No Priors: Artificial Intelligence | Technology | Startups - Forecasting the Future with Kalshi: America’s First Regulated Prediction Market

Episode Date: October 31, 2024

In this week’s episode of No Priors, Sarah sits down with Tarek Mansour, CEO of Kalshi—the first CFTC-regulated prediction market exchange in the U.S. They dive into Kalshi’s recent victory to legalize election betting, explore ethical questions around trading on elections, and discuss whether prediction markets can offer more accuracy than traditional polls. Tarek shares insights on the history of futures markets, the line between gambling and financial trading, and the psychology behind betting. Plus, Sarah makes a live election bet, and Tarek reveals some of Kalshi’s most intriguing markets. Sign up for new podcasts every week. Email feedback to [e-mail] Follow us on Twitter: @NoPriorsPod | @Saranormous | @EladGil | @MansourTarek Show Notes:  0:00 Introduction 1:22 Sarah makes a live election bet on Kalshi 3:35 Getting approved and regulated by CFTC 5:48 Going up against the CFTC to legalize election betting 7:21 Debating the ethics of trading on elections 8:12 Gambling vs. trading  9:12 Context and purpose of futures markets 12:38 The human psychology behind speculating /Humans conditioned to risk taking 17:17 Building a healthy exchange and scaling liquidity  19:30 Introducing leverage and working with clearinghouses 22:29 Polls vs. prediction markets 24:59 Conditional markets 26:38 What makes Kalshi’s markets accurate 31:29 Tarek’s insights on the most interesting trades and markets on the platform

Hi, listeners, and welcome back to No Priors. Today, I'll be talking with Tarek Mansour, co-founder and CEO of Kalshi. Kalshi is a recently CFTC regulated prediction market exchange that's changing how people forecast future events, like the upcoming U.S. election, the weather, the date of arrival of AGI, and the jobs report. Tarek started Kalshi after studying at MIT and working at Citadel and Palantir. We'll discuss what a prediction market is if it's a threat to democracy, building a regulated exchange, and how Kalshi fits into the broader financial ecosystem. Welcome to REC.

Great seeing you, Sarah. Thanks for having me. It's going to be a super exciting small number of weeks before the election. Can you please explain to anybody who hasn't been on it yet? What is Kalshay? Kalsh is actually the first legal platform in the U.S. where you can basically bet yes, no, on any future questions. The thing that's really cool is, like, we've basically created a financial and

instrument where the thing that you're actually buying or selling or trading or betting on is not a stock, it's not a bond, it's not a commodity like oil. It's something more intangible. It's actually whether an event is going to happen or not. So on CalShia, you can basically buy shares of whether it's going to rain tomorrow, whether TikTok is going to get banned, whether Eric Adams is going to get fired as New York mayor or whether Donald Trump is going to win the next election. Okay, cool. I feel like the easiest way to get a sense is like, let's make a trade. I'm going to share my screen. Okay, here I am. You got Calshay? Yes, this iscatshy.com slash elections.

This is actually our live election forecast page. You can see that Trump is up 55-45 right now and 19 days left. So we'll see how that evolves. You can go, yeah, I think you're clicking. So this is the election market. I'm actually going to let you figure it out. No, no, no. I understand here.

I think, you know, Trump at 55 percent, that feels underpriced to me. Let's go in on it. $267. Oh, I got, I have $150 in cash. I'm going to go all in on this. It feels like a trade I want to make. Let's say, what happens? Market closes when the outcome occurs.

Two hours after closing. I'm ready. Did that just happen? Yeah, it's done. Oh, wow. Okay. Wow, you're going to bankrupt me. This is too easy.

