Can You Bet on War? Inside The Dark Side of Prediction Markets

What happens when people are financially incentivized not just to predict events but to shape them?

On this episode of At the Boundary, GNSI Senior Director Jim Cardoso sits down with authors of a recent guest essay on prediction markets for the New York Times, Dr. Amy Nelson, senior fellow at the Future Security Program at New America and Dr. Sean Guillory, CEO of Betting Intelligence, to unpack one of the most unexpected emerging national security threats: prediction markets.

Once considered a niche sites, platforms like PolyMarket and Kalshi have exploded into billion-dollar industries influencing politics, geopolitics, elections, and public discourse. But as these markets grow, so do concerns about insider trading and coercion.

Drs. Nelson and Guillory explain how prediction markets are evolving beyond harmless speculation into systems that can incentivize real-world actions and create new vulnerabilities for democracies. The conversation explores Congress’s growing scrutiny, and why adversaries could weaponize these platforms in the future.

Listen now on Apple Podcasts, Spotify, YouTube, or wherever you get your podcasts.

Links from this episode:

• "A Journalist Covered a Missile Strike. Then the Death Threats Started"- By Amy Nelson and Sean Guillory.

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At the Boundary  from the Global and National Security Institute at the University of South Florida,  features global and national security issues we’ve found to be insightful, intriguing, fascinating, maybe controversial, but overall just worth talking about.

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The mission of GNSI is to provide actionable solutions to 21st-century security challenges for decision-makers at the local, state, national and global levels. We hope you enjoy At the Boundary.

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Transcript

SUMMARY KEYWORDS

Prediction markets, national security, insider trading, DARPA research, super forecasting, CFTC oversight, misinformation, disinformation, behavioral health, violent extremism, geopolitical events, financial regulation, intelligence operations, prediction market behavior, national security implications.

SPEAKERS

Glenn Beckmann, Jim Cardoso, Dr. Sean Guillory, Dr. Amy Nelson

Glenn Beckmann  00:12

Welcome to this week's episode of At the Boundary, the podcast from the Global and National Security Institute at the University of South Florida. I'm Glenn Beckman, your guest host today for At the Boundary.

Glenn Beckmann  00:30

Today on the podcast, we have two special guests who will be discussing a topic that very few of us would have imagined suitable for a national security podcast, gambling, or more specifically, prediction markets, and yes, the wagering going on in these chaotic markets has a very discernible and very negative effect on national security. We'll find out the whys and hows in just a couple of minutes. Today is the final Monday of May, Memorial Day, here in the United States. It's the day our country dedicates to mourning and honoring all military personnel who've died while serving in the United States Armed Forces, and while many Americans today will spend much of it shopping, barbecuing, watching baseball, washing a car, going out of the boat, here's a small reminder to take a moment this afternoon, 3pm local time, to observe the national moment of remembrance. Pause for one minute to remember those who've given their lives in military service to our country. For our notes today, we're pleased to announce our next GNSI policy dialogs event. It will be a panel discussion hosted by one of our non-resident senior fellows, Dr. Jacob Holzer, and will be called Behavioral and Mental Health Aspects of National Security: The Invisible Front Lines. Pretty interesting topic, right? That virtual event happens on june 24 on our YouTube channel. Holzer is a physician in clinical and forensic psychiatry on staff with the Massachusetts General Physicians Organization, and he's faculty at Harvard Medical School. He also has intelligence operations experience with the US Air Force. Joining him on the panel will be Ryan Wagner, the chief of the Department of Psychiatry and Behavioral Neurosciences at USF, as well as the chief of the Behavioral Health Institute at Tampa General Hospital, along with Mond Mungaia, a behavioral threat assessor and risk management specialist, and former FBI profiler, who now serves as the director at Control Risks, a global security and strategic intelligence consulting firm. So, if you plan on watching with us, bring your thinking caps. There will be some heavy lifting in this panel, as they'll be discussing neuropsychiatric aspects of extremism, characteristics of violent extremists, and stalking and threats against public officials. We're really looking forward to hosting this panel, which we hope will be the first of a series. That's on June 24 on the GNSI YouTube channel. Keep your eye out for more details. And finally, the latest episode of our Ukraine-focused research initiative dropped last week. Also on our Youtube channel, GNSI strategy and research manager Dr. Tatchnoffer sat down with retired US Ambassador William Taylor, who served twice as ambassador to Ukraine, first from 2006 to 2009 and then again in 2019 It's an entertaining and illuminating conversation that provides keen insight for the research initiative. We'll drop a link to the video in the show notes. It's well worth the watch. All right, it's time now for our featured conversation today. Our special guests are Doctors Amy Nelson and Sean Guillory. Sean is the CEO at Betting Intelligence, an information service that dives into the use of betting market behavior as an intelligence signal of intent and insider knowledge. Amy is a senior fellow at the Future Security Program at New America. Together, the two of them authored a guest essay for the New York Times a few weeks ago, centered around an Israeli journalist who reported on an Iranian missile strike, and soon thereafter began receiving death threats. Why, you might be surprised at the answer. So, let's find out. Here's GNSI senior director Jim Cardoso's interview with Nelson and Guillory today on At the Boundary.

