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The microstructure of wealth transfer in prediction markets

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Re: The microstructure of wealth transfer in prediction markets

#41

Post by __MatrixMan__ »

I hope we manage to leverage prediction markets to actually achieve goals rather than just making a casino out of it.

For instance, if you spot malware in a commit you could bet heavily against it being merged, and that would attract the maintainers' attention, and they'll see what you see and not merge it, and you get paid for the code review--that money would come from whoever bet that it would get merged, which you could require be the author of the malware. I haven't worked it out entirely but it seems that there are opportunities to build games that reward dilligence and transparency and penalize deception and spam.

Re: The microstructure of wealth transfer in prediction markets

#42

Post by pixl97 »

yieldcrv wrote: post #26

To me this is all the more reason to get regulatory gatekeeping out of the financial markets If the odds in some financial products are worse than gambling while everyone can access gambling, then people should stop making a distinction under the guise of protecting investors it just drives investors to actual gambling because they cant get the exposure they were already looking for

I'm all for banning gambling too.

Re: The microstructure of wealth transfer in prediction markets

#43

Post by caconym_ »

bs7280 wrote: post #33

I mentioned this on a different post - the biggest problem with prediction markets is not the gambling or dumb people losing money. Its the fact that it gives very powerful people a vehicle to make lobsided bets on outcomes they control. A small example of this would be NFL / NBA Refs fixing playoff games with a bad call or two. This actually happened 20 years ago, an NBA ref went to prison over being bribed just $20…

> the biggest problem with prediction markets is not the gambling or dumb people losing money. Its the fact that it gives very powerful people a vehicle to make lobsided bets on outcomes they control

This is quickly becoming the point of them, at least insofar as they are enjoying an extremely favorable regulatory environment courtesy of the Trump crew.

Re: The microstructure of wealth transfer in prediction markets

#44

Post by sambaumann »

LeifCarrotson wrote: post #6

I'm a little confused by the "Yes" versus "No" asymmetry. For example, one of the top trending ~~bets~~ markets right now is on whether Miami or Indiana will win the NCAA football championship tonight. You can either take "Yes" on Indiana at 74c, or "No" at 27c, or you can take "Yes" on Miami at 27c or "No" at 74c. Or, there's another potential outcome - you can also bet on a tie at 10c yes/91c no. Is this research s…

10c yes seems really high for a tie. NCAA rules don't allow for ties in football. I know prediction markets have very long shot bets but I would expect that to be closer to 1c

Edit: it looks like the tie market is only for if the game is tied at halftime, which makes much more sense

Re: The microstructure of wealth transfer in prediction markets

#45

Post by jonbecker »

kwar13 wrote: post #14

This article lacks even the most basic understanding of probability and statistics. Slot machines "93 cents on the dollar" return is a statistical certainty of 7% loss. You are playing a repeated game which by the law of large numbers will converge to the 93% probability. In prediction markets if the markets are fully efficiently priced, in the absence of transaction costs you WILL get 100% back in the long run. Slot…

i understand how probability works. the "93 cents" vs "43 cents" comparison is looking at realized historical data, not theoretical odds. if the markets were efficiently priced, you would get 100% back. the entire point of the paper is showing that, historically, they aren't efficiently priced (longshots return ~43%), and explaining who captures that inefficiency.

Re: The microstructure of wealth transfer in prediction markets

#46

Post by tptacek »

bs7280 wrote: post #33

I mentioned this on a different post - the biggest problem with prediction markets is not the gambling or dumb people losing money. Its the fact that it gives very powerful people a vehicle to make lobsided bets on outcomes they control. A small example of this would be NFL / NBA Refs fixing playoff games with a bad call or two. This actually happened 20 years ago, an NBA ref went to prison over being bribed just $20…

This gets into a philosophical point about what a prediction market actually is. If it's a device for anonymously aggregating fragmented group information into a coherent accurate prediction, the lopsided bets are a feature; the only point of the market is the price signal, and the lopsided bets true up the price.