Yeah, I mean, it's pretty cool, right? So I think, like, the cool thing about this is, like, you can actually also sell it before. So if you click on Donald Trump right now, you can see your position or on the, yeah, right here. And then you can see your position and you can actually exit it if you want to. So you can sell at 55 if you want it to. You should now. But so right now, obviously, if you sold it directly, you'd just be paying the spread, paying the bid ass. But if things move, if he, if his odds go up in, I don't know, in a few days or tomorrow or whatever, you can sell it at a profit.

it. The other thing that's actually really cool, and we launched this just now, is now you have a bet on Trump. You also, like, only get paid interest on that bet. So it gets deposited in money markets, and you have treasuries, and you get paid 4.1% interest while sitting there waiting. And so it's cool because usually people say, like, hey, these are kind of zero-sum type things, like you either win or lose. Whereas in here, like, whether you win or lose, you're getting paid interest while waiting. Excellent. Excellent. I will go deposit more of. you know, my total wealth given money market accounts now. You recently were involved with a long-term kerfuffle with the CFTC to get regulated

trades on political events. So you've been at this for, I think, six years as a company? Yeah, five and a bit, yeah. Five and a bit. Okay. It's a totally insane thing to try as a startup to, you know, go up against the CFTC. Can you talk about that? We hold two core beliefs.

I think one, prediction markets have the potential to be the next large thing in financial markets. I do genuinely think that, like, you think about it from first principles, like, people like to take exposure on things. They like to speculate. Sometimes they want to hash. Or, you know, it could be either betting or hedging. But it feels like the current instruments are a bit like, you know, you have things like, okay, you have stocks. That's fine. We also have, like, options and futures.

They're all just so loaded. It's like so wall-shutely. and, like, people don't really care. But if you think about, like, prediction markets, what they do is, like, they achieve a similar, similar sort of, like, urge or they, I think they're talking to a similar market, but instead of, like, these kind of traditional boring financial instruments, you're taking positions on things you care about. Like, I have a view on the weather.

I have a view on climate. I have a view on AI, which a lot of people have a view on now. And then you can basically take a stake in that. So I think that, one, they're going to be very big. I think so. And then two, I have yet to see a financial market that has gone. really big without being properly regulated. I have yet to see that in history.

It's always like you have to do it legally safe, compliance. So our core approach from the start is like legal and safe and compliant and trusted first. A bit like Coinbase, how Coinbase approach crypto. And I've always liked their approach. And so before we launch anything, we spent actually, you know, close to three years getting regulated up front by the CFTC. So we've written a lot of the regs. We actually spent, you know, literally 14, 16 hours a day for a year and a half doing nothing

else other than writing law and regulations for how, prediction markets could be regulated in the U.S., and we got it done with the CFTC, and we got approved. So we were the first actually market in history that actually could do prediction markets legally in the U.S. So that was one, step one. The thing that we fought over is that after we got approved, the one thing that didn't want us to do is the U.S. election.

There's just so much taboo. I don't know what I explain it. It's like part of it isn't, it's Congress. There's a vocal minority in Congress that just hates them. And maybe we can talk about this in a bit. They believe that they're going to break democracy and this is gambling. obviously totally disagree with that. But it was funny because, you know, our board at first was like, well, this sounds like

a horrible idea. Like when one and I brought it up to Alford and from Sequoia and then YC, we're like, hey, we're going to sue the government, a regulator. And they're like, we, it's never a good idea, just a bad pattern. But we took the risk. And it was brutal. It was really brutal. Like going up against the federal government is super tough because it's like the plane,

the balance of field is so tilted. the standard to win for you is so much higher than the standard to win for the government. But we won and winning felt pretty good. I think the win was worth all the years of pain. And I think maybe this is how it is for, I think, any entrepreneurial journey, it's like you go through all the pain for so long, you have to injure. And then the ups, the highs are so high that it makes it all worth it. So we won this month.

And the cool thing now is like, it's the first time in 100 years that betting on the election, trading on the election is actually legal in the U.S. It's finally back to actually being legal and this time it's actually regulated and we're the only ones that can run it. You just, I think, like, seated a whole bunch of threads that we should talk about. Like, what is, maybe we'll start with one that I think is important. What is the argument against trades on elections? Like, what is the sort of ruining democracy concern?

Yeah. It's two arguments. One, you know, there's a question like, is this gambling? And then the second one is, could they ruin the perception of election? Is there reflexivity in this? Exactly, exactly. Reflexivity. I think that's the right term.

