Young Men’s Attraction to Prediction Markets and the Associated Risks

Earlier this year, Thomas Christian Owens ventured into prediction market trading. He opened a Kalshi account in January, deposited $500, and embarked on betting a few months later. Owens, a 29-year-old manufacturing engineer, treated this as a self-birthday gift and a source of entertainment.

His expectations weren’t high. He aimed to earn some extra money for himself and his family. Initially, Owens experienced success, but a month into trading, he was losing money.

Young men like Owens often seek excitement, quick profits, and financial security in prediction markets. An April survey by Navigator Research shows that nearly 40% of men aged 18 to 34 use these markets. On Kalshi, about 3 million out of 4 million users are male, with 60% aged between 18 to 34.

Legal Challenges and Insights

Prediction markets have sparked debates about insider trading, with many cases involving men. One case involved a Google employee accused of using confidential information on Polymarket to earn over $1.2 million. Another instance involved a U.S. special forces soldier betting on the removal of former Venezuelan leader Nicolás Maduro.

Experts link men’s involvement to their inclination for risk-taking. Michael Liersch, a specialist in behavioral finance at Edelman Financial Engines, noted that young men often show greater confidence in financial decisions.

The Mechanics of Prediction Markets

Prediction markets allow users to wager on potential events with contracts priced between $0 and $1. Success results in a $1 payout per contract. Owens, a basketball enthusiast, primarily bets on sports events involving local teams like the Oklahoma City Thunder.

Owens achieved an 800% return from a $50 wager on a basketball “combo” bet, eventually turning $196 into nearly $1,700 on another occasion.

Another strategy involves “mention markets,” where users bet on specific words or phrases used during events. Steven Zhang, a UCLA student, came across an ad inviting wagers on a presidential debate, which piqued his interest.

Zhang now trades on Kalshi, focusing on outcomes like NBA announcers’ statements and geopolitical events. He’s cautious, keeping $150 in his account after initial losses.

Despite attempts to contact Kalshi for insights on their male user base, CBS News received no response before publishing the report. Zhang emphasizes the thrill of these markets, noting the tension between being right or wrong.

Risk and Social Benefits

Experts argue that men’s inclination toward prediction markets may have biological roots. According to David Bieri of Virginia Tech, men are more likely to accept speculative assets and risk money loss.

There’s a social aspect too. Successful predictions can confer status, resembling the allure of the “Wolf of Wall Street,” as Bieri observes.

The Risks and Reality of Prediction Market Participation

Owens hoped that his Kalshi earnings would supplement his income and provide family support. Northwestern Mutual’s survey found that 75% of men feel financially behind, which might drive them to riskier investments.

Although Owens had accumulated almost $4,600, his balance recently fell to $1,700, below his $2,500 deposit. Now, he restricts bets to under $100.

While some Kalshi users have achieved significant profits, such outcomes are improbable for many. The Wall Street Journal reported that 67% of profits on Polymarket went to just 0.1% of accounts.

Jordan Bender from the financial firm Citizens highlighted that the median return for prediction market users is -8%. This means that for every $100 spent, users stand to lose $8. Bender warns against expecting easy wins in any form of betting.