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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

#31

Post by jjmarr »

kwar13 wrote: post #14

This article lacks even the most basic understanding of probability and statistics. Slot machines "93 cents on the dollar" return is a statistical certainty of 7% loss. You are playing a repeated game which by the law of large numbers will converge to the 93% probability. In prediction markets if the markets are fully efficiently priced, in the absence of transaction costs you WILL get 100% back in the long run. Slot…

If you read the article:

> Takers pay a structural premium for affirmative "YES" outcomes while Makers capture an "Optimism Tax" simply by selling into this biased flow.

It's still operating like a casino in that there's a "house edge" that comes from taking bets. Unlike a casino, there is nothing stopping the average person from market making, which is why it doesn't make sense this structural inequality exists.

Re: The microstructure of wealth transfer in prediction markets

#33

Post by bs7280 »

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 $2000 per game.

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.

Re: The microstructure of wealth transfer in prediction markets

#35

Post by denotational »

postflopclarity wrote: post #8
LeifCarrotson wrote: post #6

I'm a little confused by the "Yes" versus "No" asymmetry. For example, one of the top trending ~~bets~~ markets right now is on whether Miami or Indiana will win the NCAA football championship tonight. You can either take "Yes" on Indiana at 74c, or "No" at 27c, or you can take "Yes" on Miami at 27c or "No" at 74c. Or, there's another potential outcome - you can also bet on a tie at 10c yes/91c no. Is this research s…

> Why is Kalshi structured with these yes vs. no options for all outcomes? it's basically how they do margin. otherwise you wouldn't be able to sell / post asks without already having a long position. for kalshi, it's actually one single security in the background they just present it as two order books (but really it's one). for polymarket, they are two distinct products that trade separately, and technically could…

It’s not really margin since there’s no leverage: the potential loss associated with the bet has to be deposited, so it’s fully collateralised.

Re: The microstructure of wealth transfer in prediction markets

#36

Post by sysguest »

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…

+1

if you're not the person-in-complete-power, your bet is really likely to be 'rigged' against you

I'd rather play dice or buy lotteries

Re: The microstructure of wealth transfer in prediction markets

#37

Post by roflyear »

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.

Re: The microstructure of wealth transfer in prediction markets

#38

Post by Buttons840 »

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 "surprise" attack. https://www.pbs.org/newshour/nation/a-400000-payout-after-ma...

Re: The microstructure of wealth transfer in prediction markets

#39

Post by JumpCrisscross »

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.

Re: The microstructure of wealth transfer in prediction markets

#40

Post by SpicyLemonZest »

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.
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