The Controversial World of Prediction Markets: Betting on War, Death, and the Ethics of Insider Trading

Growing Concerns Over Wagering on Iranian Conflicts

The recent surge in prediction market activity surrounding Iran has ignited a fierce debate about the intersection of financial speculation, insider trading, and the morality of profiting from violence and death. Platforms like Kalshi and Polymarket have witnessed millions of dollars in wagers related to the fate of Iranian Supreme Leader Ayatollah Ali Khamenei and the timing of U.S. military operations in the region. In recent weeks, users have flocked to these platforms, placing substantial bets on potential military actions. One particularly notable Polymarket contract from January attracted a staggering $4 million in wagers on whether the United States or Israel would strike Iran first. The situation intensified dramatically when President Trump announced that Khamenei had been killed in joint U.S. and Israeli strikes, with Iranian officials later confirming his death. This sequence of events has prompted lawmakers and ethics advocates to question whether the prediction market ecosystem has crossed fundamental lines of decency and legality.

The mechanics of these prediction markets are relatively straightforward but have profound implications. Users purchase contracts priced between $0 and $1, representing their assessment of the probability of specific events occurring. These contracts can be traded continuously until the event in question takes place, with prediction markets matching buyers and sellers on opposite sides of each wager. Those who correctly predict outcomes receive payouts, while those who guess incorrectly lose their entire investment. What makes the current situation particularly troubling is both the nature of the events being wagered upon and the suspicious timing of certain large bets that suggest some traders may have possessed advance knowledge of military operations or political developments.

Suspicious Trading Patterns and Allegations of Insider Information

The timing and size of certain bets have raised serious red flags about potential insider trading. One trader operating under the account name “Magamyman” reportedly earned nearly $600,000 by correctly predicting the timing of U.S. and Israeli strikes on Iran, according to Polymarket data. Even more troubling, blockchain analytics firm Bubblemaps identified what they characterized as “six suspected insiders” who collectively made $1.2 million by betting on a U.S. strike on Iran just hours before it occurred. In one particularly egregious example, a single user wagered $26,000 and walked away with more than $200,000 in winnings, according to reporting by the Wall Street Journal. These traders placed “yes” bets on the platform’s contract titled “US strikes Iran by…?” mere hours before the actual military action took place, suggesting they may have had access to classified or non-public information about the planned operations.

This pattern of suspiciously timed and highly profitable bets has caught the attention of lawmakers who see it as a clear abuse of the prediction market system. Senator Chris Murphy, a Democrat from Connecticut, responded forcefully to the Bubblemaps analysis, writing on social media: “It’s insane this is legal. People around Trump are profiting off war and death. I’m introducing legislation ASAP to ban this.” Senator Ruben Gallego of Arizona echoed these concerns, characterizing the situation as “insider trading in broad daylight” that “should be illegal no question.” The lawmakers’ outrage reflects a broader concern that prediction markets, which were originally conceived as tools for aggregating public information and assessing probabilities, have instead become vehicles for those with privileged access to classified information to profit from military operations and geopolitical violence. The situation bears uncomfortable similarities to an earlier controversy when a Polymarket trader made $436,000 on a bet regarding the capture of former Venezuelan President Nicolás Maduro just before President Trump announced his ouster, leading experts to suggest the user may have accessed classified information about the U.S. operation.

The Moral Question: Profiting from Death and Violence

Beyond the insider trading concerns lies an even more fundamental ethical question: should people be allowed to financially profit from betting on death, assassination, and military violence? Amanda Fischer, policy director and chief operating officer for Better Markets, a nonpartisan advocacy group focused on financial reform, characterized contracts related to the fate of Iran’s supreme leader as “more or less offering a proxy market on assassination.” This critique strikes at the heart of what many see as a disturbing evolution in prediction markets—the transformation of human tragedy and geopolitical violence into financial instruments that can be traded for profit. The Kalshi contract on the timing of Khamenei’s removal as Iran’s leader generated nearly $55 million in trading volume, while Polymarket’s equivalent contract produced more than $58 million in activity. These enormous sums represent real money being wagered on questions of life, death, and military violence, raising troubling questions about the values and incentives such markets create.

The concern goes beyond mere distaste for profiting from tragedy. Critics worry that such markets could potentially create perverse incentives that might encourage violence or provide financial motivation for individuals to act on classified information in ways that could compromise national security. When substantial profits can be made by correctly predicting assassinations, military strikes, or political violence, the markets themselves might inadvertently incentivize or reward behavior that undermines public safety and democratic institutions. Furthermore, the existence of these markets forces society to confront uncomfortable questions about what should and should not be subject to financial speculation. While betting on election outcomes or economic indicators might seem relatively benign, wagering on whether a political leader will be assassinated or when a military strike will occur crosses into territory that many find morally objectionable, regardless of the legality.

