TL;DR
- An academic study compared Kalshi’s prediction markets with Wall Street forecasts and official surveys, using data from 2022 through June 2024.
- The platform’s implied probabilities consistently matched projections from the New York Fed and Bloomberg on interest rates, inflation, and employment, with only marginal differences.
- In the unexpected 0.5-point rate cut in September 2024 and in headline CPI, prediction markets reflected the correct probability ahead of many economists.
An academic study compared the performance of Kalshi’s prediction markets with forecasts from Wall Street economists and official surveys from the U.S. financial system. The paper analyzed data between 2022 and June 2024 and was written by three economists, one of whom is affiliated with the Federal Reserve.
The analysis focused on Federal Reserve monetary policy decisions, inflation data, and employment figures. According to the study, the probabilities implied by Kalshi contracts consistently aligned with forecasts from economists surveyed by the New York Fed and Bloomberg. In several cases, the differences were marginal and fell within statistically comparable ranges.
One notable episode was the unexpected 0.5 percentage point interest rate cut announced by the Federal Reserve in September 2024. While a significant share of economists did not anticipate that decision, Kalshi contracts already reflected that probability ahead of the official announcement. The study notes that this event was correctly incorporated into prediction market prices.
Kalshi Demonstrates High Accuracy
The paper also assessed Kalshi’s performance relative to economists across key macroeconomic variables. For inflation and employment, the results were equivalent to those of professional surveys. In the case of headline consumer price index data, the platform showed a higher level of accuracy than the average of surveyed economists, with a difference the authors deemed statistically significant.
The study has not yet undergone peer review, but it included comparisons with other financial markets. Ahead of a Fed meeting examined in the paper, Kalshi and Polymarket assigned a 99% probability that rates would remain unchanged. Fed funds futures reflected a 97.2% probability, while the 92 economists tracked by Bloomberg all expected that same outcome.
Kalshi operates through binary contracts that settle at $1, where the price reflects the probability assigned to an event. Many economic contracts are structured around specific thresholds, such as defined levels of inflation or employment. The study found that the market’s most likely outcome, known as the modal forecast, was already accurate on the night before most of the Fed decisions evaluated.
Biases and Overpricing
The authors also examined potential biases. Previous research identified a tendency for prediction markets to overprice low-probability events. However, an independent analysis conducted by a Coinbase engineer observed that this bias is less pronounced in Kalshi’s financial contracts and is mainly concentrated in categories such as sports and entertainment.
The study concludes that Kalshi’s financial prediction markets reached levels of accuracy comparable to those of professional economists in monetary policy decisions and key macroeconomic data
