Context:

The election of Robert Prevost as Pope Leo XIV, the first American pope, took prediction markets by surprise, highlighting their limitations in forecasting such events. Unlike political elections where data is abundant, the papal conclave process remains opaque, with few data points available and the outcome perceived as influenced by divine intervention. Despite their success in predicting Trump’s 2024 win, sites like Polymarket and Kalshi underestimated Prevost’s chances, assigning him low odds, which resulted in substantial wins for a few bettors. The markets' performance underscores the challenges in predicting outcomes that are not driven by quantifiable metrics. This event demonstrates that even highly liquid markets struggle to account for the unpredictable, intangible elements like the Holy Spirit believed by Catholics to guide the conclave's decisions.

Dive Deeper:

• Robert Prevost's election as the first American pope was unforeseen by prediction markets such as Polymarket and Kalshi, which labeled him a long shot with odds of just 1% to 2%.

• These markets, which previously predicted Donald Trump’s 2024 election victory, were unable to accurately forecast the papal conclave's decision due to the scarcity and opacity of relevant data.

• Betting markets have a mixed track record, having correctly called some political outcomes but also failing in significant events like Brexit and the 2016 U.S. Presidential election.

• In contrast to political elections, where extensive data on voter behavior and polling is available, the conclave process provides infrequent and limited data points, making accurate predictions challenging.

• The unexpected election of Pope Leo XIV highlights the inherent limitations of betting markets in predicting outcomes guided by subjective or divine factors, as believed in the case of the papal election.

• While markets thrive on measurable data, the conclave’s decision-making is shrouded in secrecy, with no memoirs or insider accounts to inform market participants.

• Eric Zitzewitz, an economics professor, emphasized that the conclave's unpredictability demonstrates the challenges faced by markets when attempting to gauge events influenced by non-quantifiable elements.