Makers and Takers: The Economics of the Kalshi Prediction Market

Starting in 2021, Kalshi was the first federally licensed prediction market in the United States and remains the dominant platform in this segment. Using transaction-level data on over 300,000 contracts, we provide the first systematic evidence on its pricing. Contract prices are informative and become more accurate as markets approach closing, but they display a clear favorite–longshot bias: low-price contracts win far less often than required to break even after fees, while highprice contracts win more often and yield small positive returns. All trades are offered by Makers and accepted by Takers. Makers earn higher returns than Takers, but returns for both exhibit a favorite–longshot pattern. We interpret these facts using a framework that reflects Kalshi’s quote-driven microstructure, in which agents sort into trading decisions based on their beliefs. We find that modest levels of disagreement and a small tendency to overstate small probabilities are sufficient to reproduce the favorite–longshot patterns in the data.