The writer is a managing director at Panmure Liberum
Prediction markets such as Polymarket or Kalshi have become popular as a means to crowdsource the likelihood of political, economic and sporting events. Some may deride them, but there is no doubt that they can help investors and make good predictions.
Anthony Diercks from the Federal Reserve Board and his co-authors examined the performance of Kalshi estimates of US inflation and labour market data. They found that Kalshi predictions were more accurate than surveys of professional forecasters for inflation, but less accurate for labour market data. But the difference in accuracy was generally small, so that for all practical purposes, prediction markets seem to work as well as a gaggle of economic experts.