If the betting site is used as a hedge, then the equilibrium prices don’t reflect real-world probabilities.
Suppose people predicted that Trump would tank the economy and wanted a few extra dollars in that case. An extra dollar in a Trump world would be worth more than in a normal world, thus distorting betting.
Actually, that's not what I've found. When I have compared betting sites like Kalshi and Polymarket to the implied probability of Fed rate cuts in the interest rate futures market, I have found them to match up and move in lock step with each other. (I don't work for any of these companies and I don't use the betting sites myself; just stating my observation.)
That's because there's an easy arbitrage. If the prices get out of line with each other, anyone can buy the cheap one, sell the expensive one, and get free money.
