Billion-dollar forecasting market Polymarket is currently accepting bets on German regional elections later this year, even though it is illegal to use such sites in Germany.
Prediction markets, which allow people to bet anonymously on anything from military attacks to the second coming of Jesus Christ, have attracted more attention in recent years and have caused headaches for gambling regulators around the world.
In the US, the Justice Department last year closed its regulatory investigation into Polymarket, one of the world’s market leaders along with Kalshi, a move that led to their expansion in the US. But access to Polymarket is blocked in several European countries, where governments consider them an unlicensed gambling platform.
Both the Polymarket and Kalshi websites are available in Germany, even though the country’s gambling authority has declared that it is illegal to use them. The Central Gambling Authority of the States of Germany, GGL, issued a statement last September Warning to Germans against using platforms like Polymarket.
“Social betting refers to events occurring in public or social life, such as political elections, court decisions, natural disasters, social events or other non-sporting developments,” the authority said. “Such formats are particularly susceptible to manipulation, as they are often vague, subjective or based on easily influenced events.”
In a statement to DW, GGL said that although the websites for Polymarket and similar platforms were accessible, it was not possible to send money to them from a German IP address, and that GGL forwards any information about illegal betting to law enforcement authorities.
Nevertheless, Polymarket currently has Active betting markets on its site The next three German state elections, in Saxony-Anhalt, Berlin and Mecklenburg Western-Pomerania, will all be held in September, as well as whether Friedrich Merz will step down as chancellor before 2027. The Berlin election appears to be the most popular of these bets, with $3 million (€2.6 million) already wagered on the outcome, even though the vote is still several months away.
Double jeopardy: insider trading, market manipulation
Experts warn that prediction markets pose a risk to democratic processors. Burkhard Stiller, a professor of computer science at the University of Zurich and an expert on financial technologies, said this happened mainly because “they try to translate political decisions into a game theory model,” he told DW. “It is unacceptable that such technology could theoretically manipulate narratives.”
The potential for insider trading in prediction markets is well illustrated by recent high-profile examples: aggressive betting on the fall of Venezuelan President Nicolas Maduro and the US-Israeli attacks on Iran led to suspicions that opportunistic insiders had taken advantage of their knowledge. But since users can place bets anonymously and the platform deals in cryptocurrencies, it is impossible to determine who is placing the bets. It was also reported this week that newly-created accounts on Polymarket had made hundreds of thousands of dollars betting on a ceasefire between the US and Iran just hours before the deal was announced.
According to Stiller, such tactics represent a threat to democratic processes. Democracy, he said, was founded on building consensus by parliaments and cabinets to take decisions. He argued that allowing bets on decisions creates incentives that have nothing to do with their substance and could therefore distort the debate.
There is also a danger of market manipulation, as people with enough money can predict the market by betting heavily on a certain decision or a certain election outcome, artificially making it more probable and inducing more users to bet on that outcome or a certain party. This would be a well-observed “bandwagon effect,” said Alexander Bechtel, an expert in digital economics and lecturer at the University of St. Gallen.
threat to elections
Forecast markets gained some notoriety in 2024 when they apparently predicted Donald Trump in the US presidential election more accurately than opinion polls did over Kamala Harris, and US news networks have already begun using forecast markets as a data source: in December, CNN announced it was partnering with Kalshi to serve as a supplement to the network’s reporting on elections.
As Bechtel points out, some political scientists have now begun to give prediction markets more credibility than traditional polling, as surveys are often thought to be distorted by the fact that people sometimes do not like to admit that they prefer a particular party.
“We saw in the elections around Donald Trump in America, when Donald Trump always got worse ratings than his opponents,” he told DW. Bechtel suggested, this was because people become more honest when they “put their money where their mouth is”.
Are market predictions better than opinion polls?
But just because you think someone is going to win the election doesn’t mean you approve of their politics, and experts also warn against confusing prediction markets with opinion polls. “Of course, forecast markets can be distorted,” Bechtel acknowledged.
Users can set their own questions on forecast markets, meaning they are often random and can be very specific, while polling institutes design questions that attempt to build an accurate picture of what voters of specific demographics in a specific country think.
Bechtel isn’t too worried about the growing popularity of prediction markets. “My view is that prediction markets do not represent a structural risk to democracy, but they do contain dangers,” he said.
Nevertheless, he believes they need more regulation, and that some measures can be taken to prevent some threats: for example, forcing users of prediction markets to identify themselves online would be a step towards preventing insider trading and market manipulation. Another option, he said, would be to prevent markets from allowing vague, specialized bets to be placed on specific political decisions, which would clearly provide incentives for manipulation. “These are all things you should prevent, but I think you can prevent them through regulation,” he said.
Edited by Reena Goldenberg