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Makers and Takers: The Economics of the Kalshi Prediction Market

Author

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  • Constantin Bürgi
  • Wanying Deng
  • Karl Whelan

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.

Suggested Citation

  • Constantin Bürgi & Wanying Deng & Karl Whelan, 2025. "Makers and Takers: The Economics of the Kalshi Prediction Market," Working Papers 202519, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:wpaper:202519
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    File URL: http://hdl.handle.net/10197/31888
    File Function: First version, 2025
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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G40 - Financial Economics - - Behavioral Finance - - - General

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