Tarek Mansour is CEO of Kalshi Markets, the first CFTC-regulated prediction market.

On January 5, shortly after takeoff, a door plug flew off a Boeing 737 Max 900 and landed in someone’s backyard in Portland, Oregon. A months-long press cycle began. By the end of January, Fortune declared Boeing CEO Dave Calhoun was “in the hot seat.” On a Fox Business segment, the host asked a Barron’s analyst, “is it time for a new CEO?” This collapse of confidence in Calhoun eventually made its way to the White House, where an exasperated United Airlines CEO pressed for changes in management at several manufacturers upon which his airline relied.

But would Calhoun actually resign? With Boeing’s $100 billion market cap on the line, thousands of investors worldwide mulled the question.

A good answer was hard to find, however. That same Barron’s analyst on television equivocated, saying merely the CEO was in a “tough spot.” A Newsweek article listed the factors that could lead to Calhoun’s ouster, but gave the reader little confidence one way or the other.

On the same day the Newsweek analysis came out, a prediction market launched online, titled New Boeing CEO this year? Here, people could trade on the odds of Calhoun’s replacement by buying “Yes” or “No” contracts. Traders would make money if consensus moved in their favor — but would lose money if they were wrong.

[I’ll interrupt here with a note: I’m biased, because this market launched on Kalshi, a company I founded. But this isn’t a pitch for my startup — it’s a vision for a technology category that can change how we govern, manage risk, allocate capital, and cooperate as a species.]

By mid-morning, the New Boeing CEO market stabilized after the cost of “Yes” contracts rose to a price of 35 cents. In prediction markets, an event contract (each either a “Yes” or a “No”) is an agreement that once the market expires, the holder of the correct contract will receive $1, while the holder of the incorrect contract — the other side of the trade — will receive nothing, and their funds will be paid out to their (more fortunate) counterparty. Until the market resolves to a final answer, however, contracts can be freely traded at a price determined by the market.

For the next thirty days the prediction market settled down to something resembling a flatline, until March 7. That afternoon, a Boeing 777 departing Los Angeles lost a wheel shortly after takeoff, making an emergency landing several minutes later. “Yes” contracts jumped to $0.52 and by March 16, to $0.81. In other words, if the wisdom of the market was to be trusted, there was an 81% chance Calhoun’s days as CEO were numbered. And they were. Nine days later, Dave Calhoun held a press conference to announce he’d be stepping down at the end of 2024.

Looking back, how did the collective intelligence of this market predict more accurately than any major media source that Boeing’s CEO would be replaced, more than a week before it was announced? It’s impossible to know for sure, but the outcome isn’t surprising — people with skin in the game are more careful and accurate about their predictions, and because markets basically consist of groups of people putting more money on bets they’re sure of (and less money on uncertain bets), they do a great job at weighing aggregate conviction.

In 1907, British polymath Francis Galton attended an ox weight-judging competition and observed that the median estimates made by all 800 participants outperformed the estimates of the so-called “experts” in attendance. Even here, Galton noted that the competition’s admission fee and cash prize “deterred practical joking.” It was an astute point; ignoring incentives in crowdsourced predictions is akin to averaging every opinion on Reddit and calling it the truth.

Building on this idea a decade later, Ludwig von Mises attacked the notion of the socialist planned economy, saying that effective central planning was impossible. Price, he insisted, is the only true reflection of supply and demand, and as a planning tool it will consistently outperform a notepad-wielding politburo. Markets, he pointed out, contain information.

But if a core feature of free market capitalism is accurate information, we’ve done little to carry that idea forward for its own purposes. If we could build markets for their information value, we might better predict the timeline for AGI or the success of a given movie, and society would be able to react to meet an opportunity (figure out universal basic income) or fill a need (make more Dune-themed popcorn buckets). This is what prediction markets do well. And they’re growing… fast.

Already today, prediction markets are respected reference points for forecasting a large variety of future events: Fed interest rates, inflation, a Tiktok ban, SpaceX milestones, climate change, new pandemics, congressional legislation, and more. There is an incredible opportunity ahead of us.