Like, could some weird thing go in a loop? So let me address one by one. So I think the gambling piece is super interesting. I love history and I really love financial history. Like when I got into the business, one of the big reasons, like I loved sort of how did we come up with all these instruments? I worked at Goldman, Sir Della. Have you ever been to a Goldman, Goldman Sachs trading floor or any training? I used to work at Goldman.

Oh, okay. So great. So, I mean, you see, like, it's so weird. like you have like hundreds of traders sitting behind laptops training things like options and swaps and the question that always come to mind is like how do we get here like it's insane but the thing that's interesting is most financial instruments really the vast majority in the early days they were called gambling like that was the consistent thing against it is like a form of speculation on gambling and that's bad for society and the example I love to

quote when it comes to the gambling piece is like so in 1905 when grain futures got legalized in the US. It was a Supreme Court decision. And Green Futures now, we think of it as, like, the most boring, like financial, like, you know, hedging, farmers, like, you know. But at a time, they actually would call it gambling. There's this new asset that people were like, hey, a lot of people are speculating, so it shouldn't be allowed. And then the court decided, like, no, fine, some speculation is happening. Like, it does happen in the stock market, but it doesn't mean these markets are not important. And I think it's the same thing here. It's like, it's crazy to me to think that, like, taking a stake, a position in the election is the same

thing as, like, betting on the dice roll. Like, that doesn't make any sense to me. elections are real, that people have economic consequences coming out of the elections, and people may want to hedge it, or people may want to, even the forecast, it's important enough for these markets to exist. I think actually it's worth contextualizing a little bit, like, why futures exist to begin with. Yeah. Right? You mentioned, like, hedging, but just to sort of complete the basic story there,

like going all the way back to, like, Japan, Dojima Rice Exchange, like, the original function of futures markets, as I understand them, was like, for farmers to hedge price changes, right? You know, even before 1905 U.S. grain futures. And so smoothing out or allowing people who have real economic stake in something to protect themselves was the original premise. What is the difference between like gambling and trading?

So I guess let's differentiate between two things. There's a stock market and the function, why it exists. And by the way, a lot of people, you know, I mean, I don't want to make this political, but I have to be because my business has been pretty political, but like those are warnings of the world even though the stock market has a lot of speculation and we should limit it in a variety of different ways.

That's a horrible idea. We should not do that. But the reason it exists is capital allocation, right? You're moving capital from people that have it to people that need it, very simply. And that makes it worthwhile to exist. And that's why hedge funds exist and that's why all these, you know, we have Wall Street.

The futures market, the derivatives market, where it's a bit different. It's not capital allocation. It's risk transfer. And I love that notion. I love that notion so much. much. It's like it's even more neat. It's like you're transferring risk from people that like have it but cannot bear it to people that don't have it but can bear it. They want to

diversify, they want to buy it, et cetera. And this applies to the example of grain features or rice futures or pork valley futures. The kind of really old school stuff. And the interesting thing in these markets like farmers are hedging, like you said, their ability to hedge allows them to have more forecastability. Like, hey, I'm planting a batch now. What price am I going to be able to sell it at in the fall. It makes it a higher quality business to have that. Exactly. Without it, you have too much unpredictability. And what happens with unpredictability is you have less of these businesses.

It becomes a harder business to run. So you get lower supply of grain. So, you know, we just actually established that no grain futures today would have resulted in higher prices for bread. That sounds like a horrible thing for society, actually. It's a good thing that we have them. Now, that is different from gambling, right? like grain prices or hurricanes or Brexit happening or not or election Trump versus Kamala winning,

that's a risk that exists already, right? Like it's not like you and I are creating this risk so that we can bet on it. This exists already. And some people, like if you run a climate tech company, you're obviously better off if Kamala wins than if Trump wins. If you run a crypto company, you're better off if Trump wins than Kamala. You have a real tangible binary risk that you may want to insure against. That's very different from you and I going and doing a lot.

roulette spin so that we can spec it. That is an activity that's recreational that I don't have strong views on gambling or not. I think people should be able to do whatever they want with their money. But that's different. That does not have benefit for society that go beyond just having fun, right? And so, yes, I think hedging is a core pillar. But then there's actually another thing that people don't talk about. It's called price basing in these markets, which is it gives you an indication of price.