But most of us understand that prediction markets aren't that, no matter what Robin Hansen said when he was helping invent the modern incarnation of things like Polymarket and Kalshi. They're gambling venues, and we have "Nevada Gaming Commission"-style concerns about fairness. To me, the next logical step is to say that they should be heavily regulated, but in the era of DraftKings, that seems off the table.

Re: The microstructure of wealth transfer in prediction markets

#47

Post by LeifCarrotson »

renewiltord wrote: post #22
simonw wrote: post #20

I'm getting some really skeezy ads for prediction markets on TikTok at the moment, the message is effectively "hey, are you broke? earn $50+/day on Kalshi!"

The Polymarket twitter accounts are massive ragebaiters. This is sports betting with some two minutes hate added in. I have to say I was this huge fan of the idea and I didn’t anticipate it would happen like this.

I have occasionally tried checking Polymarket and Kalshi to get an idea of the general political/cultural/technological consensus on various issues that are difficult to research otherwise, eg. "what are the chances that the Senate changes hands in the 2026 midterms?" People have thought about it enough to wager a million dollars and the consensus is at about 1/3. I have this abstract prediction market in my head, each bet placed by some statistically average person with diverse experiences and exposures from my own bubble, who carefully considers their information and puts their two cents into the pot, and I assume that by adding all our ideas together we form some sort of combined intelligence which is more insightful and reliable together than any individual pundit could be.

And then I go back to the home page, and see all the rabid sports fans, and realize that these bets are not being placed by deep thinkers.

Re: The microstructure of wealth transfer in prediction markets

#48

Post by jpmattia »

Something that appears to be missing: Certain events attract "advertising" types of bets. E.g. There is value in making a candidate appear to be a leader, so dedicating dollars to swinging the market is more of a form of advertising than an intelligent bet.

So it would be interesting to measure the inefficiencies of various bets vs the total market value in that bet.

e: Although full disclosure, I did not pick apart the entire paper. Maybe it's buried in there.

Re: The microstructure of wealth transfer in prediction markets

#49

Post by dpc050505 »

kibwen wrote: post #19
kwar13 wrote: post #14

This article lacks even the most basic understanding of probability and statistics. Slot machines "93 cents on the dollar" return is a statistical certainty of 7% loss. You are playing a repeated game which by the law of large numbers will converge to the 93% probability. In prediction markets if the markets are fully efficiently priced, in the absence of transaction costs you WILL get 100% back in the long run. Slot…

> In prediction markets if the markets are fully efficiently priced, in the absence of transaction costs you WILL get 100% back in the long run. This is basically equivalent to the observation that, in a perfectly efficient market, no entity can ever make a profit. And yet, in the real world, entities make profits all the time. In fact, they make wild, unimaginable, world-changing, history-altering profits. This is a…

Free markets aren't even an exception. They're an abstract construction that exists to make economic analysis scientific by removing all confounding variables from the equation. I'd be extremely surprised to find one example where the conditions required of a free market truly existed.

If people knew more about economics than just whatever is being parroted as 'economics' in mainstream media they would know that there's a variety of types of markets that happen in the real world and none of them are the abstraction of a free market that allows econ 201 students to compare what happens when you introduce trade between a country that produces 4 apples for 3$ each and a country that produces 5 oranges for 4$ each.

Re: The microstructure of wealth transfer in prediction markets

#50

Post by qznc »

bs7280 wrote: post #33

I mentioned this on a different post - the biggest problem with prediction markets is not the gambling or dumb people losing money. Its the fact that it gives very powerful people a vehicle to make lobsided bets on outcomes they control. A small example of this would be NFL / NBA Refs fixing playoff games with a bad call or two. This actually happened 20 years ago, an NBA ref went to prison over being bribed just $20…

Why isn’t political gambling in the UK a problem then?
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