Published on: May 9, 2026, 03:16h.
Updated on: May 9, 2026, 03:16h.
- Academic warns that prediction markets and sports betting could lead to significant losses for many
- He questions the integrity of prediction markets
- Mentions that young men are particularly impacted by the rise of sports betting and prediction markets
Casual bettors and retail investors entering the realms of sports betting and prediction markets may encounter various ethical dilemmas through no fault of their own.
In a recent study, Hersh Shefrin, a scholar at the Markkula Center for Applied Ethics at Santa Clara University’s Leavey School of Business, highlights that prediction markets and sports betting are connected to the notion of fairness as a claim to entitlements—something many retail players may overlook.
Shefrin emphasizes that the most fragile of the seven entitlements is the right to be free from coercion. Essentially, bettors and traders engage in these markets voluntarily, believing themselves to be aware of the associated risks.
“Fairness also entails freedom from misrepresentation,” remarks the academic. “Prediction and betting markets can only be deemed fair if they present entirely accurate information, allowing buyers to trust that the market is not supplying misleading data.”
This leads to the entitlement to equal information, which presumes all market players have access to the same data. However, this is not the case, as revealed by recent insider trading incidents in prediction markets. Operators struggle to prevent trading based on nonpublic information within yes/no exchanges.
Impulse Control and Technology Factors
Despite ongoing discussions, a wealth of research indicates that a considerable number of retail traders on prediction markets suffer financial losses.
This connects to the entitlement to equal processing power, suggesting prediction markets are equitable only if all participants are using comparable technology. In reality, retail traders often compete against experienced bettors who have the financial resources to acquire essential third-party data and market-making technologies typically unavailable to the average investor.
This imbalance can hinder smaller traders from achieving fair transaction pricing. Those equipped with superior technology can secure the most favorable rates on event contracts, while less-equipped traders can only hope for equitable pricing on derivatives.
Shefrin further discusses the entitlement to freedom from impulsivity, particularly relevant in light of claims that the prediction and sports betting sectors are focusing on specific demographics, especially young men.
“According to this entitlement, prediction and betting markets should be fair if they implement protective measures to help individuals at risk of gambling addiction,” the professor explains. “Additionally, this entitlement covers the right to safeguard against predatory marketing tactics that entice gambling addicts with promises of easy wins to cover basic expenses like rent.”
Navigating the Fairness Debate
Ultimately, the fairness of prediction markets is a discussion worth exploring for all recreational bettors and traders. Shefrin asserts that, considering current circumstances, prediction markets could be viewed as fair if participants can expect to receive truthful information.
Nonetheless, this may not satisfy critics who fear that prediction markets and sports betting are capitalizing on the risk-taking tendencies of retail traders.
“The dopamine release associated with risk-taking generates substantial revenue, extending beyond just prediction markets. A noticeable uptick in risk-taking is also occurring within the stock market,” Shefrin concludes.