Jim Cardoso  04:30

Sean Gillery and Amy Nelson, welcome to At the Boundary. Thank you so much for being here today.

Dr. Amy Nelson  04:34

Thanks for having

Dr. Sean Guillory  04:36

us. Definitely,

Jim Cardoso  04:37

so you know, prediction markets went from being kind of a niche issue to, I mean, really exploding in the national conscience, and even getting broader attention in Congress now. Why is that? What explains the massive growth?

Dr. Sean Guillory  04:52

So, they were a niche little thing. If you're talking about, like, the OG prediction markets, you're talking about, like, the Iowa electronic markets, which I think showed up. A Bush won kind of elections, they were small niche, they're focused on research. I don't even think you could bet more than $100 at the time, I think it's like $500 but they're kind of focused on research, and from there you got some like things around like political betting, their companies like Predict It, and these small little companies, and again, even like three years ago, Kalshi and Poly Market, they were definitely not worth a billion dollars at the time. I don't think that Poly Market even got the its first kind of big influx of money that came from Peter Thiel's funding by that point. So there were small niches, you had a lot of folks coming from crypto, and it really was in the past 18 months or so that they both got valued at over a billion dollars, and fast forward to today, cow she's over $22 billion of valuation, and I'm pretty sure Poly Market is going to be pretty close to there, because I think they're raising another billion dollars, so a lot of kind of influx of funding, and from that attention, South Park episodes, and lots of exposes from there.

Jim Cardoso  06:08

Is the South Park effect is that, that's a, is that a known scientific issue?

Dr. Sean Guillory  06:13

You know, when we heard that that episode was coming on, for the things that you know we're doing, for like a betting intelligence, and then bet breaking news. We're like, okay, we feel like we're more like a month out. We were like, dang, a South Park episode. Okay, let's just like move everything ahead. So we weren't ready to launch, but we were like, if South Park is coming out, I expect a little more tsunami of attention. So, yeah,

Jim Cardoso  06:37

if Trey Parker and Matt Stone are talking about it, then the general public needs to talk about it, too. I guess, right?

Dr. Amy Nelson  06:43

Guys,

Jim Cardoso  06:44

oh, the zeitgeist. Yes, everybody's favorite word. Got it in there the first three minutes. Fantastic. Amy, anything to add to what Sean said?

Dr. Amy Nelson  06:53

Yeah, so these markets have been around for a while, and interestingly, DARPA actually was running a research project on them, trying investigating their utility in for intelligence purposes, data data collection, trying to see what the markets would be useful for as a new technology, and Congress actually shut it down. I think it was like 2008 Congress said, "Stop this, this is silly, you know, this isn't this isn't serious research, and we're not paying for it, and, and these markets fell out of favor, and at the same time, you know, around that time, and a few years later, we saw the rise of super forecasting, which is a different kind of prediction market, where it's, it's considered more of a discipline, it uses probabilistic thinking and continued updating by actual super forecasters, so people who have innate judgment about the probability of future events, that is somewhat exceptional, and then it uses rigorous statistical calibration, and this is all to forecast geopolitical and economic events with remarkable accuracy, and so super forecasting really filled the space for a while, and now we're seeing prediction markets overtake it in terms of investment notoriety, overall sense that this could be a useful technology, or at least a technology and capability that is having having incredible influence.

Jim Cardoso  08:28

It's having impact, that's for sure. Yeah, I mean, you, you wrote your article under it, was under $100 million in investment in the early, in early 2024 So, I mean, in less than two years, over 13 billion by the end of 2025 I mean, it's just, you do the math, that's a 13,000% increase. It's just phenomenal when you think about it. Yeah, you talked about Congress, and how they sort of, you know, poo poo the DARPA effort. Now, Congress does seem to be addressing this even more now, but it seems they're approaching it as more of an insider trading issue, and you talk about that in your article, and you seem to disagree with that approach as well. Why is that?

Dr. Amy Nelson  09:08

Yes, it's really only tackling the problem on the edges. A lot of the prohibitions are easily routed around, did it assumes it also assumes that identifiable, identifiable centralized operators like Poly Market and Culci remain dominant in this space, and we know that permissionless platforms are emerging, where there's no entity to hold accountable, no one to order that to delist a contract, and Congress also isn't addressing this coercion aspect of journalists that we discuss in the article, as well as other sources whose words determine payouts, publicly uttered words or printed words that determine payouts. There's also no dispute resolution body for contested out. Comes which allowed you know, in the case we highlight in the article, for, for the, for the betters, for these individuals to really take things into their own hands.

