Makers and Takers: The Economics of the Kalshi Prediction Market

Constantin Bürgi, Wanying Deng and Karl Whelan

No 202519, Working Papers from School of Economics, University College Dublin

Abstract: Since 2021, Kalshi has operated as the only licensed prediction market in the United States. We show that Kalshi’s contract prices are relatively accurate predictors of outcomes and their accuracy increases as markets come closer to closing. However, the prices also display a systematic favorite-longshot bias. Contracts with low prices win less than required for them to break even on average while the opposite applies to contracts with high prices. We explain these results with a theoretical framework in which there are two types of participants: Makers who are relatively well-informed traders who make offers seeking a positive return but who may be too optimistic about their chances of winning and Takers who either accept or reject these offers. The framework predicts different patterns of favorite-longshot bias for Makers and Takers. We use data from over 300,000 Kalshi contracts to show these predictions are supported by the evidence.

Keywords: Prediction markets; Kalshi; Favorite-longshot bias; Market microstructure; Bid-ask spreads (search for similar items in EconPapers)
JEL-codes: G14 G23 G40 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2025-07
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10197/31888 First version, 2025 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 405 Not Allowed (http://hdl.handle.net/10197/31888 [302 Found]--> https://researchrepository.ucd.ie/handle/10197/31888)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucn:wpaper:202519

Access Statistics for this paper

More papers in Working Papers from School of Economics, University College Dublin Contact information at EDIRC.
Bibliographic data for series maintained by UCD School of Economics ().