alt Hacker NewsThe price movement is the indicator that there is insider information.
Of course there are lots of problems with this theory - in large markets a single trader has to make large bets to move the market, and with the current leadership the price moves large amounts unpredictably as well based on the latest statements.
But the mechanism itself makes sense.
It's unclear if that's a good thing. Of course some people know secret information before hand. Is disclosing that always good?
Replies
Another problem is, people may actually want to bet on random outcomes, because of money laundering or simply because this is how gambling essentially works. That huge account could be an insider or a billionaire with a few hundreds k to burn. Or maybe they want to orient people’s opinions towards a certain outcome.
Claiming that price movement in a prediction market reveals some amount of truth implicitly assumes that:
- people bet on something they believe to be true, and not to sway other people’s opinions or simply to burn money,
- people bet on something they believe to be true because they have specific private information (e.g. I bet on the Red Sox not because I think they’re good but because I know things other don’t about their opponents, their physical conditions and so on).
- their belief is actually correct (eg if I’m in the CIA and I know that the Soviets are about to launch a nuclear missile I can bet on it… but I don’t know that an officer down the line will refuse to do that).
Even if this was true, there is an issue of timing and consequences. Example: imagine it’s 2011 and some CIA or DoD officer makes huge, sudden bets on the fact that Bin Laden will be caught. Some AQ people get wind of this and move Bin Laden somewhere else. Congrats, your price movement signaled non public information to the market!
Another issue is that these bets tend to rely on public sources, news reports and so on. A journalist in Israel was threatened to change his news reports so that certain people didn’t have to lose on a prediction market. This could become more and more common, and with the advent of AI generated pictures who are you going to believe? Are you losing money because you bet on the wrong outcome or simply because someone with enough resources ensured that your outcome was never going to be reported?
“indicator that there is insider information.”
But that’s not the claim people bandy about on the gambling markets.
They claim it incentives sharing of info, but what you’re saying is it’s only sharing meta info. That the info remains secret and the wagers reveal that it’s possible insider info exists - not what the info is.
Honestly, this has all the same smell as NFT justifications. I’d be suprised if the main touts of prediction markets weren’t previously touting NFTs and “smart” contracts. Actually, it even seems like the markets are inspired by those.