Prediction markets soared this year in the United States. These platforms, the most popular of which is Polymarket, followed closely by its main rival Kalshi, allow for anonymous users to trade event contracts based on the outcome of real-world events. For example, one could find a market for “What will Zelensky say during his next meeting with Trump?” and then place money on positions for the word “NATO”, either Yes or No. The prices of these contracts correspond with the likelihood the market has determined for the event, based on input from many different traders. Something with a 60% probability will be priced at $0.60, and so on.

While it may appear on the surface to be nothing more than enhanced gambling, prediction markets often show remarkable accuracy. In fact, Polymarket correctly predicts events with over 91% accuracy an entire month in advance. Earlier this year, I wrote a research paper in which I discussed the benefits to the U.S. diplomatic and intelligence communities utilizing these platforms in decision making and open source intelligence analysis this year. Yet it doesn’t take research to understand their usefulness. As 2025 comes to an end, let us examine two major scenarios from this year when Polymarket beat the experts in defense and security issues, specifically from the Middle East.

Israeli Strikes on Iran

In the early morning of June 15th, 2025, Israel conducted a preemptive strike against Iran, its main adversary in the region. The target was Iran’s oil facilities, used to fuel the regime's military ambitions, which Israel and the United States have agreed is a major threat to regional stability, if not the entire world.

Despite Israel signaling its intent to strike Iran if it refused to back down, the Islamic Regime was overconfident, miscalculating Israel’s willingness to strike. President Trump dismissed the possibility of a strike to the media. Yet if one turned to Polymarket, they would see that traders had placed the possibility of an Israeli air strike on Iranian oil at 87.5% nearly two days before the operation.

Houthi Strikes on Israel

Since the October 7th attacks against Israel, the Yemeni Houthi terror group has strategically positioned itself to bolster their relevance. By leveraging the attacks and using them as justification for future actions, the Iranian backed Houthis have become a major regional threat. They have repeatedly struck a variety of vessels. They did not discriminate in their attacks: ships bearing the flags of many different nations, from the Netherlands to Liberia, faced drones, RPG fire, small arms fire, missiles, and other projectiles.

However, regional experts in mid-June predicted that the terror organization would start to tamp down its aggression. They reasoned that the Houthis would see further escalation, especially with the United States and her allies, as dangerous, predicting the group may only take limited actions.

Once again, the traders disagreed, and were correct. While the experts remained unconvinced, traders on Polymarket said there was a 54.5% possibility of Houthi strikes on Israel by mid-September, nearly a full month in advance. While the possibility fluctuated over time, the market was bolder than the experts and eventually proved correct after drones targeted Israeli airports on September 7th, with attacks continuing into mid-September.

Implications for U.S. Diplomacy and Intelligence

Prediction markets didn’t just outperform traditional analysts this year – they exposed a structural blind spot. Traditional experts often rely on official signals, diplomatic messaging, or historical precedent. Prediction markets rely on monetary incentives. When the signals clash, incentives win. If 2025 proved anything, it’s that policymakers cannot afford to ignore platforms that consistently detect shifts in regional behavior before seasoned professionals do.

Alex Travin is an independent researcher and student who covers Middle Eastern security, terrorism, and technology.