In the early 2000s, economist Robin Hanson proposed Futarchy, a form of government in which our elected representatives define metrics to represent national well-being, and prediction markets are used to determine which policies would have the most positive effect on these metrics. In Hanson’s vision, a bill for charter school funding might pass or fail based on the market’s prediction how over time this law would positively impact student literacy, for instance. “Vote on values, bet on beliefs,” was his pitch. I’m not advocating to replace our system of government, and Futarchy is as flawed as it is ambitious. But somewhere between “Draftkings for elections” and “prediction market utopia” is a chance to build systems, in the form of a trusted and regulated financial market, for a more functioning society.

The promise of prediction markets is twofold. First, anything measurable can become the basis for a financial instrument that transfers risk (more on this shortly). In the second application, prediction markets become the most trusted source for contested ideas about the future, allowing society to make better decisions based on better data (in short: to get smarter about the future).

To understand the risk-distributing value of such derivative instruments, imagine a world without a grain futures market (grain futures allow traders to buy or sell their grain at a predetermined future date and price, which farmers can use to “lock in” an acceptable price for their grain long before harvest). Farmers, unable to protect themselves from an unexpected drop in grain prices, become more cautious and take out smaller loans for less risky amounts of seed and fertilizer. Wheat output drops, and bread prices rise. In other words, low food prices are downstream of a commodities exchange headquartered somewhere in Chicago’s financial district. Put more simply, financial derivatives are one reason the cereal you ate this morning was relatively cheap.

For a century, we’ve benefited from allowing farmers to transfer such risk, but we’ve failed to extend this advantage to everywhere it might benefit us. During a pandemic, the owner of a bakery should be able to trade on a market that will pay her if lockdowns are instituted. A homeowner in Key West might hedge the risk of their “uninsurable” house against damage by taking a position in an extreme weather market. A climate entrepreneur, concerned about an incoming president slashing green subsidies, could mitigate this risk with election markets. Every new market that’s launched represents another shield from catastrophe, and a permission slip to take a bigger swing.

Separate from redistributing risk, prediction markets can aggregate information more effectively than experts. Over the past twelve months, Kalshi’s markets have been more than twice as accurate as Goldman Sachs and JP Morgan (and all the other banks) at estimating CPI data before it’s released. Like the ox-weighing experts in 1907, Wall Street analysts are failing to outperform the wisdom of the crowds. It will take time for people to accept this fact, but as prediction markets grow in volume and stature, we’ll be able to integrate them tightly into our media and decision making. When climate alarmists can demonstrate their conviction by placing a trade on a climate market, they will do far more for their credibility than they might by gluing their hand to a painting. If economists claiming “inflation is transitory” don’t show their confidence by putting financial skin in the game, their ideas can be dismissed. By integrating prediction markets with social networks such as Twitter, we can separate the provocateurs from the serious. And as prediction markets develop a track record, governments can use the data to inform policy. Short of implementing Futarchy, policymakers might weigh climate bills against predictions for sea level changes made on a prediction market, or increase defense spending to counter a belligerent adversary that markets believe is preparing an offensive.

Today, our world is awash in opinions and data, yet the truth is as elusive as ever. Misleading narratives such as “two weeks to stop the spread,” and “inflation is transitory” have irreversibly shattered our trust in the expert class. But prediction markets can outperform expert opinion and give us the information we need to better steer our society’s allocations of our time, money, and attention. If more truth is not a worthy cause, then I don’t know what is. If we take seriously von Mises’ assertion that free markets triumph due to their innate information-aggregating properties, then we should build a future with infinitely more markets. Trade everything.

After studying the ox weight-judging competition a century ago, Sir Francis Galton published his findings in the science journal Nature, concluding that “this result is, I think, more creditable to the trustworthiness of a democratic judgment than might have been expected.” The internet delivered us unlimited information; prediction markets are our opportunity to harness this information and the collective wisdom of the hivemind to give us something closer to truth. When Sir Galton submitted his essay for publication in 1907, he gave it a title that is just as apt today, and the perfect symbol of the opportunity in front of us: Vox Populi.

—Tarek Mansour