How Prediction Markets Affect Political Speech

How can prediction markets affect politics? While traditional markets have long influenced politics, we argue that some of prediction markets' unique features allow them to affect political speech through distinct forms of manipulation, fulfillment, and legtimization. We then test for the possibility that one or more of these mechanisms are operating by analyzing the relationship between "mention markets", which allow traders to wager on specific words spoken by political elites, and public comments by Donald Trump and the Chair of the Federal Reserve. We find that words introduced into mention markets become significantly more likely to appear in Trump's remarks during the days following market creation, with larger effects for markets when there is higher trading volume. By contrast, we detect no comparable effects in Federal Reserve press conferences. These results suggest that prediction markets are playing a role in shaping public political speech when financial stakes are high and speech is less constrained by accountability. The findings also encourage further research directly examining the mechanisms linking prediction markets to political speech, as well as other political outcomes.