Jim Cardoso  10:12

Yeah, so Sean, anything to add to that, or is it Amy pretty much cover it from your perspective?

Dr. Sean Guillory  10:19

That's the kind of aspect that they're missing, and I guess some of the things that may be different than like that early 2000s that they're kind of like looking at now, again, that early 2000s this is before the repeal of PASPA, in terms of like states deciding on if they're going to allow sports betting state to state, so there's been a massive kind of influx of in terms of like getting in with the culturally, okay, they're already betting on sports a lot, crypto was very much not a thing at that time as well, I'd probably say that's kind of the two drivers that helped, because again there have been earlier attempts to try and make prediction markets a thing, and those kind of two explosions, and kind of general acceptance, and the fact that these markets are permeating markets that some of the states aren't, because Texas and California still have not ruled anything in terms of like wanting sports betting, but these prediction markets be able to target them on that again. It's taking hold and taking laps now, and that's the kind of thing where Congress - I'm glad they're stepping in now, and wish they did it low earlier. Yeah,

Jim Cardoso  11:37

yeah, I mean they're stepping in. I guess it remains to be seen how quickly they'll go, and it feels like we're kind of in a wild west moment for poly markets, and then you know, you, you fast forward in five to 10 years, we'll look back in this time and go, oh my god, kind of like you're looking back on the early 2000s and saying, oh, that's what it was like then, and hopefully in some time in the future, we'll look back and go, my gosh, that was just nuts, what was going on back there, I'm glad we came up with these types of regular regulatory, you know, capabilities.

Dr. Sean Guillory  12:05

To your exact point, one of the things that absolutely animates me, because I did a lot of stuff in, like, misinformation and disinformation, is I almost wish I had that time machine to, like, 10 or 15 years ago. To if I can't do anything, I'll just be louder in terms of, like, here's what it's going to do to you, but that kind of moment for prediction markets is now, and to try to do something before we regret it in 10 to 15 years as kind of one of the animating things that we put out the article, and while we're trying to look at these and get more people to pay attention to it.

Jim Cardoso  12:37

Yeah, it's a great article, and I, you know, we're I'm hopeful that people listen to this. If you haven't read the article, please go. We'll hit some of the high points, but we're not going to hit. I mean, you really want to dig into that, and, and, and there's other podcasts, and I've been, you know, listening to different ones as well. Just, there's a lot going, a lot of discussion going on, but we'll see how that moves towards what the next steps are. Right now, big story going on right now that a lot of people are familiar with is the the army senior non-commissioned officer who won 400,000 you know, betting on the Venezuela raid. Could you talk about what, as far as you know, what's the status of that case, and and is there any aspect of it, because it's been reported quite a bit, but is there any aspect from your perspective that's been maybe I don't know, under reported or under appreciated, for lack of a better term.

Dr. Sean Guillory  13:28

I'll take the beginning of this, and then I think Amy's, so I'll lob it up, and I think Amy's going to be able to spike it down from there. The most interesting thing about the case right now is that not guilty plea, and as much as I'm understanding the case, it's not a plea of saying I didn't do it. It seems like it's very forthcoming to do it, but in terms of the laws, in terms of was this okay for him to do, they're playing. This is already a very gray area, and they're kind of like camping out, hoping, like, okay, like, tell me where this wasn't legal for me to do, and that's where, in to be fair, this is kind of the space that the prediction markets kind of want to be, because they are trying their best not to make this synonymous with gambling, because then they have to do like state gambling laws, and they have to pay all these taxes, they don't want that, and they want it to be somewhat like trading close to things in terms like stock market and trading, but they know it's something a little bit different, but in that little different, okay, do you legalize it one or the other? I think that's where the legal team is trying to be like, all right, like, tell me specifically prediction markets that this is was illegal for him to do at the time, so that's why I think they're going to try to. Win the day on this one,

Jim Cardoso  15:01

yeah, like, yeah, I did it, but it's not a crime what I did, so there's nothing, there's nothing here, there's no here,

Dr. Amy Nelson  15:09

legal channels,

Jim Cardoso  15:11

yeah, Amy, yeah, sorry, turn it over to you, Sean, Sean, he, he set it up there, so you're coming in for the spike,

Dr. Amy Nelson  15:18

yeah, and just for listeners, so this is the case where a US Army soldier was charged last week with using classified information to win more than $400,000 betting on a raid in Venezuela. In the end, I think what's also notable about this case was the arrest was made possible because Polymarket cooperated with federal authorities? They handed over information to the US Attorney's Office. That cooperation isn't guaranteed, right? And it certainly would be less likely for a decentralized platform that could be, say, less cooperative, some, you know, an entity that's less visible than Poly Market, which is, which is everywhere, and it's actually also notable because this was kind of an easy to catch case, and we can anticipate that traders' methods would become more sophisticated over time.

