Odd Lots Podcast Summary: "The Original Prediction Market Was Betting on the Pope"

Release Date: March 14, 2025
Hosts: Joe Weisenthal and Tracy Alloway
Guest: Ryan Isiko, Author of "No Dumb Ideas"

Introduction to Prediction Markets

In this episode of Bloomberg's Odd Lots, hosts Tracy Alloway and Joe Weisenthal delve into the intriguing history of prediction markets, tracing their origins back to Renaissance Rome. The discussion centers around a lesser-known but fascinating aspect of financial history: betting on the Papal elections.

Historical Context: Renaissance Rome's Papal Prediction Markets

Tracy opens the conversation by highlighting the existence of early prediction markets before modern platforms like Polymarket and Kalshi. She introduces the concept of betting on the next Pope as a historical example. "There’s a really good example, and it is the papal prediction market," Tracy states [05:38], setting the stage for a deep dive into this unique market.

The Papal Bull Colgitnos

Ryan Isiko explains how Renaissance Rome saw widespread betting on papal elections, leading to significant consequences. In 1591, the Catholic Church issued the papal bull Colgitnos—a decree that banned all forms of betting on cardinals, the duration of a pope’s reign, and the conclave’s length, with excommunication as the punishment [07:26]. This strict measure underscores the Church's attempts to control and suppress gambling related to its internal affairs.

Types of Betting Participants

Joe elaborates on the three main groups involved in these prediction markets:

1. Gentlemen's Bets: Aristocrats and cardinals made side bets among themselves, similar to friends betting on sports today [08:25].

2. Brokers (Sensali): Acting as intermediaries, Sensali took bets from all social classes, including regular workers and sometimes cardinals themselves. They offered bets on various outcomes, such as sport matches or the gender of a child being born, which was so popular it was eventually banned [08:48].

3. Financial Institutions: Banks and financial entities engaged in early forms of risk hedging by intertwining betting on papal outcomes with financial services like shipping insurance [10:00].

Information Flow and Market Manipulation

Ryan points out the crucial role of information in setting odds and how insider information could manipulate markets. "The idea is, if you have an opinion on something, how does it differ from conventional wisdom?" he muses [04:42]. Joe provides a historical example where rumors influenced betting odds significantly. In 1555, rumors about Cardinal Carafa's death drastically shifted his betting odds, only for him to be elected Pope shortly after [12:11]. This incident highlights early attempts at market manipulation through misinformation.

Social and Religious Implications

The conversation shifts to the broader social and religious impacts of these betting practices. Joe discusses how the Catholic Church viewed these prediction markets as threats, leading to severe crackdowns. The excommunication under Colgitnos carried heavy social stigma and tangible consequences, such as property seizure and social ostracization [26:55]. Tracy raises questions about how such gambling cultures affected the Church's perception, to which Joe responds that while the Church felt threatened and actively worked to suppress these markets, it's unclear how the general public perceived the Church's stance [23:51].

Modern Prediction Markets and Their Efficacy

Moving to contemporary times, the hosts and Ryan compare historical papal markets to today's prediction platforms. Ryan notes that modern prediction markets, especially those involving closed-door decisions like papal conclaves or Supreme Court rulings, have mixed accuracy. For instance, betting markets for the election of Pope Francis showed significant liquidity but did not always predict outcomes accurately [35:19]. Tracy reflects on the societal implications, observing that while prediction markets can provide insights, they also become part of the narrative influencing public perception [42:37].

Future of Prediction Markets

The discussion culminates in speculating the future trajectory of prediction markets. Ryan predicts a continued expansion due to the increasing gambling culture and technological advancements that make betting more accessible. He also touches on the ethical and regulatory challenges that lie ahead, especially as decentralized and crypto-based prediction markets emerge [37:03]. Both hosts agree that as prediction markets grow, their role in shaping narratives and influencing opinions will become increasingly significant, raising questions about their overall social value and impact.

Notable Quotes

• Tracy Alloway [05:38]: "There’s a really good example, and it is the papal prediction market."

• Ryan Isiko [04:42]: "How does it differ from conventional wisdom? Right now, is there a big gap between your sense of something happening and the market sense of something?"

• Joe Weisenthal [26:55]: "From a religious perspective, back then, excommunication could mean ostracization. You could be kicked out of your community. They could seize your property."

• Tracy Alloway [42:37]: "One thing that really struck me was this idea of predictions as they become part of the narrative of what's happening."

Conclusion

This episode of Odd Lots offers a captivating exploration of the origins and evolution of prediction markets, using the historical backdrop of Renaissance Rome’s papal betting to shed light on modern financial practices. Through insightful dialogue and expert analysis, Tracy Alloway and Joe Weisenthal, alongside Ryan Isiko, provide listeners with a comprehensive understanding of how prediction markets have influenced and continue to shape societal narratives.

For more detailed discussions and insights into finance, markets, and economics, visit bloomberg.com/oddlots.