Kalsi, the prediction site known for turning headlines into tradable bets, is now being taken seriously by economists. A new study shows that Mr. Kalsi's predictions about Fed interest rates and economic indicators are as accurate as those from Wall Street.
The paper tracks data from 2022 to June 2024 and was written by three economists, one of whom was from the Federal Reserve Board.
The investigation found that Kalsi's traders were consistent with the kinds of experts investigated by the New York Fed. In one important incident, Kalsi actually defeated them. That was when the Fed made a surprise 0.5 point rate cut in September 2024. Wall Street was caught off guard, but Kalsi's traders had already priced it in.
Research shows Kalsi agrees with experts on interest rates and inflation
The paper, which has not yet been peer-reviewed, was published just before another Fed meeting. Regarding this event, both Calci and Polimarket indicated a 99% probability that the Fed would stay on hold.
In the federal funds futures market, the probability is 97.2%. All 92 economists surveyed by Bloomberg expected no change.
The study also compared how well Kalsi performed in terms of inflation and unemployment rates. Traders on the platform had similar close ties to the Bloomberg Research Group.
And on one key indicator, the Composite Consumer Price Index (CPI), Kalsi outperformed experts in a way the authors said was statistically significant.
Interesting market in Karshi. Source: Non-peer-reviewed study
On Kalshi, users trade simple “yes” or “no” contracts that settle for $1. If a contract trades for 32 cents, the market is saying there is a 32% chance of that happening. Many economic contracts are based on whether something like CPI exceeds a certain number.
The study found that the most likely outcome for Kalsi, the so-called modal forecast, was accurate by the eve of most Fed decisions in that period. Even if the Fed didn't do what people expected, Kalsi's prediction still held true.
Kalsi provides continuous updates unmatched by economists
One of the authors, Jared Katz, a Ph.D. student at Northwestern University, said the reason Kalsi works so well is because it gives you more than one number.
“The real advantage is that you get a distribution rather than a point estimate, and you can see how the distribution reacts very quickly after an event,” he said. “It's even better that the predictions are fairly accurate.”
Katz co-authored the paper with Johns Hopkins University's Jonathan Wright and the Federal Reserve's Anthony Dierx. Wright said these markets work because people are actually putting money into their opinions. “The most important theory is the wisdom of the crowd, which gathers information and beliefs from many people,” he says.
This idea is not new. Previous research has shown that even small prediction markets can outperform experts. This is part of what helped Kalsi beat regulators in 2024. Kalsi won the legal right to offer the contract in an election. Soon after, betting on sports and entertainment was also added.
Kalsi still faces bias risk, but looks strong in finance
This study didn't make it seem like Kalsi was perfect. Some researchers have found that prediction markets tend to overpay for low probability events. Let me give you one wild example. At one point, traders said there was a 4% chance that Jesus would return to Earth that year.
However, a separate review conducted by Coinbase engineers looked at Kalsi trading and found that the longshot bias was weak in financial contracts on the platform. These flaws were mainly exposed in the sports and entertainment aspects.
Still, for Wright and others, prediction markets like Calci are tools they wish they had a long time ago. “I and others are very interested in this because we've always wanted to capture the market for things that economists are interested in, but they don't really exist,” Wright said.
Now, Kalsi has shown that she can compete. It is on a par with economists, outperforms economists on CPI, and also covers the Fed's unexpected interest rate cuts. We provide live updates, display all possible outcomes, and allow anyone to trade real-world data.
