In October I decided I'd try to make some free money off the betting markets (1).

I had just read On the Edge, by Nate Silver and thought it would be cool to be one of these renegades, going against conventional wisdom, putting money on the line, and being proven right. So when I saw that there were significant spreads between some of the election betting markets (Kalshi and Polymarket), I decided I had to act.

For example: In the presidential election, Kalshi had the odds of Trump winning Georgia at 26%. Polymarket had the odds at 29%.

This looks like free money! All I have to do is:

On Kalshi, bet that Trump wins. I put in $0.26, and if he wins, I get $1.
On Polymarket, bet that Harris wins. I put in $0.71, and if she wins, I get $1.
In total between the two markets, I spent $0.97. No matter who wins, I win $1. So I’ve made $0.03 for free!

Logical conclusion: I should drain my IRA, take out a huge loan, and put everything into chasing spreads.

My wife talked me down from “levering up and letting it all ride” to “take $100 and give it a try”. Which I’m glad she did, because I ended up losing money on this scheme.

And obviously so. Because there are transaction costs involved in making these bets. This is why - while you expect markets like Kalshi and Polymarket to be pretty similar to each other - still you can find small (<5%) spreads. Everyone knows this, and several people told me about this before I tried.

In the end, I placed $90 worth of bets, and won $92. A profit of $2. But since I paid $6 in transaction fees loading money onto the markets, I came out $4 behind overall (2).

My takeaway: Market frictions are very real, and finding a free lunch is a bit harder than I had hoped.

Shouldn’t I have been able to learn this takeaway without actually spending all the time and $4?

Yes. But so it goes in this vale of tears we call life. I can be told a hundred times that my idea is a bad idea and that it won’t work. But sometimes I just have to try for myself before I can admit that I’m wrong, and everyone else is right.

At least this time, my wasted effort has been the fodder for a blog post for you, Dear Reader.

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1. Betting markets are sites where you can bet on real-world events. They are fun, and also helpful in checking how seriously you should take particular news stories.

Why? In short, because “BS talks, money walks”.

In contrast to your political friend who makes dire predictions in order to make a point that his enemies are ruining the country, the people betting on these sites have a financial incentive to be correct. When there are a bunch of people trying to make money, you would expect the aggregate behavior to be a fairly good prediction of the future. And studies of sports betting bear this out.

For example - when I heard people saying that they were worried that the government would start deporting US citizens to El Salvador, I initially thought that this was overblown exaggeration. But then I checked Kalshi and saw that they had the odds of this happening as greater than 50%. So now I take this pretty seriously.

Plus, "why don't you put money on it?" is a nice comeback to have in the old quiver.

2. Ironically, the transaction fees were all related to getting money onto Polymarket - a blockchain based betting market. I was very disappointed in the difficulty of using crypto to move money to Polymarket from Kenya (where I lived at the time). The traditional banking system fueling Kalshi was much easier and cheaper.