Making Economic Predictions Freely Available

Household finances? A pain. Company projections? A whole team’s work for a year. Projecting the impact of how every business will interact? Basically impossible.  At least, impossible for anything less than an entire market. To do the seemingly impossible, we need to leverage the wisdom of the masses to incorporate every variable that needs to be in the equation. Otherwise, we end up with a bunch of individual prognosticators doomed to a hopeless task.

In true Sysphean fashion, predicting the impossible is exactly what nearly every single individual economist attempts to do. They make huge, sweeping estimates of aggregate consumer and business decisions, lumped together under the umbrella of GDP growth. Even small changes in their starting variables or estimates of how fast things will change lead to huge impacts in ultimate outcomes. They attempt to do this, year after year, because real economic growth is the driver of.. everything. Wages. Stock prices. House values. Precise forecasts let people know what their living conditions are likely to be in the future and allow both governments and businesses to adjust accordingly. Prediction Markets for economic indicators like GDP democratize traditional economics. They create a way for everyday investors to access accurate, crowd-sourced consensus estimates of important economic variables like GDP forecasts and inflation data. Normally, this type of data is extraordinarily difficult to access - it’s either gated by bank-provided research reports or only available through expensive market data subscriptions. The most famous of these, the Bloomberg terminal, can run up to ~$20k / Year per person. Traditional sources of these GDP predictions are unnecessarily limited as well. Usually, these forecasts are arrived at by averaging a number of different expert opinions. However, these experts tend to be a very specific set of economists and bank-based macro analysts who have received similar training and come to the table with similar biases. Only “experts” are allowed.

Prediction markets open the aperture of who is considered “relevant” enough to provide prediction input to… everyone. Credentials and brand names don’t matter. All that matters is the ability to be right, consistently .This is important because historically, these “experts” haven’t been very good at actually predicting GDP growth. One study estimated analyzed economic forecasts by a plethora of economists and found “overall, there is very little evidence that any individual forecasters can beat a simple equal-weighted average of peer forecasts”. By leveraging the power of markets to create the most efficient aggregation of peer forecasts, Kalshi’s created a more accurate forecasting platform, historical analysis shows that 83% of Kalshi’s prediction markets have converged on a correct estimate before data was released (1)Economists’ forecasting difficulties are particularly salient when they’re forecasting recessions. Studies have found that they’d missed previously missed recessions 58 / 60 times. Kalshi’s markets haven’t been open long enough for a recession to occur, so it remains to be seen whether they will correctly predict one. Currently, they’re predicting a ~35% chance of a recession, vs a 13% chance in a randomly chosen year.

Will the economy grow? We can’t ever know for certain. What we can know is that markets have thus far proved to be a better way to predict economic growth than anything we’ve done before.

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