In a new article, we investigate how prediction markets—digital platforms designed originally for distilling dispersed knowledge into accurate forecasts—are steadily morphing into what look and feel like online gambling venues. That shift creates a regulatory puzzle, with consequences for market efficiency, consumer welfare, and financial oversight.

From Collective Intelligence to Gamified Speculation

For the last couple of decades, prediction markets have been touted as the gold standard for crowd-sourced forecasting, outperforming traditional polls and expert panels on everything from presidential elections to influenza prevalence. They offer near-frictionless trading, real-time price signals and a straightforward mechanism for aggregating scattered information—attributes that multinational firms, central banks, and public-sector agencies have harnessed for scenario planning and risk management. At their best, these platforms illustrate how financial innovation can democratize participation, sharpen price discovery, and channel previously untapped expertise into socially useful insight.

Recent product iterations, however, complicate that narrative. Our mixed-methods study—combining interface audits, transaction-level data, and user-experience examinations across five leading platforms—shows that many operators have imported design elements from video games, sports-betting apps, and crypto betting sites. Users are greeted with animations, “cha ching” visuals, or boosts when trades settle in the money; persistent leaderboards tease near misses; and “hot streak” badges frame consecutive winning trades as status symbols worth chasing. Some sites even extend virtual credit against paper gains, encouraging a debt-fueled spiral that mirrors the “house money” effect observed in slot-machine research. These nudges subtly migrate the experience from deliberative forecasting toward rapid-fire wagering—a shift with material consequences for financial risk and user autonomy.

Behavioral and Public-Health Impacts

Drawing on addiction science, behavioral psychology, and self-determination theory (SDT), we highlight how design tweaks exploit universal cognitive biases and basic psychological needs—competence, autonomy, and relatedness—to keep users engaged. SDT predicts that when these needs are externally manipulated rather than intrinsically satisfied, individuals become especially vulnerable to compulsive behavior. Accordingly, younger, financially less-secure users would be especially prone to “whiplash” account swings—rapid cycles of large gains followed by equally steep losses. The combination of limited financial buffers and high sensation-seeking makes this cohort particularly sensitive to the competence- and novelty-related nudges embedded in platform design. ​

Moreover, dual-currency architectures—such as the platforms’ virtual/fantasy money, which sit alongside real-money trading—condition users to take progressively bigger risks by masking the true cost of each wager. For instance, converting $1 into 100 (or 10,000) fantasy tokens inflates purchasing power on screen, dulls price salience, and mimics the psychological pathways documented in the loot-box and simulated-gambling literature, where early play-money experiences increase the likelihood of later real-money spending.

Public-health doctrines underscore the stakes. Because prediction platforms are still marketed as “information markets,” many slip below the radar of harm-reduction programs that otherwise flag high-speed betting outlets. In our view, that regulatory blind spot magnifies the social cost of problem gambling—and raises equity concerns when design choices disproportionately affect first-time market participants who may mistakenly conflate prediction trading with low-risk portfolio diversification.

A Fragmented and Shifting Legal Terrain

Legal doctrine has struggled to keep pace. The Commodity Futures Trading Commission’s (CFTC) responsibility under the Commodity Exchange Act is to police event-contract markets that function “contrary to the public interest.” Yet courts have sent mixed signals on where that boundary lies. Ongoing litigation involving Kalshi and PredictIt illustrates the tension: One arm of government praises open forecasting markets as vehicles for price discovery, while another warns that identical mechanics can morph into unregulated sports books. At the administrative-law level, The Supreme Court’s Loper Bright decision abruptly retired Chevron deference, meaning courts will no longer reflexively side with agencies when statutory language is ambiguous. The upshot is greater doctrinal uncertainty just as prediction platforms are experimenting with asset-class hybrids—combining event contracts, perpetual prediction tokens, and crypto-denominated side bets.

State regulators add another layer of complexity. A handful of jurisdictions have invoked gambling statutes to restrict or tax prediction contracts tied to local sports outcomes, while others have treated identical products as bona fide futures. Internationally, the spectrum is even wider, but absent coordination, platforms can engage in regulatory arbitrage—routing traffic through permissive jurisdictions while marketing to more restrictive ones.

Toward Evidence-Based, Consumer-Centric Regulation

Our article rejects a binary choice—wholesale prohibition or laissez-faire enthusiasm is unwarranted. Instead, we propose a calibrated, four-pillar regulatory architecture:

1. Risk-tiered classification of event contracts.
   Create a bright-line taxonomy that distinguishes information-seeking contracts (e.g., inflation prints, commodity disruptions) from purely speculative wagers (e.g., pop-culture prop bets). Thresholds should account for leverage, settlement cadence, and gamification intensity. Contracts falling in the “high-volatility + short-settlement” band would trigger gambling-style guardrails even when their legal form resembles futures. ​
2. Market-structure oversight via conditional sandboxes.
   Authorize platforms only within a tiered supervisory sandbox—co-run by the CFTC, state gambling boards, and consumer-finance agencies—subject to caps on individual stakes, liquidity floors to deter thin-market manipulation, and mandatory public data feeds for academic scrutiny. ​
3. Consumer-protection & fair-design obligations.
   Mandate age checks, “X % of traders lose money” risk labels, self-exclusion tools, loss-limit cool downs, and the removal of dark-pattern gaming features akin to confetti animations, “hot-streak” prompts, and deposit–withdrawal asymmetries. Platforms must publish plain-language disclosures on reinforcement mechanics, virtual-credit schemes, and any friction differentials between deposits and withdrawals. ​
4. Cross-border coordination and adaptive data sharing.
   Because prediction markets route traffic through the most permissive jurisdictions, agencies should coordinate efforts to spot contagion, debt spirals, or demographic harm early.

Reclaiming the Promise of Prediction Markets

Properly governed prediction-market platforms can enrich public discourse, sharpen policy analysis, and democratize access to sophisticated forecasting instruments. What our findings demonstrate is that particular interface choices and monetization models can weaponize the same behavioral levers that drive slot-machine addiction—thereby transforming a knowledge-generation mechanism into a high-speed financial casino. Aligning design with principles of market integrity and user welfare is therefore essential if prediction markets are to avoid the reputational and regulatory backlash that beset early crypto exchanges and daily-fantasy platforms.

Ultimately, the choice is not between innovation and protection but between well-calibrated oversight and the unchecked migration of gambling mechanics into financial systems. A multidisciplinary, empirically grounded approach—one that fuses insights from law, economics, psychology, and public health—offers the best prospect for preserving the informational benefits of prediction markets while mitigating their emerging hazards.

This post comes to us from Nizan Geslevich Packin, a professor of Law at the Zicklin School of Business, Baruch College, CUNY and the University of Haifa Faculty of Law, and Sharon Rabinovitz, a professor at the University of Haifa Faculty of Law, and the School of Criminology.  It is based on their recent article, “All Bets Are On: Addiction, Prediction, Regulation, and the Future of Financial Gambling,” forthcoming in the Fordham IPLJ and available here.