense that a prediction bet is both a moneymaking endeavor, but it's also a way of signaling that you believe a certain outcome is likely. And so I remember in the 2024 election, people would make ideological bets on Trump, whether or not they thought he was going to win or not. And same with Kamala. And there were arguments that when the odds were mismatched in one way or the other, that there was market manipulation. And these prediction markets become part of the narrative of what's happening.

And so I wouldn't be surprised if in the next conclave you see public figures, politicians, and strangers on Twitter start to endorse certain candidates for ideological reasons and then place bets as a way of signaling that they support that particular outcome.

And I think that gets into really uncharted territory, or at least uncharted since the last 500 years. Yeah, I mean, I do like the idea of, I think Tyler Cowen has called it like a BS tax. So I say something like,

Like, oh, AI is coming for your jobs. And if you have a tight, you know, if you have a computer job, then you're going to be unemployed in the next two years. And that's a great way to get engagement on Twitter. But like, if I don't indicate that I've put any stakes at all behind it, the problem is I like that idea in theory, because I like the idea of,

okay, put some money where your mouth is before you say this stuff because all you're doing is collecting the benefits of the engagement without anything. But there's no way to enforce that. There's no way to get someone to, okay, fine, I put up a $10 bet or whatever, something that isn't nominal, how to actually force the side. So I like that in theory, but in practice, I see very little way to sort of enforce the BS tax.

That's a great point. I think that liquidity is a big part of this, right? There's a reason why hedge funds don't buy prediction market contracts. It's a way to hedge against political risk. They buy currency swaps, interest rate derivatives. And it's because the liquidity in these prediction markets isn't high enough to actually make major, major bets on. If you put a million dollars into a market, you're going to move it significantly for most markets. And so there's sort of a paradoxical thing where the...

The scale will almost always be fairly small on an individual level, even on an aggregate level, it's large until they reach a certain tipping point. And you start to start to see big money coming in to based off of trying to trying to make actual outsized returns. Ryan, that was amazing. So fun to talk about a prediction market that's like 500 years old. Thank you so much for coming on All Thoughts. Thanks for having me. Yeah, that was great, Ryan. Thank you so much. Thank you.

Joe, that was a lot of fun. Yeah. I always enjoy financial history, financial market history, and that was a really good example of it. One thing that really struck me was this idea of predictions as prediction markets become more prevalent in the world, the

predictions, the actual predictions become part of the narrative of what's happening. And I think to Ryan's point, the 2024 election was a really good example of that. The official polls showed something different versus what was on polymarket. And then as we got closer and closer to the election, there was this sort of idea that maybe the prediction markets were getting it right. Maybe they tapped into a certain demographic of

Of the U.S., which actually turned out to be pretty important in the actual voting process. So young men, lots of young men on these platforms, and they all turned out and voted. So in that particular instance, it was a really good read on the outcome. And it also became part of the story. You know what's interesting, though, about the 2020 election that people don't talk about? Go on. The prediction markets got it wrong on the popular vote.

No one talks about this. Yeah, that's true. So like it is true that according to the, you know, you could say, OK, the polls were very close. Some of them had, you know, it's very close. And then the prediction markets got it right. I'm not really clear that 2024 was this unheralded success because whatever the betters in their aggregate had in mind, clearly had Trump winning the electoral vote through some, you know, through some narrow case. But he won the popular vote.

Narrow case is a very diplomatic way of putting it. Well, some narrow route through the map, right? Some narrow victory where he wins, you know, the key states in the upper Midwest or whatever. Yeah.

He won the popular vote, but he was not winning the popular vote in the polymarket contract. And no one ever talked about that. They're like, oh, this great prediction market success in 2024 showed that the polls are wrong, blah, blah, blah. So I feel like there's no – at some point people have to reckon with actually what happened, how good were the prediction markets in 2024. I would say maybe not as great as they immediately got credit for. Anyway, all that said, I did think this was an excellent episode.

It's interesting Ryan said he got interested in this because of the idea of paying lobbyists in prediction market contracts, which I've wondered about this too. Like could you have presidential campaigns in which part of the staff's pay was contracts? So it's like if you're on the Kamala campaign, you get a certain share of your salary in lobbying.

long Kamala futures, therefore you have a greater incentive to win kind of like stock options, et cetera. I've never heard of that happening, but you could imagine campaigns saying part of your salary is in these contracts to create an outcome incentive for victory.

I don't know. I never really got the skin in the game arguments for these types of financial incentives, like the BS engagement that you were talking about earlier. If you're a pundit or if your job is to lobby for something or to influence something, then surely the incentive for you to do it is your job. People aren't going to listen to you online if you're consistently wrong. I have seen no evidence that that's the case. I've never seen evidence that that's the case.

Have you seen evidence that you can be wrong online for a long time and that hurts your career? Yes. You have? Yeah. There are so many cynical— At the very least, people will point out how many times you've been wrong, at a minimum. That does happen. To me, one of the worst things about the contemporary discourse are purveyors of garbage and cynicism.

who say all kinds of stuff just for engagement, who tear down institutions, who tear down people, et cetera, with real decay, who pay no, who bear no cost for the actions of what they're doing. I don't really know how to stop it, but the idea that maybe like if they were forced to like actually like bear the cost of the damage that they do would be good. I would love that. I don't see it happening, but like,

I would love that if there was some way to enforce that. But it's like I would love if there was a tax on it, like the damage. No, there's no way of enforcing it for sure. But my point is more like by creating these prediction markets and.

It just feels like we're creating another way for people to mess around with dodgy narratives. That's what it feels like. Even though it might be tied to financial incentives, we have no idea if the financial incentive is big enough to actually make people act seriously, right? Totally. It doesn't work in practice. The idea of putting your money where your mouth is so that you don't build a career just on making outlandish things and riling people up intuitively appeals to me.

All right. We could go on about this for a long time, but shall we leave it there? Let's leave it there. This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe Weisenthal. You can follow me at The Stalwart. Follow Ryan Isico at his sub stack, NoDumbIdeas. It's NoDumbIdeas.com.

Follow our producers, Carmen Rodriguez at Carmen Armit, Dash O'Bennett at Dashbot, and Cale Brooks at Cale Brooks. For more OddLots content, go to Bloomberg.com slash OddLots, where you can find all of our episodes, as well as a daily newsletter that you should subscribe to. And you can chat about all of these topics, including prediction markets, in our Discord, discord.gg slash OddLots.

And if you enjoy OddLots, if you like it when we talk about the lack of consequences for people who get stuff wrong on the internet, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening. ♪

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