The microstructure of wealth transfer in prediction markets • Hacker News Board

Re: The microstructure of wealth transfer in prediction markets

#121

Post by yieldcrv » Tue, Jan 20, 2026, 12:13 AM UTC

SpicyLemonZest wrote: post #40

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

You're misunderstanding the dynamics here. Modern prediction markets are 90% sports gambling by volume. The trick is that, by positioning themselves as general financial markets and accepting the corresponding regulatory gatekeeping, they're exempt from the often much stricter regulations that states put on normal sports gambling apps.

My stance has been the same long before prediction markets, long before sports gambling moved to prediction markets, and the landscape has been the same the whole time

The states regulate gambling and the feds only protect the state's rackets by restricting online gambling, and the feds regulate financial markets that are not considered gambling, we get it, its two different governments that don't see the silly user experience they've created and are both very passionate about what they do. The people regulating the financial markets think they are doing a noble good by protecting people from losing their money, and now, fast forward to the present, neither are the regulators of sports betting

I didn't write this about sports gambling or event markets and I don't care about that particular subset. There are many many many markets and financial products either accessible or not, in this paradigm

The user experience is stupid when the dumbest trades are still available after the investor has been protected

The capital wants to move so let it move

The regulators should continue mandating transparency and keeping markets operating predictably, but they need to get out the way of approval or denials of financial products or access to them, because its redundant and silly

Re: The microstructure of wealth transfer in prediction markets

#122

Post by adrianwaj » Tue, Jan 20, 2026, 3:18 AM UTC

joelthelion wrote: post #79

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.

Perhaps a bet should convert into play money if the stakes get too high and the temptation for "induced manipulation" is deemed too strong. The issue is how high is too high?

Imagine a jury or judge start betting on their own cases? $500 might not sway them, but $200,000 bets coming in from villain/victims' relatives might and they thereafter decide to enter the market and also influence (or force) a legal outcome. So it can be used as a stealth form of bribery if external parties seek to make it profitable for insiders to effectuate an outcome. So at what point should the bet switch over to play money?

And what happens if all that play money can one day be redeemed into a new coin?

So with the rise of prediction markets one can predict a subsequent rise in surveillance. Can you even flag a bet on PolyMarket?

"Khamenei out as Supreme Leader of Iran by March 31?" https://polymarket.com/event/khamenei-out-as-supreme-leader-...

There's almost $7m in volume there. But what if multiple Israel-aligned groups coughed up say $250m and bet "no" then that's like a bounty, right, for someone in Iran to effectuate a yes on the ground? Khamenei himself could step down too after involving himself in the bet and then use the proceeds to ensure his ongoing protection. I don't know. PolyMarket or PolyPay?

Re: The microstructure of wealth transfer in prediction markets

#123

Post by fc417fc802 » Tue, Jan 20, 2026, 4:35 AM UTC

__MatrixMan__ wrote: post #98

OtherShrezzing wrote: post #94

Earlier quoted context omitted.

It’s not clear to me how you’d get anyone on the other side of that market. Anyone who is capable of understanding the wager would see the same thing you did, and not bet in its favour. Anyone who can’t understand the code will just pass the bet by and play some other market they do understand. The malware author is presumably not someone you can compel to do anything, never mind pay out a losing bet.

The way I imagined it, the maintainers wouldn't be considering a commit whose author was not willing to bet on its success. This thought experiment took part in a world where the web was significantly worse than our own: hoards of malicious AI's and precious few humans trying to not be mistaken for a malicious AI. Of course a pre-existing trust relationship is much better, but ideally there'd be a way for untrusted a…

However, your bet against it being merged incentivizes contrarian behavior by the maintainer in order to claim your wager for himself.

Similarly, betting that a public figure will still be alive a month from now is functionally equivalent to putting out a hit on him.

Re: The microstructure of wealth transfer in prediction markets

#124

Post by [deleted] » Tue, Jan 20, 2026, 4:42 AM UTC

yieldcrv wrote: post #121

SpicyLemonZest wrote: post #40

Earlier quoted context omitted.

