The Vatican elected a new pope on Thursday, but not before prediction markets briefly went haywire between the white smoke and the winner’s announcement.
Cardinal Robert Prevost became the next pope, which surprised prediction markets. He wasn’t among the initial favorites. Crypto prediction market platform Polymarket had Prevost trading at less than 2 cents in the days leading up to his election. Commercial prediction market Kalshi saw odds on Pietro Parolin surge from 33% to about 73% after the white smoke but before the announcement of Prevost.
Prevost’s odds soared from 1% to 99% in the moments after his papacy was made public, but prediction markets underestimated his chances. One likely reason is the lack of public information throughout the conclave.
Prediction markets thrive on public information
One of the reasons prediction markets performed well in the 2024 presidential election was the large amount of information available to aggregate. Presidential elections offer endless supplies of polls, opinions, and facts that can be interpreted in myriad ways. That information can be boiled down to a percentage that acted as a snapshot of the race’s likely outcome. In essence, it was an efficient prediction market.
In contrast, the way the cardinals would vote during the conclave was private. All the participants were locked in a room together, and the result was unknown until it was announced. Key developments, like which cardinals changed their votes and for which reasons, went unreported throughout the conclave. The only information available for prediction markets to aggregate was speculation.
Dr. Harry Crane, a Rutgers University statistics professor who also studies prediction markets, offered Polymarket’s market on the contents of Luigi Mangione’s manifesto as an example of an unreliable predictor. “There’s really not a whole lot of information that [the] market can aggregate,” Crane told Prediction News. “That’s a case where you know that market is not all that useful, not nearly as good at aggregating information as these election markets are, which I think are quite, quite good.”
It’s fair to call the papal prediction markets aggregates of opinions about who the next pope would be. However, prediction markets aren’t more accurate than polls when the only available information is speculation.
Not all prediction markets are sources of truth
Prediction markets are only as good as the information traders use to decide what they’re willing to pay for Yes and No contracts.
The CFTC does not seem positioned to differentiate between markets with high and low public information. Platforms like Polymarket that aren’t regulated by a financial regulator certainly won’t. It has already offered a market on what would be in Luigi Mangione’s manifesto, a market whose prices were functionally meaningless.
There’s an art to reading prediction market prices. Understanding which can be considered fair representations of public knowledge or public guesses is the first step to mastering it.