Jim Cardoso  16:17

Yeah, again, we're in the wild west, so people are going to get, like you said more sophisticated, yeah, creative, and you've got these new players, as you've said a couple times, but it does bear repeating, and these new players that are going to be really kind of going under the trying to stay below the surface, try to stay below the radar in how they operate, and won't be as forthcoming as you said Poly Market was here as well

Dr. Amy Nelson  16:42

at the same time, we're going to see more clandestine activity, more workarounds, more suspicious activity, but the platforms are simultaneously gaining legitimacy, so we're going to see it at both ends of the spectrum, so the Trump Media and Technology Group has plans for its own prediction market, a cryptocurrency-based platform called Truth Predict, and Donald Trump Jr. is a paid advisor to call she and an investor in Poly Market. So it's a, it's an odd combination at both ends of the spectrum, the highest level of legitimacy coming from the White House, and these workarounds that are going to, that are so conducive to clandestine black market equivalent activity.

Jim Cardoso  17:31

What's interesting is that before this, this case with this army sergeant sort of burst onto the scene, if you'd have said, you know, these prediction markets are a national security issue. People would have looked at you kind of askance and not really agree with you. I think people are starting - that's a big main effort of your article - is to spell that out, that there are national, significant national security implications to these poly markets that are starting to burst on the scene, and as you've already said so far, we'll probably explore some more. We're only going to get more acute.

Dr. Amy Nelson  18:08

Yeah, absolutely. These high visibility incidents, these classified at classified info insider trading case, death threats against a working journalist that suspiciously tied to military operation have all made the national security implications rather concrete, as opposed to theoretical. So, these we really are in national security risk space. In the case of Van Dyke, the army soldier that was charged with using classified information, he's charged with using with the unlawful use of confidential government information for personal gain, theft of non-public government information, commodities fraud, wire fraud, and making an unlawful monetary transaction. And the first set of charges that I just recited all have direct national security implications. Right, you can't use confidential government information for your own personal gain. You can't steal non-public government information. And then there's this question of the incentivization structure when these traders are incentivized to use classified information to bet on these markets and take steps to affect their outcomes, and the incent incentivization structure these markets impose is really a tremendous concern. So, the case we highlight in the article, where journalists cap classified a missile strike in a particular way, and traders were only going to get paid out if it was classified in a particular way. They are incentivized to make the reality align with how they predict it, and so what happens when people. Are incentivized this way when this is not illegal in any way,

Jim Cardoso  20:05

and he, you know, you said death threats and all sorts of different, you know, he got a lot of communications on that, let's put it that way, to hopefully change his vote, which he did not do, but you can understand the pressure credit, yeah,

Dr. Amy Nelson  20:19

and he also had the Times of Israel backing him. What about independent journalists, for example, who don't have the heft of an institution and the depth of their wallet to back them in a case like this? Yeah,

Jim Cardoso  20:33

prediction markets, and you talked about this in your article as well, that prediction markets they claim a positive attribute aggregating a positive attribute of aggregating dispersed knowledge about global affairs to inform the public on elections on conflicts and developing news. Agree or disagree,

Dr. Sean Guillory  20:54

the reason why is even that pause right there is there just needs to be way more research on a category by category basis. I think the things that you see where it has been positive in terms of some of the things in terms of guessing what the Fed is going to do, and some of the election stuff is actually quite overblown, but they have gotten some earlier than I think some pollsters, those should be looked at in terms of like things like that, but the folks who are trying to put these things out there, that they are closest thing that we have to a crystal ball, or the thing that really kind of leaves me kind of room for pause is the folks in some of these kind of media deals that you know, like CNN and whatnot, have with Cal She-Wait. This is why, like, when they just throw out those numbers, it kind of just makes me lack a better word, cringe. The folks that just treat those odds like they are actuarial truth, and they're close to what you know, what you get if you do a statistics is absolutely silly, and some of it is maybe checking in terms of like the liquidity, and not just in terms of, oh, does it have enough money. There's been recent studies where if you have way too much money, it gets 5050 really quick, and then it turns back to a gamble, so there actually is a sweet spot, and how much liquidity that you have in that, but the other thing is, since we're focusing in on insiders, say there are these markets where people who have the ability to resolve it one way or the other, they're not looking at these odds like, oh, is that what I'm going to do? They're going to look at the odds in terms of, oh, it's at 5% now. So, if I make this a yes, I can 20x my money. They end up being looking in terms of not the odds, in terms of actually happening, but how much incentive they have in terms, like, okay, maybe I could just like do an action, get this up to 50% I'll 10x my money. I don't have to be greedy. I'm not going to try to resolve it, but I'll put some information, or I'll do a certain action to make people think a certain way, pump up the market. So, again, these people come from a lot of them crypto, so an idea of a rug pull is just going to be top of mind to a lot of these kind of folks, and how they make money of the space. You're going to see a lot of things like that, so that kind of attack on our information space, be it threatening our journalists or folks trying to, oh, I can control the action of that, I can make money off this, and how that kind of cascades, so you know, like, we need good information for a working democracy, so it's just going to be further attacking that, so yeah,

