Longshots Losing 98% of Time Dominate Kalshi, Polymarket Trading

Prediction markets are obviously one of the fastest growing elements of the markets for quite some time. So we ask the question, what is behind this boom? And obviously in gambling there is a long standing, long shot bias. You know, the tendency of people to overpay for a tiny chance of winning. Um, so this is very popular in prediction markets first through basic long shot. That's where, for example, there was a famous market, uh, about the return of Jesus Christ, uh, the odds of which were 4%. But clearly many people were buying four cent contracts with the likelihood, uh, for the likelihood of Jesus returning. Uh, another big part of this is parlay bets, mostly sports. Um, you know, I watch a football game, and I want to put three different bets, combine them all together, and if I get it right, it's amazing. I want to win so much money. It's a really big adrenaline dopamine rush, and it's really exciting for people. The truth is, most of the time they don't make a lot of money. Uh, that's what we find in our data. Um, so one, uh, so the number of longshot bets has increased in increasing incredibly over the past two years since the start of 2025. Around half of the trading on course she was in long shot, but in recent weeks it's more than 65%. So you can imagine this platform that want to be a truth machine and all that, actually have a big amount of people going to potentially do some gambling. It's a lottery ticket. Yeah, it's it's a. Why do people keep betting on these outcomes that are so unlikely to happen a 4%? It's a great question. We've been thinking about a little and we actually have a few retail traders. And like the anecdotal response, people are like, it's fun. Like it's like I'm buying a ticket to a concert. I'm paying the price. You know, I'm watching my game, but I'm having more entertainment. I'm putting a few dollars. It's an experience. It's an experience for them. Uh, and also we have to say that those contracts are cheap. Like, sometimes it's a three cent contract. Maybe you buy it, maybe you put $10. The overall amount you put on this is not that problematic. Where the problems begin is that a lot of addiction experts says that long shot beds often are pretty bad for people who already have a gambling problem. Maybe I've already lost a lot of money. I want to catch up fast, so I'll ramp up those beds. It's like putting leverage on them and being less so in those situations. Do get those get pretty problematic, and it's really easy when you put small amounts of money to kind of forget that you're losing money and most importantly, that you're overpaying for the bets. So it's kind of a double whammy effect. So we're journalists here at Bloomberg News, which means when we write about companies, we reach out to them for comment with what we found. And you did that. You reached out to calcium poly markets. Did they have any response? That's very fascinating. So Polly Market, what they say is that the nominal amount we put on those wagers are small. Hence we shouldn't be too worried about this because the majority of the money is going to other places. That said, you know that that bet has two sides, so I'm buying 1%. On the other side, there is a market maker potentially, uh, that is taking the other side and maybe is making some money out of this. So even if that small amount, that's what the company's saying, uh, is. Uh, as notional value is not that much we have to think of about the broader market. And most importantly, we have to think about how fast this is growing. One thing we have, we say, is that the aggregate long should be, uh, but loses 15%, Uncle XI. So this is both uh, because that debt is um, or mispriced. Um, so obviously the traders are not only using money um, because of the bad, but because of the pricing of the bet. I mean, it's interesting because there's there's generally a reason why hedge funds should do long short trading, um, and take on these things like leverage versus the average retail individual who may not know how to manage that risk or think about that risk, some of that risk. Exactly. And frankly, even some hedge funds have been taken out by leverage, as we've seen recently with situational awareness. Right? So even institutional investors who are supposed to be the best at their game can really stumble. Let alone a young person who is also being gamified by. By the use of the apps. And there are all those elements, uh. Elements of gamification, the elements of like, you know, the majority of those people who select those platforms are young users, often male audience, um, in their 20s, 30s, going to those platforms. Um, and, you know, we've had several studies where people are putting more money to sports betting that they are, um, that they're potentially taking from, um, their investments. And those platforms have become more and more sports focused. Like if you look at KFC, which is a bigger platform, a lot of their volume is about 90% of their volume is sports and crypto. Yeah. Um, so people flocking to those platforms are not necessarily exposed to like economic contracts. Like of course some people are, some people go and want to predict the next GDP print, but majority of people are going and placing those bets and now they're more they're going into contracts that are more risky, less likely to make money and have purely entertainment value.