Iran Bets Expose Limits of Prediction Markets for Wall Street

Prediction market platforms have justified their existence to regulators and lawmakers with a high-minded argument: their contracts are novel financial instruments that let investors hedge against economic and geopolitical risks in real time.

Iran could have been the proof of concept, with prediction platforms seeing a rush of trading on an event with direct economic consequences for institutional investors everywhere. Instead, it looks more like a cautionary tale.

A Bloomberg analysis of the biggest prediction market contract leading up to the killing of Ayatollah Ali Khamenei paints a portrait of a market dominated by small bettors, with position sizes and ...