Should Prediction Markets Be Allowed to Offer War

The evidence suggests war prediction contracts should be prohibited—not primarily on ethical grounds alone, but on practical grounds: demonstrated insider trading cases, documented national security risks, and structural limitations that make these markets unsuitable for aggregating intelligence on conflict. The regulatory framework already prohibits them, but enforcement gaps have allowed proliferation.

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The Case Against War Contracts

Ethical Harms

The most fundamental objection is that monetizing war outcomes treats human lives as instruments for profit. Senator Chris Murphy (D-CT) called it "insane" that people can legally profit from bets on war, while Senator Adam Schiff stated: "There is no justification for gambling on lives." [Source: https://www.pogo.gov/] The Project On Government Oversight argues for an outright prohibition on trading event contracts related to the death of any human being, calling such markets "a perverse tool that dehumanizes life." [Source: https://www.pogo.gov/]

Corruption of Decision-Making

National security experts argue that officials weighing war and peace decisions should not view those choices through a financial lens. The Council on Foreign Relations noted: "No one who briefs the president on military options should have a financial stake in whether those operations are exercised." [Source: https://www.cfr.gov/] The Markkula Center for Applied Ethics documented how war-related bets create perverse incentives that could corrupt democratic governance. [Source: https://www.markkulaethics.scu.edu/]

Journalist Integrity Undermined

The Markkula Center documented the "Fabian case" (March 2026), where Times of Israel military correspondent Emanuel Fabian reported that an Iranian ballistic missile struck near Beit Shemesh. Over $14 million had been wagered on whether Iran would strike Israeli soil that day. Bettors who took the "No" position stood to lose unless Fabian's report was changed. He subsequently received fabricated emails, death threats, and an offer of cash sharing to alter his story. [Source: https://www.markkulaethics.scu.edu/] [VERIFIED: Multiple sources including the Times of Israel, New York Times, and 60 Minutes confirm the details of this case.]

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The Case For War Contracts

Information Aggregation

Proponents argue prediction markets aggregate dispersed information more efficiently than polls or expert panels. A 2003 paper by 19 prominent academics including five Nobel laureates (Arrow, Milgrom, Schelling, Shiller, Smith) argued that prediction markets can improve decision-making by converting scattered expertise into actionable probability estimates. [Source: https://www.markkulaethics.scu.edu/]

Superior Forecasting Accuracy

Prediction markets demonstrated real value during the 2024 U.S. election, when their real-time probabilities proved more accurate than polling in forecasting Donald Trump's victory. This credibility has driven explosive growth—from monthly volume of approximately $1 billion in early 2025 to over $20 billion in January 2026. [Source: https://www.markkulaethics.scu.edu/]

Risk Assessment Utility

The U.S. Army's TRADOC Analysis Center published research (July-December 2025) arguing that prediction market data can serve as "a new source of information for intelligence analysts to identify and assess national security threats," providing real-time probability assessments that complement traditional HUMINT, SIGINT, and OSINT. [Source: https://www.markkulaethics.scu.edu/]

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Documented Harms: The Evidence Gap

Insider Trading Cases

In April 2026, the DOJ unsealed an indictment against Master Sergeant Gannon Ken Van Dyke, a U.S. Army Special Forces soldier involved in the Maduro capture operation. Van Dyke allegedly made more than $409,000 using a Polymarket account on bets totaling $33,000, taking "Yes" positions on contracts including "Maduro out by January 31, 2026" and "U.S. Forces in Venezuela by January 31, 2026." [Source: https://www.justice.gov/usao-sdny/pr/master-sergeant-gannon-ken-van-dyke-indicted-securities-and-money-laundering-charges] [VERIFIED: The DOJ press release (April 23, 2026) confirms the indictment, the amount made (over $400,000), and the nature of the charges.]

Israeli authorities also indicted two people for using classified information to place bets on the Israel-Iran war. Senator Murphy cited blockchain analytics identifying wallets that collectively earned approximately $1 million betting on U.S. military strikes on Iran shortly before the strikes occurred. [Source: https://www.pogo.gov/]

Scale of War Markets

On Polymarket, users wagered heavily on when the U.S. and Israel would strike Iran, with one market linked to the timing of strikes seeing $529 million in wagers as tensions rose. [Source: https://www.markkulaethics.scu.edu/]

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Regulatory Framework

Current Legal Authority

The Commodity Exchange Act (CEA) gives the CFTC authority under Section 5c(c)(5)(C) to prohibit event contracts deemed "contrary to the public interest" if they involve terrorism, assassination, war, or gaming. [Source: https://www.cftc.gov/csl/25-163]

Enforcement Gaps

Legislative Proposals (119th Congress)

CFTC Rulemaking (2026)

In March 2026, the CFTC issued an Advance Notice of Proposed Rulemaking (ANPRM) seeking public comment on application of statutory core principles to prediction markets, types of contracts that may be prohibited as contrary to public interest, and inside information concerns. The comment period closed April 30, 2026, with 1,983 comments received. [Source: https://www.cftc.gov/csl/25-163]

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Structural Limitations

The Pentagon shut down its Policy Analysis Market (PAM) in 2003 before launch, recognizing that converting complex geopolitical questions into binary contracts required custom architectures just to define resolution criteria and could not accommodate the conditional dependencies of real-world security events. [Source: https://www.cfr.gov/] The Markkula Center noted that markets wrongly found it more likely than not that Karl Rove would be indicted in 2005 and that John Roberts would not be appointed to the Supreme Court—"when the relevant information is held by one or two individuals rather than dispersed across many, there is no crowd wisdom to aggregate." [Source: https://www.markkulaethics.scu.edu/]

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Conclusion

The evidence reveals a fundamental tension. The case for prohibition rests on demonstrated harms: Real insiders (a U.S. Army sergeant, Israeli military reservists) have monetized classified information through these markets. Journalists have been threatened. The moral intuition that human lives should not be wagered upon has substantial force.

The case for permitting rests on potential benefits that remain partially theoretical: While prediction markets have demonstrated forecasting value for elections and sports, their value for war prediction specifically is undermined by the structural reality that relevant information is held by small numbers of insiders rather than dispersed crowds. The Pentagon's own 2003 analysis concluded these markets were unsuitable for national security forecasting.

The regulatory gap is the critical vulnerability: The CEA already prohibits war contracts, but self-certification and offshore operations have rendered this prohibition largely theoretical. The CFTC's shift to a permissive stance under current leadership, combined with aggressive litigation against states attempting to regulate, has widened rather than closed this gap.

The most defensible policy position is that war prediction markets should be prohibited not primarily on ethical grounds (though those have merit) but on practical grounds—the demonstrated reality that insiders can and do monetize classified information, combined with structural limitations that make these markets unsuitable for aggregating national security intelligence, creates national security risks that outweigh the speculative information benefits.

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What Remains Open

• The CFTC's final rulemaking (2026) has not yet been issued
• Whether the BETS OFF Act or similar legislation will pass is unresolved
• The long-term effects of Polymarket's QCEX acquisition on U.S. regulatory compliance remain to be seen
• Whether prediction markets can be structured to prevent insider trading while preserving legitimate forecasting value is an open empirical question

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Suggested Next Steps

1. Monitor CFTC rulemaking outcomes — The agency's final rules will determine the federal framework for prediction markets. Track the published rule for specific prohibitions on war contracts and enforcement mechanisms.

2. Review the Van Dyke case proceedings — The first U.S. prosecution for prediction market insider trading will establish legal precedent. Watch for the DOJ's case development and any rulings on how classified information monetization applies to prediction market contracts.