Right? Like farmers without a futures market have no idea what this thing is going to sell for in the fall. The futures market actually gives them an indication of what it's going to sell for. And I think the prediction markets take it a step further. It's actually the price is equal to a probability. It's even cleaner. It's like who's going to win? Right now it's saying 55% Trump.

Is TikTok going to get banned? I think I forgot right now. I think by May it's like 35%. It doesn't look like it's going to happen. Like you're pricing the future. And I think that's another really neat concept because if you price the future, then you can, you're smarter, right? Like you can make better decision about what's going to happen. And if you're a TikTok creator, now you're not going to, you know, whether the likelihood

of TikTok getting banned is in life or death situation for your business, basically. They are related. Yeah. Right. I mean, I have graduated from poker to informed investing. There is speculation in all markets. That's a fact, right? And speculation is like, you bring some money to make more money and, you know, it's something

you don't really control. Without it, you don't get a liquid market, right? If people don't have that, they're not doing that. you don't the market is not going to have any activity it's impossible and so that's been a kind of rule of markets like you have to have speculation you have to have some of the degen's you have to have some of the informed you have to have a little bit of everything to have a you know vibrant marketplace people love to speculate so we started different forms of speculation slash betting slash gambling before we even could write most people don't know this we actually used to play games like we used to do

it with rocks like and then you know people get a reward if the rock comes your side and you pay something if it doesn't. And that was before we had actually like a language. It's probably something related to evolutionary psychology. It's interesting because when you confine it to the, okay, I'm placing a bet on Trump or I'm betting on something specific,

sure, you kind of, we grasp it was like this is people betting on something. But I think like if you broaden a bit more to life, like we are constantly making decisions where we're risk adjusting, we're taking risk, sometimes not taking the risk as another form of risk. Like, Like, life is risky.

You walk outside, you might get hit by a bus. You're taking a risk by walking outside every single day. I believe we have been conditioned to risk taking. Humans are conditioned to risk taking. You know this thing that Nassim Talab talks about when you're evaluating risks. Like, your grandma is better than most data scientists. Have you ever... No, no, no, no.

Explain. So basically there's this whole thing in, like, measuring risk where... Unless you're talking to, like, a PhD or a research lab that's extremely specialized in a very specific form of risk, asking your grandma is actually a better rule of thumb than actually doing any data analysis. Like COVID was a typical, like you had a bunch of people, you know, like the midwit meme, like they did a bunch of analysis like, hey, COVID and it's probably the view dying is lower than a bus and whatever. And if you ask your grandma, the guy would be say like, hey, wear a mask or stay at home. I guess there's two insights. One, generally speaking, don't listen to data scientists.

Data science is mostly bullshit. Health papers and stuff like most of them are just total garbage. What makes them garbage? It's just so easy to the data. And it's so hard to actually make sure, like, check how the data index it. Like, it's just reproducibility and just... The sampling is, and even if it's reproducible, there's so many things that could go wrong and the incentives are off and you have to publish in nature, so you have to do all sorts

of weird things. It's true that grandmas are surprisingly good at risk management. They have a very good intuition of risk. Humans, we've evolved to be pretty fairly good with risk, actually. And even current society actually rewards risk takers better than not. risk takers, right? Like, you see it everywhere. Is it actually that much more risky to place a bat on something you're interested in, or even something that's totally garbage, like, you know, in a casino than starting a company? Like, I think about these things a lot. Like, I would argue

starting a company is even crazier. So how do casinos actually advertise their products? They, like, show you the one person that made $300,000 in the slot machine. People get excited and everyone goes and does it. And, you know, everybody knows the odds, et cetera. why see kind of does the same thing if you think about it like you know we they show like Airbnb and cornbase and then you have like a flock of people basically going into start a company um now the big difference obviously starting a company is actually net positive for society versus like playing on a slot machine is not but i'm talking more about the notion of risk like we all love taking risks it's just more fun living a life where you're taking risk is just such a superior life than one where you're just not taking any right um so yeah take more risks I'm taking a lot. Yeah. I believe generally the principle, I think it depends on what the profile of risk is. And I think Nassim Salaab is fundamentally pretty conservative or, you know, technophobic in some ways.

