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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

#131

Post by eru »

kibwen wrote: post #99
jvanderbot wrote: post #51

Earlier quoted context omitted.

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

The market can only resolve based on public information, so it could only incentivize revealing information that is already destined to be imminently revealed. Furthermore, it doesn't incentivize sharing that information with enough lead time to actually take action based on that information; the opposite is actually true, insiders are incentivized to wait until just before the event to make their trade, meaning that…

> [...] insiders are incentivized to wait until just before the event to make their trade, [...]

What are you basing that one? And how is this supposed to work?

If you are an insider the incentive is to trade as soon as possible, lest some other insider beats you to the punch, or some conventional leak (or investigative journalist) spoils your party.

This is easiest to see, when there are multiple unconnected insiders: the first to trade wins. But even if you merely suspect another insider might exist, you have an incentive to trade first.

> And that's assuming that you can distinguish an insider from someone lying for the sake of market manipulation.

That's exactly the same as any other noise trader in financial markets, yes. Nothing specific about insider information.

Re: The microstructure of wealth transfer in prediction markets

#132

Post by eru »

cyberax wrote: post #77
jvanderbot wrote: post #51

Earlier quoted context omitted.

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.

> But somebody could have made billions betting on that.

Just because there's a small bid for 1-to-1000 on market, doesn't mean you can buy billions worth of contracts at that price.

Re: The microstructure of wealth transfer in prediction markets

#133

Post by eru »

bs7280 wrote: post #71
JumpCrisscross wrote: post #39

Earlier quoted context omitted.

> 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 ri…

Well, insider trading should be legalised in general. It would be better for the general public.

See https://en.wikipedia.org/wiki/Insider_trading#Arguments_for_...

Re: The microstructure of wealth transfer in prediction markets

#134

Post by eru »

jlawson wrote: post #58
JumpCrisscross wrote: post #39

Earlier quoted context omitted.

> 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.

Prediction markets don't uniquely enable it, but they make it far more effective and easy. Insider trading is illegal. And for trades that aren't technically insider trading, often having some information ahead of time isn't as useful as it seems. Markets are known to react unpredictably to news; sometimes they move the opposite way from what you'd think, especially over the mid-long term, and there are many other in…

> Insider trading is illegal.

Only in some markets and in some jurisdictions and some of the time.

Eg until fairly recently 'insider trading' in commodities wasn't anything you were punished for in the US.

Re: The microstructure of wealth transfer in prediction markets

#135

Post by eru »

shagie wrote: post #64
qznc wrote: post #50

Earlier quoted context omitted.

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

It is. https://en.wikipedia.org/wiki/2024_United_Kingdom_general_el... > During the 2024 general election campaign, allegations were made that illicit bets were placed by political party members and police officers, some of whom may have had insider knowledge of the date of the general election before Rishi Sunak, the Prime Minister at the time, publicly announced when it would be held. > ... > In April 2025, the Gam…

People being charged doesn't mean there's a problem of any significant magnitude for society.

Re: The microstructure of wealth transfer in prediction markets

#136

Post by eru »

PlatoIsADisease wrote: post #119
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…

I've been telling people it only takes 2 or 3 people to throw a football game. The person who hires the ref(optional), the ref, and the person who places the bet. And I was told I was crazy. Hahahahahahahahahaha. Nope I was right.

Huh? It's pretty obvious that you can influence the outcome of a sports event, if you can influence the ref or if you can get a player on one side to pretend to be less competent than she normally is.

Re: The microstructure of wealth transfer in prediction markets

#137

Post by eru »

bs7280 wrote: post #80
roflyear wrote: post #37

Earlier quoted context omitted.

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.

If there's not much money to be made (because of illiquidity and adverse selection keeping market participants out), then there's not much incentive for people to do weird things.

Re: The microstructure of wealth transfer in prediction markets

#138

Post by silisili »

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

I believe that orders probably do go up. I don't believe the sites/accounts using Google's 'how busy' have any relevance at all. As I understand it, these just use GPS/location data of phones.

It only takes one person to pick up 40 pizzas, after all. Perhaps they could look at time estimates for a new order as a better indicator, if such an API exists prior to ordering.

Re: The microstructure of wealth transfer in prediction markets

#139

Post by bandrami »

dv_dt wrote: post #76
ironbound wrote: post #63

Earlier quoted context omitted.

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.

There are several restaurants there. The Domino's thing is back from the first Gulf War and wasn't even really true then

Re: The microstructure of wealth transfer in prediction markets

#140

Post by TheDong »

eru wrote: post #127
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…

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

The big difference here is that if you buy short-dated out-of-the-money options and make it big, the SEC comes knocking on your door and reads your text messages to find out what you knew and when.

It's both easy to track down stock traders due to KYC, and easy to prosecute due to laws.

Polymarket and friends make it both much harder to find the trader, and also it's less clear if there's a legal theory that lets you prosecute someone dealing in these new markets.

Sure, congress and the president can insider trade a bit here and there, but the everyday joe is rightfully afraid to.

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