Jim Cardoso  23:49

yeah, we're going to, you know, I want to hit on misinformation, different disinformation a little bit later, but one one organization that's come up that's become more relevant now is the Commodities Futures Training Commission. Now, those who don't work in this world probably have never heard of the Commodities Futures Training Trading Commission until just recently. They're becoming more, you know, I'm just talking about the general public listening to this podcast right now. A lot of problems haven't heard of it, and they're right now tasked with overseeing US prediction markets, and they're looking at areas that they can beef up regulations to better control them, however, in the article you both say that they are not equipped to do this in the in the near term reality. Can you walk us through that a bit? Why that is,

Dr. Amy Nelson  24:33

yeah, absolutely. The CFTC surveillance experience has been built around more traditional betting events, so think finance, sports with integrity focused on on on those bets. They're not equipped to deal with such things as war, intelligence, geopolitical events. They're just not attuned to that at this time. They also. Lack sufficient personnel with intelligence backgrounds, and the CMTc isn't structured to investigate cross-border or decentralized platforms that sit outside of standard regulatory perimeters, so you know there is an entity there, but it's, it's not currently equipped, and the question is, could it be, should it be? There's a currently a gap of capability and focus, so even if the authority exists with expanded rules with an expanded mandate, could it do for prediction markets what it does for financial markets, possibly, but this, this would be a significant effort, requires more attention, focus, resources than currently in play. Sean, your thoughts?

Jim Cardoso  25:53

Sean's good at the dramatic pauses. I like it, and we're not editing that out either. We're gonna keep the dramatic pauses. I'll put that. I'll put that on my LinkedIn profile. Master of the dramatic pause. The

Dr. Amy Nelson  26:04

emotion coming through, I can

Jim Cardoso  26:06

feel it.

Dr. Sean Guillory  26:15

Again, when they were more.. well, the CFTC is going to change with every administration, so even like in the past administration, they were chasing again, they raided the poly market headquarters, and that's why they ran offshore for a little bit, and they're trying to come back now, since there's a little bit more favorability in terms of the administration, and try to, you know, get more things in terms of the growth of these prediction markets, so at their best they would go after these unregulated markets and find them or convict them. I think that's well within their mandate. So the folks who are trying to get licensed and working with them and making sure that they're, you know, markets and whatnot are as kosher as possible, trying to point out to folks where, you know, some of these illegal ones are, and then working with proper law enforcement. I think that's well known. I think that's even kind of stretching them at that point, because it, and they're not necessarily going as strong on that, that we've seen in previous administrations, should their job additionally be looking at every single market and understanding that this signal may indicate an insider or whatnot. I don't think they're equipped to that. I think that you're getting more into either intelligence, but there's things with these kind of signals that you know, if folks try to come in and treat it as, oh, this is the same kind of mechanisms that animate like a stock market or different kind of time series, they're going to lead themselves a little astray on that. So, I do think that either this needs to be capability within different sort of IC, because we're not folks already kind of see the expansion of subjects that these prediction markets are, you know, not just geopolitical, but like when Taylor Swift is going to get married, when there's going to be alien invasions, so they're going to touch all these different things that are not going to just be one agency. So I would either see something where it's spread across IC, or let you know whether it could put in the article or its own sort of entity, and I just don't think the CFTC is has that even if they were to get, you know, like increased budget or whatnot, it's just kind of like outside of their scope, they have their hands full on just, you know, like the regulated markets, and going after, you know, the, you know, pointing to folks in terms of their unregulated, so yeah, that's that's kind of our thinking on that.

Jim Cardoso  29:00

You talk about in the article. Oh, sorry. Go ahead, Amy. Please.

Dr. Amy Nelson  29:03

Yeah, I was just gonna say it really shows how the tide has changed, right? The CFTC may not be well equipped for this, but once upon a time they were attuned to it enough and concerned about it enough to go after poly market, and it's hard to imagine that happening today.

Jim Cardoso  29:21

You do in the article, you talk about, you know, an example. You say that in Germany, for example, that there is, there is this type of thing, this type of government entity is is operating, and you seem to insinuate with some level of success. Can you, can you talk about that, or at least, what, what would the, you know, what would the template organization look like, and who would it report to to be successful in the right type of regulation needed? What would you tell Congress right now? They said Dr. Nelson, Dr. Gilly, what should.. what should it look like?

