You forget that people are not necessarily doing this for rational reasons.
Some people do it for for entertainment, some people are gambling addicts, some people think they have a strong grasp or inside knowledge when they don't.
It is, at root, a casino. Apply your lens to any casino game, and it shouldn't exist (some very narrow exceptions apply in the casino).
It is not a casino in the sense that in the casino you are better against the house. Polymarket is basically an arbiter with financial infrastructure.