TO MY LIMITED PARTNERS —
Dajah is my 7¢ rebate, and I intend to keep every cent of her ruin. She is 24, works at a dialysis clinic on St. Clair for $13.40 an hour, and has deposited $4,200 with the prediction exchange I own since March 9; $387 remains. Ryan Bourne’s linked National Review piece argues that prediction markets do more than gamble, using Rizzo’s, a 20,000-square-foot bar across from Wrigley Field, and its bet that the Cubs would host fewer than 2 home playoff games. He is right about the bar. The New York attorney general missed the point. You are the other side of the trade. I keep the spread, the fee, the float, and the rebate. God keep the Q3 number clean and bless the derivative.
Dajah downloaded the app after TikTok promised her $200 a day on sports halftime spreads. The $13.40 job did not fit that forecast. I pay her 7¢ a contract for liquidity she has not been told is a loss. I also keep the exchange fee, the spread, 48 hours of segregated cash at JPMorgan before settlement, and the 7% rebalancing fee buried in a schedule she has never read. Her risk team flags the closed-out position every Sunday.
The 7¢ is hers.
The $4,200 is mine.
I appreciate your business.
My exchange is a CFTC-designated contract market licensed in 2024. We list 4,200 event contracts a day and count 1.4 million recreationals. The 41% of the book marked high-frequency, low-balance, recreational is what my risk team calls the segment. Pew’s figure is blunter: 78% of Kalshi’s July 2026 volume was sports. Half a dozen bars, hotels, and brokers made the same hedge Bourne describes. The bar gets the headline. The retail counterparty gets the loss. I sit in the middle.
The other counterparty is usually someone like Dajah: 24, sitting in Cleveland, Phoenix, or Tampa, taught by YouTube that expected value was on her side.
Read the next line twice. Dajah’s segment is 94% net negative at 90 days. The rebate has cost me $2,370 over 6 months against $4,200 deposited and $1,830 withdrawn. I pay her to keep trading. The 7¢ is the cost of her ruin, correctly priced. I pay her to lose slowly enough to remain liquid. This is what the platform learned from the casino: keep the leisure flowing and leave the extraction to the statement.
That is the retail side.
Lynette is the exposure.
Lynette is a hand in the commercial laundry I own outside Memphis, Tennessee. She is 51. For 14 years, she has pressed the sheets on the bed you slept in last Tuesday at a chain hotel whose name has been on my invoice since before you booked the room. The perchloroethylene in the air she breathes for 8 hours a shift gives her headaches in year 3 and a diagnosis in year 9. I don’t measure either. I’ve priced both. I’ve insured both.
The convention speaker who slept in her sheets last week would call the headache an inconvenience. I call it a depreciation schedule. Keep both names for the same thing.
I hold positions on Polymarket and Kalshi. The premium comes from the $0.27 a pound I keep by not installing the $84,000 ventilation the building code suggested and the OSHA inspector never required.
The position is filed. The clerk doesn’t name her. The contract is for a worker in NAICS 8123. It pays $14,500 on a confirmed PCE-linked diagnosis. The premium is $0.04 a shift. I have one on every Lynette I’ve ever had. The platform doesn’t require disclosure. The Tennessee Department of Labor doesn’t ask.
Her medical insurance is paid by Tennessee. Her workers’ compensation carrier is one I chose. Her diagnosis, when it comes, will be paid by a market on which I hold the position.
The federal willful-violation ceiling is $165,514 per violation. I don’t argue with the number.
I argue with 0.4%.
My model puts the annual probability of an inspection in laundry and dry cleaning at 0.4%, making compliance 12.3 times the expected penalty. One ventilation unit costs $84,000. Across the plant, the ventilation is $924,000.
The 11 Lynettes I cycled through the line in 11 years cost me $52,800 in separation pay and 99 days of training.
I keep the $871,200.
I keep the air.
I keep the $0.27 a pound.
The sheets on the bed you slept in last Tuesday are still $0.27 a pound cheaper than they would be if I had to ventilate. You’re welcome.
Outside the laundry, the chemistry rotates. The platform does not.
Emmitt is a plater on the chrome line at the finishing shop I own outside Meadville, Pennsylvania. He is 34. The hexavalent chromium in the mist he breathes gives him a cough in year 7 and a lung-cancer diagnosis in year 17. I’ve priced that one too. The premium is $0.07 a shift. The payout is $26,400. I have a position on every Emmitt. The clerk who files his workers’ compensation paperwork also files the prediction-market side.
Same clerk.
I didn’t build it on purpose. The platform is simply well-built.