And I'd be like, hey, man, like, I am investing in AI. My grandma cannot take these risks. Right. So I think it depends. I mean, he's more on the short side. He's like more of the pessimistic negative side. a fascinating business. You used to work at Citadel. You are starting this market from scratch. I think the day we are talking, you know, like there's $16 million in on the election plus my $150.

Yeah. Talk a little bit about how you think about designing a healthy market. Yeah, I mean, we just launched the election. We're obviously launching pretty late because we just won the lawsuit. Yeah, the markets just take time. They need catering. They need watering. But they grow. and they're growing. I mean, actually, we're growing like, I think the last two days have been like six-sex day over day in terms of like signups and in terms of volume. So it just takes time, but I think it's ramping up very fast. Exchanges are notoriously very difficult businesses to build. They're some of the hardest because you have the marketplace angle, which is always hard. And exchanges like you have to bring in the liquidity and that's really hard to ramp up and takes a long time. How do you think about retail versus like large market makers and institutional masters? I think of it as more fun. on the spectrum that goes from like lots of trade small size to less frequent trading but big size. So I think the way that the market evolves is like because we have lower liquidity now, we target retail and then we scale our liquidity as we scale with retail and then we scale

a type of customer over time. You build an initial layer of liquidity and we already I think have that out Calci where like now we have this community, this very dedicated community of people that forecast these events. They price them. And then as they price these different events, you know, like, will it rain tomorrow? Is climate change getting worse or better? Is COVID going to come back? As you price them, like the mere fact of getting a price, you can ramp up liquidity. You can get more and more liquidity over time.

And as you get more liquidity, attract the large institutions that may, if you're a big institution, you want to hedge against cyber risk or a new bill that may pass in Congress that you hate or other. So it's, I think, a progression. That's how we think about it. Election specifically, we're seeing a lot of institutional flow. It just said, like, we're a bit late in the game, but the institutions take time, compliance take time to onboard, but we're seeing a lot of institutional flow. There is demand

for like $10 million, $20 million. Actually, there is demand even up to $100 million trades. We have three weeks, so we're going to have to figure out if we have enough time with their compliance departments to onboard to Kalshi. But if we do, I think we'll see $100 million trades. It's going to be really cool. How do you think about leverage? So there's a few things. Like this is a like a risk on product, right? This is not like a If you buy, you know, S&P, it doesn't move like maybe like 0.5% on a typical day, right? It moves more like 10% on a typical day. So it's already pretty volatile.

We have been thinking about how could we basically introduce margin and leverage into the system? Because when you introduce leverage, there's more trading, right? Like $1 can create much more trading activity. And we want to introduce more leverage over time. But the system gets riskier. A little bit of context. So we own now, as of this year, actually, one of the, like, there's a handful of clearing houses in the U.S. that can actually clear, that can move and hold dollars for trading, for trading derivatives.

Like, this happened after 2010. So when the crisis happened, Dodd-Frank came in and says, every, like, trading of derivative has to go through central clearinghouses. And the reason for that is, like, you and I cannot trade with each other anymore like banks used to do. We can be counterparties. Because if I, and what happened at times is I defaulted, then you defaulted, then Alfa defaulted, then Kelly defaulted, everybody started defaulting. All the banks defaulted and it was bad for the entire economy. Now it's all centralized in one place where the U.S. government can see the risk and then that one place can basically like manage that risk appropriately. That's clearinghouses.

So we actually, as of this year, we own one of the handful. The question is like when do we, when and how do we introduce the ability for people to take positions without putting all the cash up front? but now you're using credit risk, right, into the system. I want to do it. I want to do it with the next maybe 12 to 18 months. But we're going to have to get really smart on sort of like, like, okay, if Sarah shows up to the exchange, like how much leverage should we give you? Should we let you do 10 to 1?

