[itake]

My understanding is the original value these markets create is the ability to hedge risk.

If you're worried an event may impact you materially (like cat 5 hurricane in Florida), then you can place a bet that the event will happen, thus hedging some risk if it does happen.

Insurance companies can participate in these products for the same reasons.

Or if you need to hedge against an event that isn't insurable. For example, if you are a high level democrat party leader and you will lose your job if a republican wins, you might take a bet to hedge your risk if your party looses the next cycle.

[seanhunter]

Weather derivatives have existed much longer than prediction markets. search for “catastrophe bonds” (normally called “cat bonds” in the markets) if you want to find out more. There is also insurance and reinsurance.

Insurance is what normal people use to hedge weather risk. The insurers use an combination on reinsurance and cat bonds issuance and the reinsurers use cat bonds and weather derivatives.

I seriously doubt there is meaningful weather hedging volume on prediction markets by comparison.

[duskwuff]

The vast majority of bets on Kalshi (90% according to another user) are sports bets. There's no risk being hedged here; it's just gussied-up sports betting.

A substantial portion of the other bets on the market are other trivial events of no financial significance. For instance, the second insider case described in the article involved the contents of Mr. Beast videos.

> For example, if you are a high level democrat party leader and you will lose your job if a republican wins...

This would probably constitute insider trading, as the party leader has a direct role in their party's election results.

[itake]

My example is not great. A better one would be an employee at an oil company may be personally impacted depending which party is elected and they want to create their own hedge.

on sports betting, people's income depends on if a team wins or looses. If the team didn't make it to the playoffs, then their bonuses (or income) is reduced. Sports betting enables these people to smooth out their income, instead of all or nothing.

I agree, these tools are frequently abused by gamblers (or better: the tools abuse gamblers), but unlike your typical casino game, there is utility in these services for certain groups of people.