Gambling is a Verb and a Noun

One is human nature. The other is a business model.

“The great enemy of clear language is insincerity.” - George Orwell

In my life I have gambled on many things: the winner of a sporting event, how many slices of pizza I can eat, whether someone could distinguish between Coke and Pepsi, to what degree a company’s stock price will rise or fall, if a raindrop will take more or less than ten seconds to reach the bottom of a car window, and the color of the next leaf to fall off a tree. I recently lost an ungodly amount gambling on a game of mini golf. I have gambled with friends and bookies, at casinos and cafeterias, on brokerage apps and diner napkins.

I say this not to confess degeneracy, but to make a point: all of that was gambling, the verb—risking money on uncertain outcomes. Only some of it involved gambling, the noun—a business designed so that users, collectively, lose.

This distinction matters because it’s being exploited. Prediction markets like Kalshi, Polymarket, and now Robinhood have rebranded sports betting as investing, sidestepping state gambling laws by calling their products ‘event contracts’ regulated by the (now gutted) Commodity Futures Trading Commission. Since entering the mainstream during the presidential election, they’ve expanded nationwide and into brokerage accounts. As of today, Robinhood is offering custom parlays and marketing them as ‘multi-leg contracts.’

Deregulation and corruption made this possible. But prediction markets make a more philosophical argument for why their gambling products should be legal and relatively unregulated. As Kalshi’s head of crypto, John Wang, wrote in a now-deleted post: “Cynics love to call trading gambling, as if speculation is some parasite that corrupts ‘real economic activity.’ That’s totally backwards. Speculation is a feature, not a bug.”

Wang is not totally wrong. Speculation does exist in every market, and it provides necessary liquidity and price discovery. But there is a difference between markets where participants can collectively win (or break even) and markets where they’re guaranteed to lose.¹

All investing involves the verb form of gambling: you are betting on an uncertain future. A pension buying index funds is taking a risk. So is a venture capitalist backing a startup, a roulette player placing his chips on red, and a Kalshi user betting on the Chiefs.²

But only the latter two involve gambling, the noun: a business that ensures that users, on average, will lose. The value of an index fund or a company can grow. Roulette tables and prediction markets don’t work this way. The house takes a cut of every transaction, and the pot only shrinks.³

Prediction market platforms know this. They market sports betting and getting rich quick, then explain to regulators that their products are really about hedging risk and price discovery.

Kalshi Ad

By calling it finance instead of gambling, prediction markets sidestep the entire regulatory apparatus: they can operate across the country, ignore the rules traditional gambling operators have to follow, and not pay state taxes. The ambiguity is the business model.

People lose money in index funds during downturns, or on individual stocks which go to zero. But markets can go up; gambling products can’t.⁴ The more these products proliferate—and the more they’re allowed to masquerade as financial instruments under the guise of democratizing finance—the more people will lose.

The government can’t, and shouldn’t, ban speculation. But it can, and should, regulate products that are structurally designed to take money from users.

1. Prediction markets argue their products serve legitimate hedging purposes, like insurance. This is mostly laughable, especially when 90% of the volume is on sports and the people who actually might want to hedge sporting outcomes (owners, players, leagues) are not allowed to trade. In theory, a bar owner near a stadium could hedge against a loss that hurts foot traffic. In reality, the people betting on these platforms are gamblers.

2. Of course, we all take many risks which can be called “gambles,” but this piece is focused on the financial ones.

3. This is not to say gambling is necessarily bad: many people are paying for entertainment, which has real value. The problem is when negative-sum products are presented as a path to wealth. Sportsbooks do this, but prediction markets are worse offenders.

4. Individual gamblers can profit, but overall, market participants must lose.