Should we let you do 100 to 1? Should we let you do only 2 to 1? That becomes, like, that's a tough question to answer, actually. Yeah. I mean, it feels like there's a lot of decisions to make there, right? Yeah, yeah. guaranteeing trades, enforcing margin requirements, exchanges and clearing houses are very complex. And so if you think about what's a good, like maybe the 2008 futures bubble, like there are

versions of this that are less healthy. And also like speculation is going to exist in any market. And, you know, people want liquidity. Right. So I think it's a really interesting problem to go solve. If you had leverage, I mean, if you let people just do it without pre-funding, you definitely expose a system to risk. again, like risk is fine. We just need to figure out how to manage it. And I think for us, like, this is one of those things like where the government is actually very, very tough on on us and clearing houses to do. Like, we really need to be kind of really buttoned up to get to get this to get this done. And I think we'll do it.

I think we'll just have a lot of work to do to get there because things can go rolling wrong when they do go wrong, right? Yeah, I mean, 2008 was pretty bad. maybe like just thinking about you know the the coming election uh how should people think about prediction markets versus polling there's a lot of confusion around this polling is asking people who they're going to vote for right like so so assume you can go to you can survey every single person in pennsylvania and then ask them you know who you're going to vote for and then you count it all up and then you get that Trump is 51% of people and Camelize 49% of people, then it's guaranteed that Trump is going to win Pennsylvania, right? Like, that's a guarantee.

Now, obviously, polls don't work like that. Poles are biased. A lot of them are biased. You should not trust most of them. There's a few that you can trust. But assuming the unbiased ones, like they don't survey everyone in Pennsylvania, but they survey a good sample, hopefully well done. And then they tell you, we think that it's going to be 5149. The 51.49, that 1% difference of polling that Trump has over Kamala, that's definitive, right? That's Trump winning. That's like, you know, if the poll is reasonably accurate, that, you know, prediction markets are not doing the same thing, right?

Prediction markets are just pricing the odds of Trump versus Kamala winning, right? They are, like, they're just giving a probability. We think there's a, you know, today right now, it's 55% chance that Trump is winning. That does not mean that Trump is up 5% on average over Kamala on the poll. nationally. That's not what it means. The other thing that people need to understand is that if Trump polls 1% higher than Kamala or vice versa, prediction markets are more volatile. They're going to move more than 1%. Right? They're going to give Trump a higher probability or Kamala a higher probability based on the polling. So people are misinterpreting the data and like people say like,

oh, like Trump has a 10 point lead or like eight point leads over Kamala. That's incorrect. That's not what the market is saying. Trump does not, like, Trump now is more likely, like it's a coin flip, but it's a biased coin flip, that's biased towards Trump to win. You're still flipping a coin flip, it's slightly more likely to go heads than tails, but it could still come tails. And people are, I think, really confusing that. And you see it right now, right? Over the last week, you know, the sentiment, people are misinterpreting what these prediction markets are saying. I think people maybe don't understand odds that well. There's some education we need to do. yeah well because there is pricing not just prediction right correct yeah i think you can you can

kind of assemble this from different events on cali now but um i i want to make a this is just a random feature request for you i want to make a million dollar event trade that is if there is disruption in the middle east before the election more money on trump at up to these odds i want a conditional event trade by the way that's not a political opinion that's just a it's a it's a trade Yeah, yeah. But I think conditional markets are actually the next one of, so internally also, most of our engineers really want conditionals, ASAP. We want to do them. I don't know when, but definitely in the next few months, we're going to do conditionals because I love, like, I really love conditionals. Like, I love this idea of like, you basically what you're saying is like, it, like, and it's a question that people ask, like, is the Middle East war a good thing for Trump or a good thing for Kamala? I mean, you know, and who does it favor? And then you can extend that to a lot of other interesting questions, right? Like, if Trump wins, what will happen to GDP, what will happen to inflation. If Kamala wins, what will happen to GDP, what will happen to inflation? And you can extend that to everything, right?

If Canada X wins, what will happen to crime rates? What will happen to S&P? What will happen to trade tariffs? Like, conditionals actually are so neat because it's all about incentives, right? Like, you know, markets don't lie. That's the beauty of markets, right? Like, markets don't tell anyone what they want to hear. They don't tell anyone what they don't want to hear.

like markets just do their thing and the reason they don't lie is there is money on the line. You can trust one thing in this world is people like making money and they do not like losing money. You can trust that. As long as you trust that, markets do a fair job at doing this, right?

