Before Kalshi and Polymarket there was the Iowa Electronic Markets

What It Covers

Planet Money shares a ThruLine history of prediction markets, tracing their origins from 19th-century New York street-corner election betting through the 1988 founding of the Iowa Electronic Markets by three University of Iowa economists, and explaining why modern platforms like Kalshi and Polymarket follow the same core trading rules established 37 years ago.

Key Questions Answered

• •Prediction market accuracy: The Iowa Electronic Markets predicted the 1988 presidential popular vote within 0.2 percentage points on election eve, outperforming Gallup, Harris, and CBS/New York Times polls. Between 1988 and 2004, the market beat traditional polls 74% of the time, establishing a measurable benchmark for market-based forecasting over survey-based methods.
• •Regulatory workaround model: The CFTC issued the Iowa Electronic Markets a "no action letter" permitting operation under three strict constraints: a $500 maximum investment per participant, no paid advertising, and nonprofit status. This permission-slip framework remains the template modern prediction market operators reference when navigating U.S. commodity futures regulation today.
• •Historical election betting depth: Organized election betting in the U.S. dates to George Washington's era, with markets also covering events like Stamp Act duration. By the early 20th century, the Curb Exchange outside the New York Stock Exchange hosted elite traders — including Tammany Hall figures and bankers — publicly betting on candidates as a signal of political commitment.
• •Political hedging behavior: Party machine leaders at the Curb Exchange publicly backed their candidates while privately placing opposing bets to cancel financial exposure. This historical behavior mirrors modern corporate hedging: if a candidate's policy threatens your business, buying contracts on their victory offsets potential losses, turning prediction markets into a practical risk-management instrument.
• •Why election markets disappeared: Presidential prediction markets went dormant sometime in the 1940s for two reasons: newspapers grew more comfortable publishing Gallup-style scientific polls after the 1930s, and thoroughbred horse racing offered 12 races per night versus a handful of elections per year, drawing away the trader base seeking frequent forecasting opportunities.