Platform Responses and “Death Carveouts”

In response to mounting criticism, prediction market platforms have attempted to defend their practices and implement safeguards they claim prevent direct profiting from death. Kalshi has been particularly vocal in asserting that it does not allow customers to place bets on the death of public figures. The company included what it calls a “death carveout” in its contract regarding whether Khamenei would be “out” as Iran’s leader. According to Kalshi co-founder Tarek Mansour, this carveout is designed to prevent the market from becoming a bet on death. Under this mechanism, if a leader is removed due to death, the market immediately resolves and pays out based on the last traded price before the person’s demise, rather than allowing traders to profit directly from betting on the death itself. Mansour emphasized that “death carveouts are important; as a federally regulated prediction market, we are required and feel it is important not to enable direct profiting from war, assassination, terrorism or other violent outcomes.”

Kalshi also claims it doesn’t offer markets on military strikes, as such contracts would be illegal under the Commodities Exchange Act. A company spokesperson noted that “the only platforms that do offer them are offshore, unregulated platforms outside of the reach of U.S. law enforcement,” attempting to draw a distinction between their regulated operation and unregulated competitors like Polymarket. However, critics argue that these technical safeguards are insufficient and that the “death carveouts” represent a distinction without a meaningful difference. While the mechanism may technically prevent direct profiting from death, it doesn’t address the fundamental concern that users are still financially speculating on outcomes closely tied to violence, assassination, and military operations. Polymarket, which operates offshore and outside U.S. regulatory oversight, did not respond to requests for comment, though the platform noted that its contract on Khamenei was under “final review,” suggesting some internal reconsideration of the appropriateness of such markets.

Legislative and Regulatory Response

The controversies have prompted calls for stronger legislative and regulatory action to curb what lawmakers see as dangerous and unethical practices. Before the current escalation in Iran, six senators sent a letter to the Commodity Futures Trading Commission (CFTC), which regulates prediction markets, asking the agency to reiterate that it “will categorically prohibit any contract that resolves upon or closely correlates to an individual’s death.” The lawmakers gave the agency until March 9 to respond to their concerns. The CFTC already maintains bans on contracts related to terrorism, assassination, and war, but the recent activities on prediction market platforms suggest these regulations may need strengthening or that enforcement mechanisms are inadequate, particularly for offshore platforms operating beyond direct U.S. jurisdiction.

Senator Murphy’s pledge to introduce legislation specifically targeting these practices represents a potential escalation in regulatory oversight. The Coalition for Prediction Markets, an industry group focused on promoting safe and fair prediction markets, attempted to get ahead of potential regulation by writing on social media that “we agree contracts involving death have no place on American exchanges.” This statement suggests that even industry advocates recognize the ethical lines that have been crossed and are attempting to distance themselves from the most problematic practices. However, the challenge of regulating prediction markets is complicated by the global and decentralized nature of platforms like Polymarket, which operate outside U.S. jurisdiction and can continue offering contracts that would be illegal on domestic platforms. This regulatory arbitrage creates a situation where U.S. users can access offshore markets to place bets that would be prohibited on regulated domestic exchanges, undermining the effectiveness of American oversight.

Broader Implications and the Path Forward

The controversy over prediction markets betting on Iranian military operations and political outcomes reflects broader tensions about the appropriate role of financial speculation in democratic societies. Kalshi itself has taken action against insider trading in other contexts, having suspended and fined two users last month for insider trading related to bets on videos produced by popular YouTuber MrBeast. These bets were flagged by Kalshi’s surveillance team for their “near-perfect trading success on markets with low odds,” demonstrating that platforms do possess the technical capability to detect suspicious trading patterns when they choose to exercise it. The question is whether self-regulation and existing oversight mechanisms are sufficient, or whether more comprehensive legislative action is necessary to prevent prediction markets from becoming vehicles for profiting from violence, death, and classified information.

The path forward will likely require balancing several competing interests. Proponents of prediction markets argue they serve valuable functions by aggregating dispersed information and providing probabilistic assessments of future events that can be useful for planning and decision-making. However, the recent controversies demonstrate that without proper guardrails, these markets can create perverse incentives and enable ethically questionable behavior. Any effective regulatory framework will need to address both the insider trading concerns—ensuring that those with classified or privileged information cannot profit from advance knowledge of military operations or political developments—and the fundamental ethical question of whether certain events should be off-limits for financial speculation regardless of the technical mechanisms employed. As prediction markets continue to grow in popularity and trading volume, the decisions made by lawmakers and regulators in response to the Iranian betting controversy will likely establish important precedents that shape the future of this emerging financial technology and determine which aspects of human experience remain beyond the reach of profit-seeking speculation.