Can I ask a question that in the like very specific context of this one market. Is there a level at which you'd say that Kalshi is better at predicting the outcome of this election than all polling from a liquidity perspective? Or you're just like, we're there? Like we're, you know, it's de minimis scale. Oh, no, we're definitely there.

We're definitely there. You should definitely listen to prediction markets. I think Kalshi is unique, even compared to other prediction markets, is that it's Americans and it's regulated. So you know that no, like, there's no weird thing going on. There's no foreign influence. There's no tapering. There's no washing. Like, it's all here.

It's Americans. There's regulatory oversight on top of it. Like, government is overseeing everything. So Kalshi has this unique thing. And there's institutional adoption. So it's not, there's no, because people ask me, like, do you have a crypto bias or do you have a Trump bias? The answer is no. Like, we have large market makers like Susquehanna, SIG, and a few others that are confidential.

And so I think actually Calsh is a pretty accurate gauge. Right now, 55% is what I would call fair value. That's the correct odds of Trump winning. That doesn't mean Trump will win, but, you know, Trump is more likely than not to win right now. So I'll give you a few examples. Like, we have been the most accurate forecast for inflation over the last two years, which is really hard to forecast. We're better than Bloomberg.

We're better than the Economist survey. Wall Street is starting to use us instead of any other alternative. We predict the Fed decisions better than anything else. We predicted TikTok. We predicted Boeing CEO and what was going to happen to him. We predicted the Omicron wave more accurate than any alternative. And then you have a long-tale, like, we predict the weather these days. Like we can predict daily weather more accurately than most weather stations.

And it was really... Is there any intuition? for that? Like the rest of it, I'm like, oh, you can have more, like, the market has the data, right? Like, the weather one, I'm like, man, I've looked at weather modeling and, like, it's a very hard problem. Like, how could that be true? Here's why.

So weather, the other one is earthquakes. Actually, we also predicted, we did a good job. Like, there was the tsunami or the earthquake in Japan. And we kind of did a good job predicting, like, when and how a next one will hit. Earthquake is obviously insanely hard to predict. You cannot do it. But I, and what I say, like, the statement I made was not like we are always accurate or we're super accurate. What I made is, like, we're more accurate than alternatives.

And the reason is actually very simple. It's like, okay, let's talk about earthquakes or weather. Earthquakes, you, right now the alternative is like you go to an expert and the expert makes a prediction. That's it. And if the expert is wrong, there's no impact, like, no consequence. And if he's right, you know, people, you'll gain more followers on Twitter and people, are going to want to listen to it. Great. When you open a market, this expert that may have an opinion, but there's also a bunch of other experts, maybe also a bunch of random, I don't know,

people that read the news and are interested in earthquakes, if you bring them all into a marketplace and you incentivize them to actually be right, what they're going to do is scout for information on the, they enter anyone that can find information and then trade it into the market, bring it into the market. That's what markets do so well, right? They do what we call information aggregation or dissemination. So you go and do research and then bring it to the market and then if enough people do it,

you get market efficiency. You get an efficient pricing. And if it's not that someone who's smarter that has information that disagrees the market should also is incentivized to come and trade against it to bring it back to efficiency. So that's the intuition, right?

Think of it as like wisdom of the crowd plus skin in the game. You combine those two, you actually end up having, it's like a better mechanism to forecast anything than like trusting anybody saying stuff on TV essentially.

And that's why it works for the weather Because people are incentivized to be right They want to make money What is the process to add a new market to Kalshi? It takes 24 hours now So that was actually really difficult one Because our first market that we ever listed It took us 18 months

And that's what it takes other exchanges Like when CME wants to trade a new Grand Future, S&P future It takes two years We had to shrink down the tech, the regulation, the ops for that And now we like We literally just compounded over time

and now we can do it in 24 hours. So a lot of our team comes up with markets, like what's trending, what's vow, what are people talking about? But 50% of our markets actually come from our users. We have this thing called Market Builder on the site and the app where people can just build a market and make the case like, hey, I think this should be up.