Dr. Amy Nelson  29:54

Yeah, so this is classic German AI for public good type stuff, they're finding. Financial regulators already using AI to identify suspicious trading patterns, anomalies, and machine learning systems. These have become standard in financial compliance and order to flag court suspiciously coordinated activity, and we argue in the article that this toolkit could be adapted to prediction markets, right. So, if you think about the Iran and Venezuela cases, applying this technology using a similar approach, this could have surfaced warning signals like timing clustered, right, like predictions all clustered at the same time or made at the same time, account creation planner patterns that sort of reflected when this information became available before immediately the bets actually settled, right? So it's a technology that allows to get in front of the out in front of the problem,

Jim Cardoso  31:01

John, your perspective,

Dr. Sean Guillory  31:05

I'll answer it in terms of you're now again like the speaker of the house that I'm speaking to right here on this. If I was in front of Congress right now, then that at least tells me that the first goal of, hey, you guys identified that this is an issue, or I would be here, and I think there's still that needing to be happening, including in the national security space, understanding that this is an issue, and folks, you know, like at that level, kind of understand, but once we kind of get to that level, then there's gonna be questions. Okay, what kind of things can we do to address us? And the first thing I'm gonna say is, please put more funding into the study of these signals and what these kind of mechanisms are, so things that there needs to be much more research, both at, you know, the level of academia and think tanks, and what, so please put more on this, because anybody that tells you that they fully understand what's going on, they're selling you at least something embedded with snake oil, and the last kind of bit that I would probably talk to that actually really shocked me, number of years ago, please, as much as you can, and they like to hide, but find these folks are like professional betters and gamblers. Why the heck am I bringing that up? Because they, in terms of level of creativity that they do to try to find a quote unquote edge or expected value is amazing, so even a couple weeks ago there was that story of folks winning weather bets, which, if folks didn't know, you can bet on the weather and the temperature. They found where the sensor is, and the Paris..

Jim Cardoso  32:54

I heard about this, and they were heating

Dr. Sean Guillory  32:56

it up. That's that's the kind of stuff that, again, like these folks who do these things for a living try to find these edges, like professional, almost reality hackers, they live amongst us, and bringing them in to help these folks see, oh, this is what folks could do, because even some of the issue we brought up in our article, like you had some of these senders talk about they don't want death markets, and there aren't any markets on these two platforms, at least there are specifically this person will be assassinated or this person will be dead. You will get some on these permissionless markets, but on these two you're not going to see them, but any market where will this person finish office, or will this person make that flight, you know, to that country

Jim Cardoso  33:50

out of

Jim Cardoso  33:50

office? I'm doing finger quotes for everybody's audio only here. Finger goes out of that. What does out of office mean?

Dr. Sean Guillory  33:56

Literally care quotes on that, and those things are inherently semantically like assassination markets, because if they can resolve on somebody's death, they are there, and there's those markets are a plenty, and that's not necessarily something that was addressed directly by some of those kind of, like, at least on the Senate side, kind of like, you know, inquiries and looking at these things on prediction markets, so having these folks that kind of think that way and look for these loopholes and look for these gaps to exploit, get some of those people in the room, because they're going to help you to craft legislation that's going to be a little bit more future proof than some of the things that we've been seeing at this stage

Dr. Amy Nelson  34:42

it's more than exploiting the loophole to in the limit it's creating an incentivization structure for this exploitation,

Jim Cardoso  34:51

yeah. So, while we're on Congress, let's let's stick with them for a second. So, GNSI, we we strive to be fiercely apolitical, but. That doesn't mean we don't recognize there are politics out there, and partisan partisanship is alive and well in the United States. So, we've got midterm elections coming up. Who knows what it's going to be, but let's, you know, right now Republicans pretty much control all three, you know, branches of the government that potentially could change in November. Does that, does that change where things are going now? Does I guess the kind of the meta question is, do how much do part of the partisanship in politics drive efforts by Congress to move towards better oversight, better regulation of these prediction markets,

Dr. Sean Guillory  35:45

I'll take a crack at this one first, but again, if I was, you talked about dramatic positive, if things were, I was saying before we're at like a nine or 10, I'm going to say what I'm going to say, probably more like a four or five in volume, so it's going to be a little bit, I've taken the bass out my voice to say what I'm about to say on this one. If you would have asked me maybe four months ago if the changeover in Congress that we could see in the midterms would make a difference, I'd say no. I'm not so sure anymore, because the few times that at least Trump directly has been asked around prediction market, he seemed to be kind of like waffling on the idea, so even with like the true social, I thought that was going to come out much sooner, but there's even kind of a slowness on that, but so Trump specifically, I'm not so sure in terms of back, so if it was something where there was like overwhelming majority, like some sort of legislation or whatnot comes on Trump's desk after coming to both houses, I'm not so sure. Before I was said no, he's not gonna sign that, absolutely not, but I'm frankly not sure.

