The ‘Hair-Dryer Incident’ Is Just the Start - The Atlantic

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There are worse things you could do than drive to a Parisian airport and mess around with a temperature sensor on the airfield—for only a few minutes! But why do that at all?<br>To make money, maybe. This is the scheme that some mysterious person (or persons) reportedly carried out in April to win a bet on the prediction-market platform Polymarket, which allows people to wager on the highest temperature in Paris on any given day, not unlike weather derivatives. The popular version of the story says that the shadowy figure warmed the sensor with a hair dryer—a photo showing this turned out to be AI generated—but it could have been anything. A lighter, a hand warmer.<br>By artificially boosting the number on the sensor, this person won about $20,000. The French police are investigating because you can’t trespass at the airport or tamper with its equipment, but Polymarket apparently didn’t take the winnings back. (It did change the airport that it relies on for Paris-temperature readings; the French government, however, blocked access to the platform this week.)<br>Read: A technology for a low-trust society<br>Over the past couple of years, plenty of concern has been expressed about how prediction markets may enable—and create the incentive for—insider trading. Some of the many people who have wagered on markets corresponding to when a war would start, when a regime would change, or even who would be at Taylor Swift’s wedding may actually have known the outcome before it happened. “Mention markets,” which allow participants to bet on words that a public figure might use in a speech, or how long the speech will be, can obviously be gamed by people close to the figure in question—just last week, ABC News reported that a teleprompter operator at the White House has made more than $100,000 by using Kalshi to wager on President Trump’s speeches. (“The White House has strict ethics guidelines that we expect all staffers and officials to follow,” a White House spokesperson told the outlet, while confirming that the employee had been placed on leave.)<br>The issues with insider trading are clear: It’s illegal, for starters, and the platforms ban it, anyway. (Although insider trading also arguably serves the purpose of prediction markets, which is to channel the “wisdom of the crowd” to forecast the event most likely to happen.) People can also easily identify and avoid the markets most susceptible to it. But what about the hair-dryer sort of trading, when an apparent outsider changes the course of events to cash in on a given outcome? “I think of it as probably a bigger issue or problem than insider trading would be,” Vincent Grégoire, a professor of finance at HEC Montréal, told me. The Parisian-airport incident didn’t hurt anybody, but future ones might. (You can imagine a bunch of ways in which someone might create a dangerous situation while, for example, attempting to delay an airplane.)<br>Read: Insider trading is going to get people killed<br>Some experts call this type of fraud “manipulation of the physical world”—a riff on market manipulation. I asked others for catchier ideas. Joshua Mitts, a professor at Columbia Law School, wasn’t sure that manipulation was the right word, because it has a specific definition for financial markets, but he still kept saying it accidentally as we spoke. I agree that the term is a little lacking. Manipulating the physical world is what I do every moment of every day as I breathe and walk. I would call this type of fraud “outsider trading.”<br>Outsider trading is also against platform rules. Polymarket and Kalshi both prohibit any type of market manipulation. When I reached out to Polymarket to ask about what had happened in Paris, a spokesperson relayed a statement to me from Olivia Chalos, its deputy chief legal officer, who wrote that Polymarket “maintains monitoring, review, enforcement, and reporting processes to address potential violations.”<br>But it’s obviously a bit of a whack-a-mole situation. The U.S. Commodity Futures Trading Commission recently proposed more federal rules for prediction-market platforms to ease the problem. One of the big suggestions was to prohibit the listing of markets that would “create perverse financial incentives”—for instance, markets on wildfires or a market on whether a famous ape named Little Joe would escape from a zoo (for a second time). Polymarket includes a note on that market explaining which law a person would be breaking if they attempted to free the gorilla themselves, and that they could receive a life sentence in prison for doing so. That may have been the first time a prediction-market platform has featured such a warning, the Bloomberg columnist Matt Levine noted in a May newsletter, “but I have not done a comprehensive survey and I doubt it’ll be the last.”<br>The experts I spoke with said that the most appealing markets for this kind of trickery would rely on a...