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Prediction markets have an elections problem

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Re: Prediction markets have an elections problem

#81

Post by blitzar »

neilkk wrote: post #77
eli wrote: post #58

Earlier quoted context omitted.

But those things at least partly explain the apparent irrationality. PredictIt charges 10% fee on profits and another 5% fee on withdrawals. So bets that have the potential to earn a few cents on the dollar aren't necessarily worth it. That's before considering how long you have to lock up your money in this contract.

The implied probability of Brexit a few days before was around 25%. The implied probability of Trump beating Clinton a few days before was around 20%. Neither the time value of money nor the cost of trading explain these dislocations.

> The implied probability of Brexit a few days before was around 25%.

It was one of the 25 days out of 100 not one of the 75 days out of 100.

> these dislocations

The market puts the chance of flipping a coin and getting heads at 50%, when it comes up tails it doesn't mean that the market was irrationally pricing heads.

Re: Prediction markets have an elections problem

#82

Post by Aurornis »

alphazard wrote: post #23

It seems like there is a lot of resistance to these kinds of markets. Both in terms of bureaucratic restrictions, but also in terms of sentiment, including here on HN. It's not that people disagree with the market clearing price, and are motivated to take a position. It's that they don't want other people to converge on a prediction in this way, and want to ban it, or keep the stakes so small that the market doesn't…

> It's that they don't want other people to converge on a prediction in this way, and want to ban it, or keep the stakes so small that the market doesn't attract real expertise.

Do you have an example? I haven't seen this sentiment anywhere, including HN.

I haven't actually seen much resistance to the existence of prediction markets. HN leans heavily toward freedom and letting consenting adults do what they want with their money on the internet.

The majority of negative sentiment I see is against the obsession with prediction markets in certain circles (rationalist community, for example). Parts of the rationalist community speak about prediction markets as a solution for everything.

Re: Prediction markets have an elections problem

#83

Post by bitshiftfaced »

I'm not surprised that PredictIt performed so poorly. They take 10% of your profit, so you need a large margin of expected value to justify getting in and correcting a mispriced question.

To my knowledge, these markets are deliberately restricted. If you allowed unlimited betting, then experts would come in and eat these uninformed bettor's lunches. Except if you allowed that, then you face an ethical problem. You'd be providing a way for people to profit from influencing outcomes (e.g. questions that could resolve based on someone's death).

Re: Prediction markets have an elections problem

#85

Post by chadash »

mike_d wrote: post #74
j_maffe wrote: post #53

Earlier quoted context omitted.

The article shows that the average predicted likelihood is frequently illogical. That is not zero-information.

> average predicted likelihood is frequently illogical What is being pointed out is that is not illogical when you fully understand it. I will let you bet me that Taylor Swift is not the current president of the United States. For every $1 you bet, I will return $1.05 to you*. You can bet as much as you like and as often as you want - my email address is in my profile. * 10% transaction fee applies

I’ll offer the same bet but no transaction fee. But it pays out on Jan 1, 2028

Re: Prediction markets have an elections problem

#86

Post by AlbertCory »

> We know that this tidal wave of money is dumb money because we can see intense tribal behavior on these sites and research tells us that the more one identifies with a “team,” the worse one’s predictions for that team are. People will bet for candidates and parties not because they have an evidence-based analysis supporting their bet, but as an expression of identity.

This first sentence is completely unsupported. How do you know that the volume of comments tells you the amount of money bet?

Actually, sports betting does have a fan bias. I doubt many 49'er fans are going to bet on the Chiefs in the Super Bowl. It could well be that prediction markets give the wrong answer, but I'll still give them as much weight as FiveThirtyEight. Or more. FiveThirtyEight is hardly non-ideological, cold-eyed realism.

It's also true that smart money is not feasting on the dumb money, as a market really needs. The low volume and high costs of betting do make prediction markets less than perfect.

Re: Prediction markets have an elections problem

#87

Post by hackerlight »

fulladder wrote: post #35

The author does not understand bid-ask spreads, does not understand distortions created by fees, does not understand that the last trade price is not the same as what you can get at present, and just generally does not understand the realities of trading in markets. This article is a zero-information void.

Also isn't there a small bet size limit on predictit? That would screw up price discovery because a single informed trader can't correct any inefficiencies.

Re: Prediction markets have an elections problem

#88

Post by willmadden »

rspeele wrote: post #45
alphazard wrote: post #23

It seems like there is a lot of resistance to these kinds of markets. Both in terms of bureaucratic restrictions, but also in terms of sentiment, including here on HN. It's not that people disagree with the market clearing price, and are motivated to take a position. It's that they don't want other people to converge on a prediction in this way, and want to ban it, or keep the stakes so small that the market doesn't…

Another reason to keep the stakes small is to avoid problems like the assassination market[0]. I'd rather have podunk, inaccurate prediction markets like PredictIt than one which amounts to putting massive bounties on public figures. Or incentivizing public figures to do their job badly like make a surprise change in their vote on an important bill, just to win a longshot bet. PredictIt even used to have markets on,…

I would be a-ok making bets related to peoples' life expectancy illegal. There's no societal good from such a bet, and a lot of potential harm.

Re: Prediction markets have an elections problem

#89

Post by blitzar »

mattmaroon wrote: post #67

I am a former professional gambler and now I don’t gamble much, because I have neither the time nor interest to find good wagers, but what I do is on predictit. Being a great gambler mostly means not gambling until you have an edge, and what he says about and market being less accurate than 538 is true in my experience. I’ve been betting on there every couple years for maybe ten or so, it’s held up well. As many ment…

> I managed to get to bet on something that had already happened.

In less liquid in play sports betting exchanges have this happen all the time - generally you are getting $1 for every $1000 wagered and settlement will take anywhere from minutes to days depending upon the event.

Re: Prediction markets have an elections problem

#90

Post by n2d4 »

neilkk wrote: post #77
eli wrote: post #58

Earlier quoted context omitted.

But those things at least partly explain the apparent irrationality. PredictIt charges 10% fee on profits and another 5% fee on withdrawals. So bets that have the potential to earn a few cents on the dollar aren't necessarily worth it. That's before considering how long you have to lock up your money in this contract.

The implied probability of Brexit a few days before was around 25%. The implied probability of Trump beating Clinton a few days before was around 20%. Neither the time value of money nor the cost of trading explain these dislocations.

If anything then that means that they work! Situations with a 25% chance do occur sometimes! If prediction markets show 75% odds and are right 3/4 times, they are doing their job well - if they show 75% odds and right 4/4 times, they are doing their job badly!

Meanwhile, both polls and analysts got those elections completely wrong, much more so than prediction markets. (IIRC, 538 was the only outlet that gave Trump a >20% chance to win, and they got a lot of bad words for their prediction pre-election.)

Unfortunately, people keep falling for this. You can always cherrypick elections from 7 years ago as "evidence" against prediction markets, but if you look at the bigger picture, you will see that they get a vast majority of elections right. But when they don't, even just once in a decade, they get all the blame.

There's plenty of research on this: https://researchdmr.com/RothschildPOQ2009.pdf

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