Jim Cardoso  36:57

But isn't that, I mean, the way he operates, that's kind of the way he wants you to be, I mean, he does thrive in strategic ambiguity to an extent. It's, it's kind of depending on who, how you feel, it can be a strength or something that drives you nuts, and how he operates,

Dr. Sean Guillory  37:11

correct. And I'm just, and again, like, he's, he's literally owned casino, so it's not like, oh my heart, in terms of like gambling, it's not something like that, in terms of with our president. And then, if you look, in terms of, you know, if I point out to, like, further people in the cabinet, it was like, what, two or three weeks ago, our Vice President was caught on, you know, like a hot mic joke at Rubio, like, "Hey, make sure to bet it on Polymarket first. He said he was a joke, but again, Vice President Vance is backed by Peter Thiel, who's one of the biggest funders of Polymarket. Like, you know, it's not going to take too many, because so, in terms of fuller administration, if they're in support, yeah, I think they still are, in terms of the executive side, but again, to say there, you know, I think there will be more legislation, and chance that kind of goes to like both sides of the house. If there was an overwhelming overturning of who's sitting on what seats in Congress, yeah. And then if they actually pass or not, because there's still going to be a presidential signature again. I'm actually not, so there's a higher possibility that could happen again, like four months ago I'd be like, no, it's not going to happen, he's too invested and tied up with crypto and the sub, because again, like Don Jr. is still in these really high seats in both companies, and that's also why I'm like, okay, I'm not sure, but Trump is particular, I again, it's not, not as much of a certainty as I would appointed, like, a couple months ago, but again, I say that, what I say, like, a four,

Jim Cardoso  38:48

yeah, not a nine or 10, that's a four or five.

Dr. Amy Nelson  38:51

What are the prediction markets? Say, is anyone regulation markets the crowds here?

Jim Cardoso  38:57

That's true.

Dr. Sean Guillory  38:58

That's a funny thing. Again, it's not an article, but like the funny thing that you will notice about these prediction markets, where are the calcium markets on if they're going to win this lawsuit or not? And where are these markets on interaction? They try to stay in their own little world, and they're never going to have markets about themselves, or that could like affect themselves, so yeah, those kind of markets actually be pretty valuable to know that kind of information, but they're conspicuously not gonna, you're not gonna see those on those,

Jim Cardoso  39:34

it just seems some, just seems something entirely wrong about consulting the prediction markets about the future prediction markets with a changeover, your thoughts, Amy. Yeah,

Dr. Amy Nelson  39:47

yeah, just the most recent case is going to set a precedent, right? And and will precipitate action, I think there will be a reaction to it, strengthening and. Legislation on insider trading, for example, and we'll start there. And this may be a slow and incremental process. Creating a whole new agency or entity is a very heavy and slow lift, and there the problem set requires more immediate solutions. So I would say we could, in a Democratic takeover of one of the chambers, we'll see this legislation move faster.

Jim Cardoso  40:24

So, you think it could move a little, little faster differently if there's more of a Democratic majority in one or both chambers?

Jim Cardoso  40:32

Sure.

Jim Cardoso  40:33

Okay. So, there is some,

Dr. Amy Nelson  40:35

but creating a new entity would necessarily have to be a bipartisan endeavor, and heavier and slower lift.

Jim Cardoso  40:42

Oh, I think it seems that Congress understands that there's something that needs to be done. It's, you know, it's just, can can the two, the parted, can the partisanship be fought through to actually get something done? That becomes the question, I guess. We'll see. We shall find out in the, in the months ahead. So we're starting to wind up the podcast, so one one last question for each of you, and you can go in any order you want. So there's the article is great, I'll make that pitch again for everybody to to read it and really think through it, and you know, familiarize yourself with this issue, but at the same time, you know, there's only so much, so much, so many words that can be put down on this by these two, these two authors. So, I'll give you the last chance. What is the one thing that you do wish everyone knew about prediction markets? And maybe it can be the one thing that you, you wrote about, but you really want to hit on, and that's the nine or 10 level thing, to use Sean's verbiage, or maybe it's something that the one thing you couldn't put in the article just said because you had a cap on how many words you could, you could put on the paper.

Dr. Amy Nelson  41:49

Well, for me it would just be that these markets aren't going away. The idea that these are up before a temporary inconvenience is erroneous. They're here to stay, and the question is, How as a society do we want them to function? What will we tolerate, and how will we manage this manipulation of incentivization to make resolvable outcomes happen in the favor of those who stand to profit the most. So, I guess I would close out by saying these, these are not, you know, curiosities at the fringe. These are here to stay, and they're, they're becoming mainstream, and we're at a moment of opportunity to help shape how these markets will function in our society, and therefore how they will shape our society.

