Who Prediction Market Traders Really Are: More DeFi Enthusiast, Less Sports Bettor

Ian Baer devised the ELI Report to replace hunches with data-backed conclusions. Sort of like prediction market traders hovering over a new contract.

That said, Baer still brought some assumptions to a recent attempt to better quantify the ever-expanding customer base of prediction markets in the United States. The data backed up some and tore down others, particularly who these traders actually are. 

“I sort of envisioned them as a combination of crypto bros and sports gamblers,” Baer told Gambling Insider. “And they’re not quite that. In fact, there’s probably a 40-50% overlap between the sports gambling universe and the prediction market universe.

There is a tight alliance between the prediction markets and people who are cryptocurrency enthusiasts. But the big surprise to me was what a separate profession, for lack of a better term, playing and winning in the prediction markets is. It’s very different from gambling.”

According to the ELI Report behavioral analysis, 17 million are expected to patronize prediction markets this year, and a large portion of them don’t consider it gambling, despite the reality that the large majority of users lose money on the exchanges. Forty-three percent is less likely than the average American to identify as a gambler. They’re also unlikely to participate in traditional forms of gambling because they dislike the chance element.

Baer believes there is enough nuance in the regimens to reconcile traders not considering themselves bettors, even with sports event contracts constituting an estimated 85-90% of volume at Kalshi. That this group is four times more likely than the national average to have participated in fantasy sports, the report contends, underscores their affinity for “probabilistic” thinking.

“[In prediction markets] you’re talking about political trends. You’re talking about economic trends. You’re talking about a deep understanding of how markets work and how policy decisions are made,” Baer said. 

It’s a more learned, more worldly student of data and happenings than we see in sports gambling. You really have to be aware of all the interdependencies between industries and politics and markets in order to actively and accurately make money in prediction markets.”

Prediction Markets as a News Source

It’s not surprising, Baer commented, that this cohort of self-styled educated non-guessers considers prediction market data a more reliable news source than traditional outlets. Though they follow updates from legacy sources, they consider them like data points, not necessarily absolutes.

“We’ve been reporting political polls like they’re news for 100 years. And in fact, if you look at the last few presidential elections, the lack of intelligence, the lack of predictive accuracy that we’ve seen from political polling makes me really question whether it should exist at all,” he observed.

“So again, is this a far better indication of public sentiment and public confidence than any form of surveys or polls? Yes.

I would always choose where people put their money versus when there’s no skin in the game.“

According To the ELI Report, Prediction Market Users Are:

• 2.8 times more likely to choose high-risk investments
• 13 times more likely to be interested in politics
• Decentralized finance (DeFi) proponents that engage with cryptocurrency three times more than the national average

How the ELI Report Gathers Information

ELI, an acronym for Emotional Logic Interfaces, used 100 million online “signals” to extrapolate the demographics and tastes of upwards of 220 million online accounts with, it claims, a 91 percent accuracy.

The patent-pending system fully anonymizes data licensed from companies like GlobalWebIndex and YouGov, then deploys artificial intelligence to “spider all of their retail, media, social behaviors,” Baer said. The final product is data devoid of predictive modeling.

“There’s no guessing at what somebody did,” Baer explained. “There’s no room for data hallucination or what I call data lies. Everything starts with an actual individual action.”

ELI then synthesizes the gathered data to build “audiences” of different behaviors that allows for a study of past action.

“So in the case of this prediction markets analysis, we looked at people who are regular users of these prediction market platforms to understand the context of their overall behaviors,” Baer continued. “And what we’re able to do, rather than the way a typical business analyst would look top-down at an industry, we’re actually able to look at industries from the ground level up, from one user at a time, and predict based on their history of decision-making patterns the way they are most likely to act going forward.”

Inside the Deep Dive Into Prediction Markets

Gambling Insider dissected the report with Baer to learn more about the customers that are stoking growth in prediction markets and prompting sportsbooks like DraftKings, FanDuel, and Fanatics to join the market.

On Prediction Markets As ‘Truth Engines’

The complicated and recently litigious history of prediction markets in the US began with the Iowa Electronic Market in 1988 as an academic instrument. The advent of PredictIt in 2014 as a real-money, but academia-affiliated exchange offered prediction markets as a counter to traditional political polling and gave rise to their supposed functionality as “truth engines” that proponents claim better represent public sentiment.

Baer supports the notion.

“If I had to bet my last hundred bucks on either a prediction that a political pollster was making, or a prediction that the bettors on Kalshi or Polymarket were making, I would place my bet on those prediction markets because there is a purity to the way they look at things,” he said. 

“All they care about is winning their bets. And they will research these things incessantly, where in political polling, people not only don’t do what they say they’re going to do, in research, people often don’t even know what they’re going to do until they reach that moment of decision. And that’s especially true in today’s world, where we simply have more choices for anything we want, in any time frame we want, through any channel we want, at any price point we want, through any lens we want.” 

On Ninety Percent of Traders Being Male

Much of Kalshi and Polymarket’s social media influencer campaigns in recent months have focused on drawing more female customers into the fold. The ELI Report underscores why: Prediction markets’ user base is 90 percent male, more gender-skewed than any it has studied.

Whatever prediction market that eventually establishes itself as the third major player in the U.S. will likely do so, Baer anticipates, by appealing to females.

“I knew this was male-dominated, but even I was surprised when the data came back at 90 percent,” Baer remarked. 

On Where Traders Live

The too-easy stereotype of prediction market players is of a stock trader living in a financial hub, thumbing through markets about wars, weather and football games while considering whether to liquidate some Bitcoin. Instead, they’re coders and tech workers.

“Because it is so tech driven, it wasn’t shocking, but it was interesting to find that they’re in the most tech-centric markets,” Baer said. “We see the highest concentration of these people in markets like Nashville; Austin; Fort Collins, Colorado; Louisville, Kentucky – these secondary markets that have really become tech hubs because that’s where technology and data analytics are the things you talk about standing up at the bar. 

“It’s a bit different from the Wall Street mentality. And part of that is there’s an attitudinal split, really, between people who make their money in the stock market and people who are focused on prediction markets. If you are a stock market player, enthusiast, investor, you really believe in the institutions of our country, of our society. You believe in Wall Street. You believe in the power of the Fortune 500 and all that. 

But actually, prediction market players are enthusiasts in DeFi. Again, that’s why they heavily invest in things like crypto. That’s why often they will prefer not to put their money in traditional banks.”