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Who wins and who loses in prediction markets? Evidence from Polymarket

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Re: Who wins and who loses in prediction markets? Evidence from Polymarket

#131

Post by EdKaim »

vcf wrote: post #126
EdKaim wrote: post #119

Great paper. Still digesting after a first pass, but it looks really solid. Quick question: did your team consider the implications of capital recycling on the maker side? Liquidity providers tend to have superior tech and information, so the general edge is expected. However, the ability to effectively reuse the same capital to sell outcome sets seems like it could offer a scale advantage that enables them to captur…

Thanks! No, we haven't looked at the capital "locked" in these markets (which is important considering there is no margin trading, at least not yet). Most markets have a short horizon, but some have very long ones. It gets very complicated very quickly because it's not always the case that you open a position and then close it (you get partial fills, users closing partial positions, etc.). Taking that into considerat…

The long horizon ones are also interesting on Polymarket because the vast majority don't have APY. As a result, prices should be discounted, but sum-to-1 doesn't allow for it. I'd expect a negative skew to the performance of traders willing to take those inflated prices (relative to what the odds DCF imply they should be). But there's also no upside for makers, so liquidity is pretty thin.

Re: Who wins and who loses in prediction markets? Evidence from Polymarket

#132

Post by hunterpayne »

whattheheckheck wrote: post #130
hunterpayne wrote: post #120

Earlier quoted context omitted.

The most money can be made in markets which have the worst correlation between reality and the market price. There are types of markets on PM which are very far from reality. There are types of markets which are very close to reality. It isn't surprising that sports markets are in the first category. There are also political markets, where it is clear campaigns manipulate the prices for the same reasons they will pub…

Interactive brokers have prediction markets open to usa people

No PM though and that means the markets have very little liquidity. Also, I think you need to be an accredited investor to do it. Its very new but it is interesting.

Re: Who wins and who loses in prediction markets? Evidence from Polymarket

#133

Post by janalsncm »

eloisant wrote: post #108
vcf wrote: post #15

Earlier quoted context omitted.

Not meant to sound like AI, but most academic journals limit abstracts to 100 words, so they rarely feel natural... I agree: insiders are hard to study because they are finite and short-lived. We're pretty confident there are insiders out there trading on Polymarket; however, our conclusion is that they don't account for a significant fraction of the total trading gains on the platform.

When the abstract is limited, you don't add useless qualifiers like "the largest prediction market"

It’s not a useless qualifier. Many readers might not know that Polymarket is the biggest now, and if at some future date it’s not the biggest anymore the statement makes it clear why they studied at this time.

Re: Who wins and who loses in prediction markets? Evidence from Polymarket

#134

Post by fontain »

manas96 wrote: post #8

Just curious but how are bets arbritated on these website? Meaning who decides if an outcome was yes or no? Answers to things like "Who will win the next Best Picture Oscar?" are fairly obvious and binary. Can we make bets whose answers are not binary yes/no? What about "Will celebraty X and Y break up?"? Does Polymarket go to X and Y to confirm if they broke up or something :D

There’s a lot of talk about corruption in UMA but I think it is oversold as a problem. UMA is just a scapegoat for Polymarket’s desired outcome.

Polymarket implemented the “independent” truth process with UMS following regulatory scrutiny but they still decide the outcome.

https://reticulating.substack.com/p/polymarket-isnt-a-predic...

Re: Who wins and who loses in prediction markets? Evidence from Polymarket

#135

Post by mminer237 »

hunterpayne wrote: post #132
whattheheckheck wrote: post #130

Earlier quoted context omitted.

Interactive brokers have prediction markets open to usa people

No PM though and that means the markets have very little liquidity. Also, I think you need to be an accredited investor to do it. Its very new but it is interesting.

You do not have to be an accredited investor for IBKR or Robinhood.

Re: Who wins and who loses in prediction markets? Evidence from Polymarket

#136

Post by hammock »

superfrank wrote: post #112
redox99 wrote: post #105

Earlier quoted context omitted.

The spreads on most markets always seemed like a hint that polymarket transferred wealth from the impatient that don't really understand how it works, to those that play mostly as patient market makers with just an educated guess. The problem is that volume is generally too low to make significant money.

I'm not saying this as an argument for or against prediction markets, but that's essentially what the vig is at traditional sportsbooks. Someone calculates what they think the odds of an outcome happening are and then they allow people to take positions on either side at worse odds than what they think the real odds are. As long as their prediction is correct, over time they make money. It's why putting $1 on a 50/50…

Books pay handicappers as well to make the guesses so that cuts into the vig

Re: Who wins and who loses in prediction markets? Evidence from Polymarket

#137

Post by hammock »

vcf wrote: post #15
wutwutwat wrote: post #5

Earlier quoted context omitted.

insider trading on events probably wouldn't show any trends, right? These are point in time events (they call them markets), but they are finite and short lived. An insider would be a one and done thing, so it would be pretty hard to spot them or trend any sort of month over month insider scheming imo. Also... > We study trading gains and losses on Polymarket, the largest prediction market This is not a natural thing…

Not meant to sound like AI, but most academic journals limit abstracts to 100 words, so they rarely feel natural... I agree: insiders are hard to study because they are finite and short-lived. We're pretty confident there are insiders out there trading on Polymarket; however, our conclusion is that they don't account for a significant fraction of the total trading gains on the platform.

This is true if the stock market as well. There is insider trading. But that vast, vast majority of profits are made by the market makers (citadel etc).

Re: Who wins and who loses in prediction markets? Evidence from Polymarket

#138

Post by orsenthil »

If the prediction markets are between people, why do people bet against the mostly likely outcome at all ?

Real anecdote. For e.g, during Superbowl 2026. The markets were allowed bets to be placed until 6 minutes to close, when Seahawks were way ahead of New England Patriots. The probablity of Seahawks winning was almost 99% and any person who places a 1000 dollar bet will make 1100 in 6 minutes. Where is the 100 dollar going to come from? Who loses that?

Re: Who wins and who loses in prediction markets? Evidence from Polymarket

#139

Post by hammock »

pinkmuffinere wrote: post #128
hunterpayne wrote: post #120

Earlier quoted context omitted.

The most money can be made in markets which have the worst correlation between reality and the market price. There are types of markets on PM which are very far from reality. There are types of markets which are very close to reality. It isn't surprising that sports markets are in the first category. There are also political markets, where it is clear campaigns manipulate the prices for the same reasons they will pub…

> There are types of markets on PM which are very far from reality. There are types of markets which are very close to reality. It isn't surprising that sports markets are in the first category. I think you're claiming here that sports markets are "very far from reality". What do you mean by that? Scores, injuries, fouls, etc are very well documented and objective things, so I can't figure out what you mean by "far f…

Not OP, but I guess he is saying these (elections, sports) are markets where the participants have their own ideas about how they want them to resolve, and aren’t just markets with neutral participants only.

Re: Who wins and who loses in prediction markets? Evidence from Polymarket

#140

Post by Jensson »

orsenthil wrote: post #138

If the prediction markets are between people, why do people bet against the mostly likely outcome at all ? Real anecdote. For e.g, during Superbowl 2026. The markets were allowed bets to be placed until 6 minutes to close, when Seahawks were way ahead of New England Patriots. The probablity of Seahawks winning was almost 99% and any person who places a 1000 dollar bet will make 1100 in 6 minutes. Where is the 100 dol…

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