Prediction Markets Outperform Wall Street in Inflation Forecasting, Kalshi Study Shows
A recent study by Kalshi reveals that prediction markets have outperformed the Wall Street consensus in forecasting inflation, demonstrating a 40% lower average error over the period from February 2023 to mid-2025. The gains were even more significant during times when Consumer Price Index (CPI) readings deviated substantially from estimates, with prediction markets achieving up to 67% better accuracy during these larger deviations.
The advantage of prediction markets stems from their ability to aggregate diverse traders with financial incentives, creating a wisdom-of-the-crowd effect and allowing for real-time pricing compared to static consensus estimates. Researchers suggest that market-based forecasts could serve as a valuable complementary tool for institutional decision-makers, particularly during periods of heightened uncertainty.
The study, apart from accuracy comparisons, also highlights that forecast disagreements can predict the likelihood of CPI surprises. According to Crisis Alpha, a difference of more than 0.1 percentage point in forecast disagreement one week before a release raises the chance of a significant CPI surprise to approximately 80%.
Kalshi's user base has expanded notably, including integration into the Phantom wallet, and the company raised $1 billion at an $11 billion valuation in December 2025. Additionally, Polymarket was reported in October 2025 to be in discussions to raise funds at valuations up to $15 billion.
However, the study notes limitations such as a small sample size of large inflation shocks and risks related to acquiescence bias, herd mentality, and low market liquidity. Traditional forecasts may tend to be less responsive due to reliance on common economic models.
