'This is deeply unethical': More than $1.2 million was bet on LA wildfires as prediction markets turn disasters into profit

“Offering bets on destructive wildfires threatens to minimize communities’ suffering all so the rich and powerful can profit,” the senators wrote in a letter to the Commodity Futures Trading Commission (CFTC), which regulates derivatives markets and has authority over certain prediction-market event contracts

“Markets on disaster events sit in an uncomfortable spot, both legally and reputationally,” Ashley Ebersole, Chief Legal Officer at tx and former senior counsel at the Securities and Exchange Commission (SEC), told Moneywise.

The big question is, are these markets regulated closely enough, and should they accept bets on things like natural disasters, especially if there’s a risk that bettors could make things worse?

Some bets may be unethical and dangerous

Polymarket and Kalshi are the two major trading platforms, both of which are regulated by the CFTC (although only Polymarket US is subject to CFTC regulation).

“Legally, the CFTC has authority to restrict event contracts it finds contrary to the public interest, and it’s used that authority before on categories like assassination or terrorism-related contracts,” Ebersole explained.

However, even though these platforms are regulated, they’ve still allowed predictions about natural disasters — despite obvious ethical issues.

“Prediction markets shouldn’t allow people to bet on incidents that could lead to the loss of life or property,” Ann Skeet, Senior Director of Leadership Ethics at the Markkula Center for Applied Ethics, told Moneywise. “Monetizing human life devalues it and betting on harms to people or their property erodes a sense of community and caring for one’s neighbor that are hallmarks of the common good.”

Of course, you don’t have to be an ethics expert to know this. In fact, the LA Times reported that one Polymarket user responded to a thread discussing the wildfire bets commented: “That was fun. Thanks everyone.” Another commenter added, “This is deeply unethical.”

Betting on death and destruction isn’t just a moral issue either.

“A contract paying out on a wildfire pays someone for ignition,” Nick Rowles-Davies, a solicitor and CEO of Lexolent, told Moneywise.

Braden Perry, a former CFTC senior trial attorney and a regulatory and government investigations attorney at Kennyhertz Perry, LLC, explained that “if traders stand to profit from escalation or delay, that raises real moral hazard concerns.”

“Even the perception of that risk is corrosive when public safety and interests are involved,” he said.

Should regulators impose stricter rules?

Currently, the CFTC has regulations in place for prediction markets, including anti-manipulation measures, and a prohibition against contracts that are contrary to the public interest, such as those involving terrorism or assassination. However, the current rules likely don’t go far enough.

“Prediction markets are no longer a novelty, but a new form of derivatives market. And, as with emerging markets before, regulations lag behind innovation,” Perry told Moneywise.

Perry believes “contracts tied to wars and other conflicts expose how underdeveloped the jurisprudence really is,” while Ebersole said “markets tied to wildfires, natural disasters, or other tragedies could draw similar scrutiny [as those related to assassination or terrorism-related contracts], particularly if a contract structure looks like it’s incentivizing or rewarding harm rather than simply reflecting a forecast of an event nobody controls.”