Every so often, I come across an opportunity that merges multiple interests of mine.

When I was in my doctoral program, I got to merge my interest in computers and artificial intelligence with my interest in chess when I worked on developing Deep Blue… the chess supercomputer that would eventually beat the world's top chess players.

On my podcasts, I merge my interest in chatting with interesting people with my interest in making money.

Nothing is better than making money from something you enjoy doing.

That’s why, every two years, I look forward to the upcoming federal elections.

Over the past few years, I've reliably turned election season into a revenue stream.

Let me explain…

Place Your Bets

About ten years back, I came across the concept of prediction markets.

Prediction markets allow people to bet on what they think will happen in the future.

For example, there could be a prediction market for who people think will win the next presidential election.

People who think they know what will happen can buy and sell "shares" in the outcome they predict.

Each share is like a bet on one of the possibilities.

Shares that match the actual outcome end up worth $1 each.

Shares for things that don't happen become worth $0.

This creates an incentive for people to buy shares that match what they believe will happen.

The prices of the shares go up and down based on what traders think is likely to occur.

Like in the stock market, the price goes up if more people want to buy a share.

And if more people want to sell a share, the price goes down.

So the current share price shows what percentage chance traders as a whole think that outcome has of happening.

For example, if a share is trading at $0.70, that means the traders think there is a 70% chance of that outcome occurring.

In this way, the prices reflect the information that all the traders have put together.

The market prices can be used to predict what is likely to actually occur.

Making Easy Money

What makes prediction markets incredibly cool is how often I've seen them get the odds completely wrong.

Although, in theory, prediction markets are supposed to provide excellent predictions, there are yet to be enough traders (or trades) for the markets to work well.

This creates small, sometimes temporary, opportunities to make money on low-risk wagers.

For example, on election day 2020, the prediction market for a Joe Biden presidential victory went wild.

After Fox News and many other media outlets reported that Biden won the election, the prediction market for a Biden victory went down to about ninety-five cents (or a 95% chance that he was the winner).

However, when Donald Trump got on TV and made a speech claiming to win the election, those shares dropped to about eighty-five cents.

Of course, we can debate whether they should have dropped to eighty-five cents. That’s beside the point.

The point is that anyone smart enough to buy those temporarily discounted Joe Biden victory shares could have made easy money.

This is just one example, of course.

Over the years, I've seen (and even written about) numerous other opportunities to make easy money in this market.

With the 2023 elections behind us, the 2024 federal election season is kicking off.

I'll be writing about more opportunities to invest in prediction markets over the coming year.

In the meantime, if you’re interested in learning more about prediction markets, feel free to check out the largest market in the US: PredictIt.