You're misunderstanding the dynamics here. Modern prediction markets are 90% sports gambling by volume. The trick is that, by positioning themselves as general financial markets and accepting the corresponding regulatory gatekeeping, they're exempt from the often much stricter regulations that states put on normal sports gambling apps.

My stance has been the same long before prediction markets, long before sports gambling moved to prediction markets, and the landscape has been the same the whole time The states regulate gambling and the feds only protect the state's rackets by restricting online gambling, and the feds regulate financial markets that are not considered gambling, we get it, its two different governments that don't see the silly user…

[deleted]

Re: The microstructure of wealth transfer in prediction markets

#125

Post by dlubarov » Tue, Jan 20, 2026, 4:55 AM UTC

adrianwaj wrote: post #122

joelthelion wrote: post #79

Earlier quoted context omitted.

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.

Perhaps a bet should convert into play money if the stakes get too high and the temptation for "induced manipulation" is deemed too strong. The issue is how high is too high? Imagine a jury or judge start betting on their own cases? $500 might not sway them, but $200,000 bets coming in from villain/victims' relatives might and they thereafter decide to enter the market and also influence (or force) a legal outcome. S…

Yeah - in principle betting markets are also bribery markets. Instead of betting based on expectations, one can bet the opposite of the outcome they desire.

It's interesting how those markets avoid any language like "death," I assume to not give the obvious appearance of an assassination market, though death seems covered by "is prevented from fulfilling his duties".

Re: The microstructure of wealth transfer in prediction markets

#126

Post by eru » Tue, Jan 20, 2026, 6:46 AM UTC

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…

How is that any worse than existing financial markets?

You can already short sell a company and then cause trouble for them, eg with an anonymous phone call of a bomb threat or whatever.

Typically, the authorities will catch you, because they check suspiciously lucky traders. They can do the same with prediction markets.

> 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 $2000 per game.

The outcome of a sports game isn't exactly important in the grand scheme of things. And no one is forced to bet on sports to hedge their harvest against the weather or something like that. It's all entertainment.

> The much worse example is the fact that you can make 100-1 odds on whether the US airstrikes Iran today... or How many times Pam Bondi says the word "China" in a press conference.

So? Don't participate in these particular bets then?

Re: The microstructure of wealth transfer in prediction markets

#127

Post by eru » Tue, Jan 20, 2026, 6:47 AM UTC

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…

No worse than existing financial markets, and we already deal with those.

Re: The microstructure of wealth transfer in prediction markets

#128

Post by eru » Tue, Jan 20, 2026, 6:49 AM UTC

dist-epoch wrote: post #114

NickC25 wrote: post #113

Earlier quoted context omitted.

With the venezuela attack, the real trade wasn't on Polymarket or Kalshi. The trade was going long the 3x Oil&Gas ETFs the trading day beforehand. There was huge buying for absolutely zero perceived reason...then boom we just straight up kidnapped Maduro.

It's not necessarily illegal use of secret information. There exists "alternate data", some companies monitor all kinds of stuff, satellite pictures, etc, some of these companies surely saw the inevitable asset positioning just before such a big attack (150 planes). Just like the Ukraine invasion was first visible on Google Maps as traffic jams !!! at the border at midnight https://www.washingtonpost.com/technology/2…

That's neat. Though I'd say it was the first public sign. The US had been telling anyone willing to listen for weeks beforehand that an invasion was coming.

Re: The microstructure of wealth transfer in prediction markets

#129

Post by eru » Tue, Jan 20, 2026, 6:50 AM UTC

tptacek wrote: post #46

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…

Re: The microstructure of wealth transfer in prediction markets

#130

Post by eru » Tue, Jan 20, 2026, 6:51 AM UTC

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

> All without traceability or secret drops or whatever.

Well, that's not an argument against prediction markets.

They could have exactly the same amount of traceability as regular financial markets, and still work well as prediction markets.