Jim Cardoso  42:39

Yeah, like many things that kind of, you know, we're on the fringe 20 years ago, and now we're more prevalent, and just a part of how we live our everyday lives, not just for a certain small segment of society, but a large swath of society. Same thing here, and it needs to be addressed and understood.

Dr. Amy Nelson  42:57

Yeah, absolutely.

Jim Cardoso  42:59

Okay. Sean, what do you think you Do you think you can't have a drummer, you just had like a 62nd traumatic pause as Amy was talking, so come on, you should write on that

Jim Cardoso  43:11

kind

Dr. Sean Guillory  43:11

of covers at least like at least 70% of what I think I'd want your audience to know, so I'm gonna cheat a

Jim Cardoso  43:18

little magical 30% out there, then,

Dr. Sean Guillory  43:21

yeah, I've got to go first, very micro, and then very, very macro. Today's point, terms like they're not going away, and sort of that micro point, there's a high chance they're going to come to like a neighborhood near you sooner than later. So, what the heck do I mean by that? Um, in terms of these kind of companies saying they want to quote unquote financialize everything, that's not my words, that's the CEO of Cauchy's words, in terms of financialize everything, and you see that there's more and more of these topics, and some are getting more and more regional, and more and more local, expect the kind of market, especially with these permissionless markets, and it's easy for anybody to kind of know you, even if it's a joke. Let's take a quick permissionless market on when Jim is going to come to the office today. Let's take a market in terms of like just a slow league game. I'm just with the dads, and we're just going to get like laughing at these more and more markets, and then the same kind of threats that we talked about, like how people can put their thumb on the scale or do stuff to kind of manipulate the situation. These things are going to get more and more granular, because again, they're trying to financialize anything, so that's something that kind of puts to the nearest future on the micro level, the macro level kind of concerns these markets right now are coming from US-born folks, and they kind of know better, especially with Don Jr. whatnot, to not do markets that totally bite the hand that feed them. So, what do I mean by that? There are these markets on, will the US go after this country, will this. Of ally go after this country, they're not wild enough to be like, when will there be an attack in Cleveland, Ohio? When is there going to be attack in Pensacola, Florida? These future markets, and again, like the same way that we see things like social media as a battle space, our adversaries and whatnot are going to be paying attention to this, like this is actually an interesting little weapon. If I can incentivize action against folks, you know, just put up the market. I'm just putting up the market here. I'm not the one physically doing anything to these folks. So, when that kind of lens of the prediction market is going to be turned towards more domestic things, that frightens me to no end, and so when these markets from outside the country are going to be putting out and more things that are again like, like I said, painting a target on American citizens, I hope that we actually are in front of Congress to let them know that and see what we can do to mitigate that as much as possible.

Jim Cardoso  46:05

This is an absolutely fascinating issue, and it's been a great conversation. I would, if hopefully you two will maybe bear with us, and we'll bring you back sometime in the future, because I think this, I think a lot's going to develop. You know, I think if we sat down and we had a conversation a year from now, it's gonna be very different conversation on things that develop, maybe some new emerging cases coming out as well, but, but for now, we'll just want to kind of leave the audience wanting more. I would say, like I said, make sure you go out and read the article, but for now, Sean Gillery, Amy Nelson, thank you so much for your time, really appreciate your insights.

Dr. Amy Nelson  46:41

Thank you so much, Jim. It was great chatting.

Dr. Sean Guillory  46:43

You're a gracious host.

Glenn Beckmann  46:49

Special thanks to both our guests today, Drs. Sean Guillory and Amy Nelson, as they discuss their recent guest essay in the New York Times and the alarming trend of prediction markets endangering national security. Thanks as well to Jim Cardoso for conducting the interview. Next week on the podcast, we'll have one final chance to talk with GNSI founding executive director, retired Marine Corps General Frank McKenzie. He's in the final weeks of his tenure here at GNSI, as this summer he'll become the next president of his alma mater, the Citadel Military College of South Carolina. We're going to talk with him about the future, about his four years here at GNSI, the mission of standing up a brand new institute, and much more. It's Can't Miss Stuff that's next week on At the Boundary. So, if you don't want to miss that episode or any other episode, be sure to like and subscribe on your favorite podcast platform. You can also find GNSI on YouTube, LinkedIn, and X. Be sure to follow, like, and subscribe. Tell your friends and colleagues about us as well. That wraps things up today on At the Boundary. We know you have a lot of podcasts trying to grab your attention every week. We appreciate you sharing some of your time and attention with us today. I'm Glenn Beckman. Thanks for listening. We'll see you next week at The Boundary.