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Prediction Market Users Aren’t the Mathematicians They Think They Are: A Deep Dive into the AGA Study

By jili tutorial · September 26, 2026

Prediction Market Users Aren’t the Mathematicians They Think They Are: A Deep Dive into the AGA Study

Introduction: The Gap Between Confidence and Competence

Prediction markets—platforms where users bet on the outcome of future events such as elections, sports games, or economic indicators—have surged in popularity over the past decade. Many participants see themselves as quantitative analysts, confidently applying probability and statistical reasoning to gain an edge. However, a new study from the American Gaming Association (AGA) reveals a striking disconnect: these users are not as mathematically proficient as they believe themselves to be.

The study, which surveyed over 3,100 participants, also uncovers complex relationships between financial literacy, gambling behavior, and responsible gaming. This article unpacks the findings, provides context on prediction markets and their critics, and explores what the data means for bettors, regulators, and the wider industry.

Background: The AGA’s Stance and the Study’s Design

The American Gaming Association, the leading trade group for the casino and sportsbook industry, has historically been a vocal opponent of prediction markets. The AGA argues that such platforms blur the line between gambling and investing, often operating outside traditional regulatory frameworks. Despite this opposition, the AGA’s research does not single out prediction market users for unique criticism—rather, it places them alongside other gamblers in terms of mathematical ability.

Study Demographics

The final sample included 3,149 participants, segmented into five groups:

Each participant completed an objective mathematical test and a self-assessment of their own math skills, as well as a widely used five-question financial literacy index.

Mathematical Ability: Overconfidence Among Prediction Market Users

Self-Perception vs. Objective Performance

When asked to rate their own mathematical ability, prediction market users expressed nearly as much confidence as sports bettors—the group that scored highest on objective tests. However, when actually tested, prediction market users performed in line with non-gamblers, who had no wagering experience.

“Prediction market users are more likely to misjudge their mathematical ability,” the AGA noted, adding that “sports bettors show the greatest mathematical confidence and objective capability.”

This overconfidence gap is particularly concerning because prediction markets often attract individuals who view themselves as rational, data-driven traders. They may be more likely to take risks based on flawed self-assessments, assuming their math skills are superior to what they actually are.

Why This Matters

In prediction markets, small errors in probability estimation can lead to significant financial losses. Unlike traditional sports betting, where odds are set by bookmakers, prediction markets rely on a continuous auction mechanism where participants set prices. A user who overestimates their ability to spot mispriced contracts may end up making poor trades—compounding losses over time.

Financial Literacy: A Surprising Paradox

Bettors Score Higher Than Non-Gamblers

The AGA study delivered a result that many industry observers found counterintuitive: gamblers as a whole demonstrated higher financial literacy than non-gamblers.

This suggests that people who engage in wagering activities may, on average, have a better understanding of concepts like compound interest, risk diversification, and inflation than those who do not gamble.

But Contradictions Abound

Despite these aggregate scores, other research paints a darker picture. Studies have found that avid, losing sports bettors often experience:

Furthermore, a growing body of commentary from the financial services industry warns that many young bettors are replacing traditional investment portfolios—including retirement accounts—with wagering or prediction market trading. Critics argue that such behavior is hardly a hallmark of high financial literacy.

The AGA study itself does not break down which specific gambling subgroups (e.g., poker players, slot players, sports bettors) are the most financially literate, leaving open the possibility that the overall gambler average masks significant variation.

Positive Play Scores

Not surprisingly, the study found a strong correlation between financial literacy and responsible wagering behavior. Participants with moderate or high financial literacy recorded significantly higher scores on the Positive Play Scale, a measure that captures attitudes and behaviors such as:

“The findings suggest that financial literacy education may strengthen responsible gaming resources by helping consumers better understand risk,” the AGA noted.

Among the various gambling categories, casino players scored highest on responsible gambling measures, perhaps because land-based casinos often provide more built-in safeguards and self-exclusion tools compared to online prediction markets.

Why Financially Literate Bettors Gamble More Responsibly

Financially literate individuals are more likely to understand that “the house always wins” in the long run. They recognize that gambling is a negative-sum activity and cannot serve as a substitute for long-term investing. This knowledge may lead them to gamble within their means, treat losses as entertainment costs, and avoid chasing wins.

Conversely, less financially literate bettors may fail to grasp the probabilities involved, leading to overconfidence and harmful spending patterns.

Implications for Prediction Markets and Regulation

The Need for Better Education

If prediction market users are overconfident in their math skills and only average in objective ability, they may be particularly vulnerable to making poor decisions. The AGA’s study points to financial literacy education as a potential tool to mitigate harm.

However, critics argue that prediction market platforms themselves should take more responsibility. Many platforms present themselves as “prediction exchanges” rather than gambling sites, downplaying the risks. Improved disclosures, mandatory math-literacy quizzes, and loss-limit tools could help protect users.

Regulatory Challenges

The U.S. regulatory environment for prediction markets is fragmented. Some platforms operate under commodities or derivatives regulations (e.g., Kalshi, which is regulated by the CFTC), while others exist in a gray area. The AGA’s opposition to prediction markets stems partly from a desire to maintain a level playing field for licensed sportsbooks—but also from genuine concerns about consumer protection.

The study’s findings reinforce the argument that prediction market users are not a specially sophisticated group; they are gamblers who may be even more overconfident than traditional bettors. Regulators may want to consider applying the same consumer protections—such as age verification, advertising restrictions, and responsible gambling messaging—to prediction markets as they do to sports betting and casino gaming.

How This Study Compares to Previous Research

The AGA’s results align with earlier work in behavioral economics showing that people consistently overestimate their own abilities, especially in domains like math, driving, and risk assessment. What sets this study apart is its direct comparison across gambling types and its inclusion of non-gamblers as a baseline.

Previous research has also shown that:

The new study adds a layer: prediction market users share the confidence of sports bettors but lack the objective skill, making them a unique risk group.

Conclusion: Bridging the Confidence Gap

The AGA’s study delivers a clear message: knowing the odds is not the same as understanding them. Prediction market users may pride themselves on their mathematical prowess, but their actual performance reveals a gap that could lead to costly mistakes. Meanwhile, the positive correlation between financial literacy and responsible gambling offers a path forward—not by banning prediction markets, but by equipping users with the tools they need to make informed decisions.

As the industry evolves, both regulators and platforms should take note: an overconfident trader is still a gambler, and every gambler deserves a fair chance to understand the risks.