alt Hacker NewsIt barely makes sense, though? The idea is that it will surface insider information to the public. That happens only because the insider is financially incentivized to place a bet. But they will only bet if they can win money, and they can only win money if someone is taking the other side of their bet, which necessarily means someone without their insider information.
In other words, prediction markets require suckers to lose money to insiders in order for the public to learn new information. In this case, people lost over a million dollars to an insider so the public could learn that "d4vd" was searched a lot.
Is this good?
Replies
People with insider information often aren't necessarily aware they even have it. "Superforecasters" are often just "good at predicting" moves within a given vertical, because they have expertise and exposure to the trends of that vertical, and are good at making deductions and extrapolating trends. Those people make money from prediction markets just as often as people with true insider info do.
And the people they're both making money from, are people who think they have enough expertise + exposure to function as superforecasters — and who probably could function as superforecasters, in a market with fewer "sharks" in the pool — but who lose out simply because they were slightly less well-calibrated than whoever they were trading with.
Which is to say: prediction markets can still work and be worthwhile to participate in, even if everyone in them is rational. They don't require suckers.
But, in practice, they certainly do seem to attract them.
And the natural end point of this logic is called the lemon problem.
It's been written about extensively and is in every undergraduate economics course.
How have dots not been connected?
> Is this good?
it is good if the losers are voluntarily participating. They are not coerced (stupidity is not coercion) into it, and therefore, it is reasonable that they expected to win the bet.
The only problem i have with polymarket (and others like it) are that insiders can often remain anonymous. It should not, and if an insider earns, but their win requires they remain anonymous or face some social/reputational repercussions, then that should happen.
Therefore, as long as KYC is enforced for these markets, i would have zero issues with their existence.
Yep. It’s basically how Wall Street functioned before regulations showed up to protect the public.
Disclaimer: I have not read any literature on the economics of prediction markets, and I know nothing about the mechanics of Polymarket/Kalshi.
I would imagine that in theory, everyone thinks they have the best information at the time, something like:
House: "Odds that X happens? We'll put $1 on both sides to get it started. 50/50."
Someone comes along: "Oh dang, I'm definitely more than 50% confident that X is happening. Let me put $1 in." Now it's 67:33.
Someone else comes along: "Oh I'm more than 67% confident X is happening, let me put $1 in." Now it's 75:25.
And of course, you get people going: "I'm more than 25% confident that X is _not_ happening, let me put $1 in!" And now it's 60:40.
The murky part, I would imagine, comes when the odds and the payout actually act as something that influences the outcome, but in perfect theory-land, if everything goes as planned, this should move the odds to the most informationally-accurate measurement, which should, in theory, benefit observers by making this measurement public.