A Controversial History
Prediction markets look modern, but the basic idea is old. People have long used bets and prices to express views about future events.
The Early Days (1500s–1930s)
The first recorded instances of political event betting occurred in 1503, where Italian merchants wagered on the papal succession.
In the United States, election betting was a large and organized activity on Wall Street dating back to 1884. Before modern scientific polling existed, newspapers would publish betting odds from Wall Street brokers to show who appeared to be leading the presidential race. This practice faded as polling became more common and anti-gambling laws tightened.
1988: The Iowa Electronic Markets (IEM)
The modern era of electronic prediction markets began in 1988 at the University of Iowa. Professors created the Iowa Electronic Markets (IEM) for academic research, allowing students and faculty to trade real-money contracts on election outcomes.
Because it was designed purely for research, the U.S. Commodity Futures Trading Commission (CFTC) issued the IEM a historic "No-Action Letter" in 1992, allowing it to operate legally within strict monetary constraints ($500 max investment per trader). The IEM consistently outperformed traditional polls, proving the theoretical validity of the Efficient Market Hypothesis applied to elections. Because it was designed for research, the IEM became an important reference point for later academic work on forecasting markets.
2003: The DARPA "Terror Market" (PAM)
Perhaps the most infamous chapter in prediction market history occurred in May 2001. The Pentagon's Defense Advanced Research Projects Agency (DARPA) proposed the Policy Analysis Market (PAM).
The audacious goal was to use the "Wisdom of Crowds" to predict geopolitical instability in the Middle East. Analysts could trade futures contracts on specific economic indicators, military activities, and political shifts.
When the project became public in July 2003, it caused immediate, intense political outrage. U.S. Senators decried it as a "terrorism futures market" and a "fantasy league terror game," accusing the Pentagon of setting up a system where people could profit from assassinations or terrorist attacks. DARPA canceled the program less than 24 hours after the Congressional backlash began.
2012: The Rise and Fall of Intrade
Founded in Dublin in 2001, Intrade became one of the best-known prediction markets of the early internet era. It drew mainstream media attention during the 2008 and 2012 U.S. election cycles and became a common reference point for real-time political probabilities.
However, U.S. regulators challenged Intrade's ability to serve U.S. users, and the platform eventually shut down. That episode became a warning sign for how hard it is to run these markets across borders without a stable regulatory path.
The Modern Era (2024–2026)
Recent years brought renewed attention through two different models:
- Regulated event-contract exchanges: Platforms like Kalshi show the exchange-style route.
- Crypto-native markets: Platforms like Polymarket show the wallet-based and blockchain-linked route.
The most important historical point is not that one model "won." It is that prediction markets keep returning in new forms whenever technology, regulation, and public interest line up again.