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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

#71

Post by bs7280 »

JumpCrisscross wrote: post #39
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…

> it gives very powerful people a vehicle to make lobsided bets on outcomes they control I'm sceptical that prediction markets uniquely enable this. Like, if you want to bet on U.S. airstrikes in the short term, you could always buy oil options (or short exposed companies). If you're in for the long term, you're buying something that benefits from cheaper gas, e.g. an additives company.

You are not wrong, and I should clarify I also have a big problem with the current state of legal insider trading of elected officials, but this polymarket problem is much more extreme. You can get a guaranteed 100-1 payout by blowing up some random people on the other side of the planet. Way worse than making even 2-5x on a leveraged futures bet with insider info. In that example, the victim is usually just other rich people.

Re: The microstructure of wealth transfer in prediction markets

#72

Post by TZubiri »

Buttons840 wrote: post #38
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…

It's a national security issue too. Somebody poor grunt who chose to earn a living by laboring (which has proven to be much less effective than being born with money) will be putting fuel in the bombers and thinking "I could just make an anonymous bet..." It's a national security issue. We saw this with the Venezuela attack. A flurry of trading and someone made $400,000 for placing a bet mere hours before the "surpri…

I'd just like to make the distinction between:

1- Making a bet with privileged information. 2- Creating the event and making the bet.

2 would be a war crime, 1 would be a probabilistic leak.

Trump claimed they didn't want to pass through congress because they leak, and there were no leaks about the event. But if any personnel made a polymarket bet, that would constitute a leak. It wasn't acted upon, but if personnel continues to leak information in this manner, it is possible that an adversary will eventually listen to this signal, and that it was just ignored because it is too fresh.

This analysis would also make it clear why it would be immoral to participate in such markets as a civilian. Because if it is your country you might be compensating an insider for information, benefitting the enemy. And if you are not, you might be harming the enemy, but you would be an unlawful belligerent.

Re: The microstructure of wealth transfer in prediction markets

#73

Post by wyager »

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…

> Its the fact that it gives very powerful people a vehicle to make lobsided bets on outcomes they control.

OK, and? The market is just paying them to make information about their decisions public.

Re: The microstructure of wealth transfer in prediction markets

#74

Post by pawelduda »

__MatrixMan__ wrote: post #41

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 yo…

Why not just bet heavily against and then inform maintainers? By just betting on it instead it makes you look like you, or someone you know planted the malware

Re: The microstructure of wealth transfer in prediction markets

#75

Post by hardluck »

Majromax wrote: post #65
postflopclarity wrote: post #57

Earlier quoted context omitted.

on point 1, an important thing to know is that these markets have a non-linear fee structure where the rate is higher near 0.5 and lower near tail prices

True, but from the pdf it seems like the fee charged of market makers is 1.75¢ × P × (1-P) per contract. Near P=0 that's approximately 1.75% of the notional amount invested, but near P=1 that's approximately 1.75% of the potential gain. As I read it, the implication is that a market maker in the high-P regime needs to still have an expected edge of 1.75% to profit net of fees, which means that the 'maker return' tabl…

Fees are also waved if a market maker hits a certain monthly quota. With the recent adoption of “professional” market makers on the platform, I’m sure they can get around such fees.

I will also add to the 2nd point that some of these platforms due give fixed interest to positions in unresolved markets.

Re: The microstructure of wealth transfer in prediction markets

#76

Post by dv_dt »

ironbound wrote: post #63
Buttons840 wrote: post #38

Earlier quoted context omitted.

It's a national security issue too. Somebody poor grunt who chose to earn a living by laboring (which has proven to be much less effective than being born with money) will be putting fuel in the bombers and thinking "I could just make an anonymous bet..." It's a national security issue. We saw this with the Venezuela attack. A flurry of trading and someone made $400,000 for placing a bet mere hours before the "surpri…

Pizza orders are also an indicator https://en.wikipedia.org/wiki/Pentagon_pizza_theory

The irony that operational national security would be greatly improved if only they maintained a well staffed and resourced government kitchen for the Pentagon, but won't for many silly reasons. Oh no, lots of people would have to sit on idle standby many times, or gov't employees would get free meals.

Re: The microstructure of wealth transfer in prediction markets

#77

Post by cyberax »

jvanderbot wrote: post #51
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…

That's the actual point. Everyone else is there to make money gambling, but the whole premise is to incentivize people with secret information to share it anonymously with the public, and take a reward for doing it. All without traceability or secret drops or whatever. POSIWID

Without additional signals, you can just as well use it to manipulate markets.

E.g. there's a 1-to-1000 bet for $1m today on Trump falling down the staircase. So markets read this and go crazy, buying up the stock. The next day, nothing happens and the markets go down. But somebody could have made billions betting on that.

Re: The microstructure of wealth transfer in prediction markets

#78

Post by mhb »

Buttons840 wrote: post #38
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…

It's a national security issue too. Somebody poor grunt who chose to earn a living by laboring (which has proven to be much less effective than being born with money) will be putting fuel in the bombers and thinking "I could just make an anonymous bet..." It's a national security issue. We saw this with the Venezuela attack. A flurry of trading and someone made $400,000 for placing a bet mere hours before the "surpri…

Wouldn't the counterargument to this be that if the poor grunt is willing to betray his country for money in the prediction market, he would also be willing to take money from enemy x to do the same thing?

With the prediction market, there is a financial incentive for people on the opposite side of the bet being motivated to uncover the malfeasance.

Re: The microstructure of wealth transfer in prediction markets

#79

Post by joelthelion »

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…

A lot of these issues mostly disappear if you use play money.

It turns out that play money prediction markets are just as good as the real money ones.

Re: The microstructure of wealth transfer in prediction markets

#80

Post by bs7280 »

roflyear wrote: post #37
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…

well, at least for really odd ones - like the china example - the liquidity is (probably) going to be really low. you need people buying both sides to make money. But for big events/talked about stuff/etc ofc this is not true.

Again - Its not the money I care about, its what people are willing to do to make it.
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