Wow, that's a lot of vitriol. I didn't mean to upset him so much, but I apologize to him for the offense. I understand that this is his baby so any criticism feels very personal. I could have been nicer.
That said, I must disagree with some of the substantive points he made in this post.
> No, you clueless douche, it doesn’t have that consequence. It has the exact opposite consequence : that in this system you can determine actual current market valuations of risk. This unlike the systems you cite, which are nothing but glorified scams, and which specifically prevent you from gauging the market sentiment precisely because they’re not market priced.
BitBet, for the bet of Houston Texans to win the Super Bowl, has .07 against and .08 for (an implied probability of approximately 50%). The reality is that if I place a bet today, I won't know the odds that I'm betting against until the last day of the betting. It's true that there are economic results showing that the pricing in parimutuel betting will settle to the market expected value in equilibrium, but this example shows that these markets require much greater liquidity to provide anything resembling real-life probability estimates. You simply can't open a contract on a prediction market for 50:50 that the Texans will win the Super Bowl and have anyone take the other side of your trade.
> This idiocy is based on the presumption that you can import the “real odds” from somewhere. This is not what BitBet is doing, importing the “real odds” from somewhere else. BitBet establishes the actual odds.
In a priced market, informed market participants look at the probability represented by market prices and make their bets taking into account the information that they have. This action causes all of the information to be revealed in aggregate. His statement above implies that the "real odds" are being set by the market, not by reality, which is an inversion of cause and effect. The real odds are always imported from elsewhere, namely reality itself, as estimated through private and public information and analysis.
In order to profit in parimutuel games, you have to have both an accurate understanding of the reality, and an accurate estimate of public sentiment (and knowledge of the actual payout algorithm, of course). For priced markets to converge upon truthful values only requires that informed market participants bet based on their private information and best estimates, which is a much lower bar.
Not all parimutuel markets are created equally of course. Dynamic parimutuel markets[1] have some advantages over traditional markets (they don't suffer from a lack of buy liquidity, for example, but still don't allow traders to know their payouts at the time of the bet), but this doesn't seem to be one.
All that said, I intend no offense to the creators of this project, and wish them all the best in all of their journeys. Three cheers! I wish the world had more prediction markets.
1: http://dpennock.com/papers/pennock-ec-2004-dynamic-parimutue...