Marisela is the next line on the same form. She works a different organ, in a different state, under the same arithmetic. She is 39. She works on the flavoring line at the compounding facility I own outside Marshall, Illinois. The diacetyl in the vapor she breathes gives her a cough in year 3 and bronchiolitis obliterans in year 8. They named the disease after popcorn. The premium is $0.05 a shift. The payout is $19,200. I have a position on every Marisela.
2 women and a man. Three diagnoses the OSHA inspector will never reconcile. Three predictions the market prices to the tenth of a cent.
I don’t call that a system because the word suggests I built it on purpose.
The platforms made it cheap.
Step out of the floors and look at the shape of the thing. This market is not new. It is the oldest insurance market in the United States wearing this decade’s vocabulary. Aetna Insurance Company sold life-insurance policies on enslaved people in the 1850s. It paid the death benefit to the master. The body was the insured item. The master was the beneficiary. The premium was calibrated to the enslaved person’s age and health.
Aetna settled the class action in 2000 and issued a public apology.
I’ve read the apology. It’s well-written.
It doesn’t change the math.
The exchange is an enclosure. The first enclosure was the common field; the second was the company town; the third was the payday lender; the fourth was the rent-to-own store; the fifth is the app. Ned Cobb walked the same arithmetic in 1930s Hale County. The requisites were the same. The platform added a screen, a rebate, and a CFTC license. The 7¢ is the new scrip. The exchange is the new commissary.
The bar pays me to insure its October.
Dajah pays me to insure hers.
The product is the same.
The product has always been the same.
The text anticipated the harsh master 3,400 years ago, and what the text did with the anticipation is what the text does:
And if a man smite his servant, or his maid, with a rod, and he die under his hand; he shall be surely punished. Notwithstanding, if he continue a day or two, he shall not be punished: for he is his money.
— Exodus 21:20–21
Scripture distinguishes death from discipline. The retail counterparty who loses her account in a day or 2 is not dead. She is the rod’s correction. Her money is the lesson. The CFTC made the same distinction in 2024 when it declined to require loss limits on event contracts.
I find it a reasonable exegesis.
I haven’t smitten Lynette with a rod. I’ve declined to ventilate.
The distinction is chemical, not scriptural.
I have taught this arithmetic for 30 years, which is why I hold the Hayek-Friedman Chair and serve as Dean of Instruction at Warden University’s College of Business and Economics in Richmond. The syllabus runs from Divine Mandates for Labor Utilization through Social Obligations for Profit Maximization to Calibrated Deprivation: A Manager’s Guide to Employee Motivation.
Rehan sat in my seminar at Warden in 2022. Quiet second-row type. He now runs latency arbitrage on the prop desk. He prices the 7¢ rebate. He told me in March that the retail segment’s elasticity is roughly 0.3: a 10% increase in the rebate draws an 8% increase in turnover over 30 days, and the segment remains 94% net negative at the 90-day mark.
He is better at this than I am.
He beat my price on 3 positions last quarter. I’m proud of him, as a teacher is when a student stops needing the lesson. Take the warmth for what it is. The line runs whether you learn it or not.
One of the 3 co-authors of Volume II of my textbook is now at the carrier desk. He has a name. I haven’t asked what it is. A former student is at the brokerage between me and the platform. I haven’t asked which one.
The man who priced Dajah’s rebate was quoting me without knowing it.
I wrote the chapter.
He runs the line.
The class is in session.
The model requires the workforce to be infinite in a statistical sense, so replacement cost remains low and the hedging premium remains payable. It also requires the wage to remain low, so the next Lynette does not cost more than the payout. Nobody asks whether those 2 requirements remain compatible over a 30-year horizon.
Rizzo’s hedge is paid by Dajah. Rizzo’s customers are the Dajahs of the North Side, people with $13.40 an hour to spend on a playoff game. The platform that insures the bar taxes the bar’s customer.
Every account I burn is liquidity I may need next quarter.
I did not run that subtraction.
The laundry’s quarterly margin was 14.2%. The premium was reasonable. Q3 is the best I have posted. The Q4 forecast remains closed. The second row can handle it.
The class is dismissed.
Lynette doesn’t know she is a position. Dajah doesn’t know the 7¢ is a toll on her own ruin. The clerks don’t tell them. The platform doesn’t require disclosure.
The premium is $0.04.
The payout is $14,500.
The replacement cost is $0.
The position is filed.
The contract is in the drawer.
The 7¢ is the only number that has to be correct.
Sterling A. Varice holds the Hayek-Friedman Chair and serves as Dean of Instruction at Warden University’s College of Business and Economics in Richmond, Virginia. He is the author of three textbooks: Divine Mandates for Labor Utilization, Social Obligations for Profit Maximization, and Calibrated Deprivation: A Manager’s Guide to Employee Motivation.