It was one of the most astonishing displays of persuasion I have ever seen. In the audience, a group of Midwestern agribusiness types, who by profession should have been well attuned to climate change, but by culture were deeply sceptical. On the stage, a Germanic gentleman from one of the great Alpine reinsurance companies, presenting a meticulous analysis of how changes in rainfall and temperature were reshaping crop insurance premiums. The first, slightly awestruck question: “So . . . you think this climate change thing is real?”
It was a testament to the persuasive power of an apolitical nerd. The audience realised that this insurance analyst had no interest in the Woke Dems — he was just describing the world as he saw it. But it was also a window into the way that our views about the world shape financial markets for risk, and financial markets for risk shape our views about the world.
There are two venerable insurance industries, the French economist Michel Albert once explained. One has its roots in Alpine pastures, where Swiss villagers agreed to help each other out if one farmer’s cow died. The other was born in Edward Lloyd’s coffee house in 17th-century London, where sailors and shipowners would gather to gamble on which ships would sink and which would return safely to port.
Today we call both of these activities “insurance”, but they have very different souls. The Swiss version is all about mutual assistance, figuring out who is part of a community and who is not, and sharing burdens. The London version begins with the insight that some risks are fun, but also that people like to be smart about those risks.
Edward Lloyd himself created a network of well-informed correspondents across the ports of Europe and published a newsletter specialising in maritime cargo and foreign affairs. Cuthbert Heath, a Lloyd’s underwriter from the late 19th century onwards, went on to specialise in acquiring the data needed to sell insurance against losses from earthquakes and hurricanes. Selling well-priced insurance is a lucrative business, and the better the information and judgment about future risks, the better the business will be.
Financial risk contracts have long provided incentives to improve the state of our knowledge. In the 16th century the inveterate gambler Girolamo Cardano revolutionised our understanding of probability, while in the 17th the comet guy Edmond Halley used data on births and deaths gathered in Breslau to demonstrate that the government was selling life annuities too cheaply. A decade ago, I saw an agricultural insurance expert tell agribusiness traders something they didn’t know about climate change. It is all part of the same process.
With this noble tradition in mind, perhaps we should not be surprised that prediction markets are taking off. They are not new; in 2003 the Pentagon had been pondering a “Policy Analysis Market” in which people would trade on the risk of — say — a deadly terrorist strike, or, um, attacks on shipping in the Strait of Hormuz. The idea that the US intelligence community might host such a market was a political non-starter and the plan was dropped.
Yet the controversial idea made some sense. Prediction markets collect information by offering money for it. Markets may not be perfectly efficient but they are often informative: if you want to understand whether Arsenal’s lead in the Premier League table is commanding or precarious, the betting odds are a good place to start. Prediction markets, like any betting market, aggregate information.
The mood music, and the rules on gambling, have changed since 2003. Prediction markets such as Kalshi and Polymarket have become well known for offering contracts on all sorts of events, ranging from “Will Jerome Powell be arrested in 2025?” to degenerate nonsense such as “Will Jerome Powell say ‘Good afternoon’ during his December 2025 press conference?”
The libertarian in me says that people should be allowed to bet on pretty much anything, but the economist in me has some concerns. Of course, there is a worry — or there should be — that some people find gambling ruinously addictive, especially with smartphones putting a slot machine in every pocket.
But we should also be concerned that in trying to predict the future, we change it for the worse. It might indeed be useful to get a sense of whether Jerome Powell will be arrested, because it matters if he is. It does not matter whether he says “Good afternoon”, so there is little benefit in such a market existing. The market in “Good afternoon” does, however, create the clear risk that somebody tries to bribe or threaten Powell.
That is probably the least of his worries, but it is not hard to find examples of betting markets corrupting the real world. The most obvious cases are of crooked sports bets, where athletes rig games for their own benefit — or the benefit of people who are bribing or threatening them. It’s not even necessary to throw a match: it’s possible to bet on all sorts of trivia that are only peripherally related to the result.
Or consider Emanuel Fabian, The Times of Israel journalist who was offered bribes, then death threats, to change his report that an Iranian missile had struck near Jerusalem on March 30. A great deal of money was — courtesy of Polymarket — riding on the question of whether Iran had or had not succeeded in striking Israel. Without his consent, Fabian found himself forced into the perilous role of refereeing which side had won the bet.
Fabian’s plight is one of those things that, with hindsight, was obviously bound to happen. Whether prediction markets mean that athletes are being threatened if they don’t change a game, or journalists are being threatened if they don’t change a news report, this all seems like something that could be better thought through.
It would not be the first time that a new, disruptive industry smacked headlong into a problem that the stodgy old incumbents have understood for a very long time. In the early 1960s, life insurers were alarmed to discover that they were paying vast sums in compensation for “loss of limb” to policyholders in the Florida panhandle. One fellow lost a foot; fortunately he had a tourniquet with him . . . and insurance from several dozen different companies. Another chap bought insurance then shot off his own foot just 12 hours later “while aiming at a squirrel”.
There’s an old-fashioned phrase for this: moral hazard. And perhaps some old-fashioned caution is in order. Betting on the future can protect us from risk, and it can make us smarter about risk too. But it can also corrode and corrupt. Let’s be careful.
Written for and first published in the Financial Times on 15 April 2026.
