When polls closed at 8 p.m. ET Tuesday night in Illinois, the prediction market Kalshi gave Rep. Raja Krishnamoorthi (D-08) a 66% chance of winning the Illinois Senate primary nomination, according to the live odds tracked by Hotline. Lt. Gov. Juliana Stratton (D) sat at a lowly 37%. Then the polls closed and the social media developments and Election Day vote reports that influence these markets gave way to actual meaningful data.
As precincts reported in, odds flipped. By 9:05 p.m., the market gave Stratton a 97% chance of victory. The AP called the race at 10:38 p.m.
Two other eventual congressional candidates were under 40% on the Kalshi market when polls closed Tuesday. At 8:25 p.m., former Rep. Jesse Jackson Jr. (D) had a 70% chance of completing a comeback bid in IL-02. Just four minutes later, as Cook County Commissioner Donna Miller (D) built a lead she wouldn’t relinquish, Jackson Jr. dropped to a 26% chance of winning.
The volatility is user driven and undermines the platform’s claim of predictive powers. Bettors buy “event contracts” for who they believe will win. As more people place money on a particular candidate, their “chances” of winning increase, and the potential winnings decrease. Kalshi pays out on the dollar, meaning if a Kalshi user bought a contract for a winning candidate at 75 cents, the user would win 25 cents. Users are laying down money based on polls, pundits, and vibes before actual data rolls in once polls close. When confronted with cold, hard votes, money moves quickly and the market becomes volatile on election night.
Jaron Zhou, head of politics at Kalshi, defended his platform’s whiplash on DDHQ’s election night live stream. He said the site has election night utility because “it's reacting to real votes much like a needle or that kind of forecast would. It moves very fast and in a very logical way in response to what most analysts would say.”
Social media is undoubtedly a big driver of the money before and after polls close. Kalshi users placed more than $1 million in bets on the Illinois Senate race and IL-09, individually. The Senate race was the marquee race of the night, but the Evanston-area race attracted outsized buzz because of AIPAC's heavy footprint in the race and a strong campaign by progressive influencer Kat Abughazaleh (D), who has a large online following. Comparatively, the three primaries in IL-02, IL-07, and IL-08 each had $100,000 wagered.
This pre-election miss from Kalshi et al is the latest sign their status as "prediction markets" might be something of a misnomer. A more accurate term might be an illegal gambling operation, as the state of Arizona alleges in a new lawsuit filed yesterday.
These new markets also lack regulation compared to sports gambling, which has heavy restrictions in certain states. Also unlike online sports betting, prediction gambling could undermine the democratic process if not properly regulated.
— James A. Downs