And then we list it within 24 hours. It's weird because if you know whether the movie is going to be good or not beforehand, now you have a forecast of whether a movie is going to be good or not before it gets released. If it's bad, now the movie producers are not going to be able to juice the week of box office before the reviews go out, essentially. So really, now you're applying market efficiency up front. You stop wasting people's time and money if they think the movie is going to be bad. Yeah, that's a fun one. So I assume working at Cal Shea, you cannot make trades on Cal She. I can. Yeah. Are you allowed to describe the trades you are interested in or would make?

Yeah, I can. I mean, so, well, actually, I cannot trade on Calci. I can't trade on any instrument other than stocks because I run a regulated exchange. Okay. Yeah, which kind of sucks. But, oh, my God, there's so many that I like. I would definitely, so I would definitely participate in anything that's around, like, a year-long economy, like what the Fed interest rate is going to be in inflation. I love all things around tech. So I love actually, like, forecasting whether CEOs are going to be around for the next year or not. And we have it for all major tech companies. What tech CEO do you think is going to be out by the end of next year?

So I don't think that way, actually. I think so, for example, I don't think like yes or no necessarily. I think what's underpriced. I think Elon leaving Tesla is pretty underpriced or like stepping down and having someone running. Like it says, you know, I mean, now this year is close to Don, but 2% chance, like 1 in 50, I don't know. You think it's higher than that?

Yeah. Like if Trump wins and assigns him to be secretary of, you know, the government. like I mean this is not financial advice like I you know this is not but this is me person two percent one in 50 like sounds too low like that like and that's a 50x multiplier like yeah I think the odds are more closer to personally I think like closer to 15 percent 15 20 so that's one I think people like these are really hard to price so people like misprice those quite a bit and then I would also like probably do um I would do weather I I've never thought I've never understood the appeal but now I understand it a bit better it's so cool

because you can do it every day so it's repeated game and you can get better every day. And I love that. That's cool. Where does the information come from weather? Where would you begin?

I've heard from some of our users. I know there's a team that scrapes satellite data. They actually figured out how to get satellite data and like, you know, but it's not just about like what the weather is going to be.

It's like a bunch of atmospheric things and then they correlated with what the weather is going to be. So I think that's one. there are interesting things around like you can basically create a bunch of time series like like basically cyclical climate patterns like you can model like it's all about modeling okay how the climate cycle looks like and seasons and like there's different frequencies for seasons and daily fluctuation then also like yearly and decade long fluctuation then also like this

millennium so you can do a lot of stuff like that but then after you just have to tweak and search and research and find niche places where people like to make predictions and there's a lot to do there. Do trading firms recruit off of Calishing leaderboards yet? Yeah, yeah. They asked us a lot also. But, I mean, there are people that consistently, like, there are people that are making hundreds of thousands of dollars a month on weather, weather alone.

The dude who's forecasted inflation the best, so we have hatch funds, we have pop shops, you have Wall Street people, everybody. There's the best forecaster over the last 18 to 24 month is a random dude from Kansas. never traded in his life, just likes to read the news. And this man just knows what inflation is going to be. Like, it's insane. It's awesome. It's incredible, yeah.

But they do cool stuff. Like they, not him, but there's a team that correlated, for example, like how late the lights are on at the BLS with. That's so funny. The jobs data. Yeah. I mean, how do you even come up with that? I don't know, but people come up with stuff like that. Well, this is so cool.

I love the idea of opening the aperture of the, types of risks that people can go price in the world and transfer. And so it's good to hang out. I'm such a nerd about markets. And it's a really cool thing you guys have done. This is really fun. I love doing the pod. Thanks so much for having me. This was really, really fun. Congratulations on the progress so far. And good luck to all our Cali-Traders on the election. Find us on Twitter at No Pryor's Pod. Subscribe to our YouTube channel if you want to see our faces. follow the show on Apple Podcasts, Spotify, or wherever you listen. That way you get a new episode every week.

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