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Prediction markets have an elections problem

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Re: Prediction markets have an elections problem

#91

Post by bitshiftfaced »

cyberax wrote: post #19

Prediction markets are stupid, fundamentally. If you have some deep subject knowledge to make a prediction, your bet will be drowned by others. Sure, you can make a buck from your prediction, but you won't get instantly rich, and you won't be able to make these kinds of bets consistently.

Hypothetically someone who was confident they had better knowledge would be willing to invest more in their prediction. Those who were right about that would have more money to invest on the next iteration, which would amplify this effect over time.

Realistically, to my knowledge, this isn't really possible on current platforms since they have built in limitations and fees.

Re: Prediction markets have an elections problem

#92

Post by nl »

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 Trump beating Clinton a few days before was around 20%.

Unclear if you think this is incorrect?

Obviously it happened, but most reasonable prediction methodologies put it between 20 and 30%. Notably 538 and Superforecasters (via The Good Judgement Project at the time) both had it in that range (as did prediction markets). There were some outliers - in particular some newspaper(?) had a statistical methodology that gave Clinton a 95%+ chance. In a two horse race that is obviously wrong!

I was working in the forecasting field at the time, and that seemed about right. It was an unlikely but not impossible outcome.

Re: Prediction markets have an elections problem

#93

Post by renewiltord »

PredictIt and friends were fun when:

- money was cheap (low interest rates)

- bets were short-term

Otherwise, the profit-share demolished gains as a de-facto trading fee. Plus you could only make money on a few hundred at a time. I did some of the cheap bets that were mispriced but also some more obvious ones. A few multiples on the money, but it was too unwieldy to play it. The politics ones are easy. People like to bet on the outcome they'd like to occur rather than the one they think will occur.

I understand, though. I find it hard to bet against Arsenal. Just seems like a miserable way to live.

Re: Prediction markets have an elections problem

#94

Post by anonymouskimmer »

chadash wrote: post #85
mike_d wrote: post #74

Earlier quoted context omitted.

> 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

That's a really good loan rate.

Re: Prediction markets have an elections problem

#95

Post by alphazard »

Aurornis wrote: post #82
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…

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

Do a Cmd+F for "stupid" on this very post. It may not be the prevailing sentiment, but it certainly occurs here. Maybe just a very vocal minority.

Predict it has something like an $800 maximum. That's simply too small to get a PhD to quit his day job and start trading on prediction markets for a living. Until the market capitalization can attract experts, it will not reflect the opinions of experts. This seems to be a bureaucratic restriction. Why aren't the big exchanges creating order books for these markets?

Re: Prediction markets have an elections problem

#96

Post by dataflow »

teraflop wrote: post #54
Powdering7082 wrote: post #29

I made pretty good returns (e.g. 40% annualized) during the 2020 election on predictit. I even found a pure arbitrage opportunity. But you can't really scale up to make it worthwhile on PredictIt due to bet size limitations.

The one and only time I traded on PredictIt, around the beginning of the pandemic, I made an easy couple hundred bucks on this market: https://www.predictit.org/markets/detail/4683 The majority of traders seemingly looked at the headline and failed to understand the contract terms, which only required a "quarterly annualized" GDP growth of 5%, during at least one quarter of 2020. So a severe economic downturn in Q2,…

> The majority of traders seemingly looked at the headline and failed to understand the contract term

Nice way to blame the masses. Seems to me more like the terms contradicted the headline, thus making this a mechanism for exploiting people who assume they're making an honest bet. Seems like fraud, honestly.

Re: Prediction markets have an elections problem

#97

Post by i_have_an_idea »

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.

His entire argument is that market odds don't match up with his "common sense".

Re: Prediction markets have an elections problem

#99

Post by nemomarx »

willmadden wrote: post #88
rspeele wrote: post #45

Earlier quoted context omitted.

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.

Aren't tontines already illegal? Is a bet on other people's deaths structurally very different than those?

Re: Prediction markets have an elections problem

#100

Post by kibwen »

A predictions market is one of those things that sounds fine on paper and works terribly in practice. The crucial failure is the inability to separate the incentives created by the prediction from the event being predicted. The tail ends up wagging the dog.

So despite the "advocates claim that by providing a marketplace for bets on uncertain events, prediction markets give predictors a financial incentive to be correct", what happens is that prediction markets give predictors a financial incentive to make it be correct, which leads to all sorts of shenanigans in practice. Look at the stock market, which largely is a predictions market, and look at how much regulatory machinery is needed to dissuade obvious scams like insider trading and pump & dumps. And even then, the stock market is highly irrational precisely because of the financial incentive; look at how many years it's taken the GME fiasco to shake out and how many true believers are not merely still holding the bag, but buying up as many bags as they can.

The ultimate example that I always trot out is that a predictions market on the topic of "will $PROMINENT_POLITICIAN be dead by $DATE" is just a distributed assassination contract (to be fair, it's also a distributed bodyguard contract...). Welcome to the free market, I hope your friends are richer than your enemies!

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