CNN's partnership with Kalshi introduces a significant ethical risk. While prediction markets can offer data-driven insights, their integration into mainstream news creates a feedback loop where actors can manipulate markets with relatively small sums of money to generate favorable headlines and influence political outcomes.

Financial personality Vivian Tu warns against platforms marketing "prediction markets" as an investment class. She clarifies they are simply a modern form of gambling on outcomes, akin to sports betting, and will likely deplete wealth rather than build it.

Prediction markets thrive on information asymmetry, mirroring the stock market before 2000's Regulation FD, when selective disclosure was common. This structure means 'sharps' with privileged information will consistently profit from 'squares' (the public), making it difficult for casual participants.

The true value of prediction markets lies beyond speculation. By requiring "skin in the game," they aggregate the wisdom of crowds into a reliable forecasting tool, creating a source of truth that is more accurate than traditional polling. The trading is the work that produces the information.

A more significant danger than insider trading is that individuals in power could actively manipulate real-world outcomes to ensure their bets on a prediction market pay out. This moves beyond leveraging information to actively corrupting decision-making for financial gain, akin to throwing a game in sports.

Terry Duffy distinguishes between large-scale political events like a presidential election and smaller, local races. He argues that a prediction market on a local mayoral race with only a few hundred voters could be easily manipulated, as an actor could potentially buy the election to ensure their market prediction pays off.

Extreme conviction in prediction markets may not be just speculation. It could signal bets being placed by insiders with proprietary knowledge, such as developers working on AI models or administrators of the leaderboards themselves. This makes these markets a potential source of leaked alpha on who is truly ahead.

While praised for aggregating the 'wisdom of crowds,' prediction markets create massive, unregulated opportunities for insider trading. Foreign entities are also using these platforms to place large bets, potentially to manipulate public perception and influence political outcomes.

Analysis shows prediction market accuracy jumps to 95% in the final hours before an event. The financial incentives for participants mean these markets aggregate expert knowledge and signal outcomes before they are widely reported, acting as a truth-finding mechanism.