Prediction markets can tell the future. Why is the US so afraid of them?
ft.com
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Here, from two months ago: "Over 180 professional tennis players participated in a global match-fixing ring" https://www.npr.org/2023/09/10/1198675541/over-180-professio...
Maybe if we were objective, horse betting should be shut down -- but we kinda don't care.
Plus apparently a huge amount of drugs given to their own horses trying to cheat.
Prediction markets have some problems but this isn't the biggest one. One can even use it for good. If a company gives its associates stocks but prevents them to sell for some time, this is essentially the same mechanism.
For example, we could make prediction markets about upcoming policy and laws and their impact. Then we can tell the policy makers to bet that their proposed changes actually have the good outcomes they promise.
Picking on stocks as an example, there is a background fair market rate that everything should theoretically achieve. Insiders way outperform that - but most people are in the market to target the background rate, not the outlier rate insider traders can achieve.
This is completely, demonstrably false; there are no insider trading laws in rel estate, commodities or crypto, but that doesn't stop people buying.
As opposed to the stock market?
>There's a reason that insider trading is illegal; prediction markets are inordinately susceptible to Goodhart's Law.
Insider trading is only illegal because you're abusing your position of trust as an employee. You having an incentive to make the stock go higher is totally fine. In fact that's how activist investing works. You buy shares in a company, use that to get control and turn the company around, and sell your shares in the now more valuable company.
https://www.bbc.com/news/world-europe-39664212.amp
The reason governments finally have gone hardball on crypto was the realization that it created an incentive for people to bet against and ultimately attack the shared economic system.
Silicon Valley bank run triggered by investors with well known crypto exposure was only the final straw
conversely, i can’t buy puts, hoping that my stock sell off will effect them being in the money at expiry.
something something market forces and what not, but the long and short of it (no pun intended) is that.. if it were profitable, people would be doing it.
insider trading is illegal for numerous reasons, “abuse of trust” isn’t wrong, it’s just wholly incomplete.
Did you miss my entire paragraph on activist investors? The only difference between them and you is that they're putting way more effort into it.
>insider trading is illegal for numerous reasons, “abuse of trust” isn’t wrong, it’s just wholly incomplete.
That's the canonical reason, at least in us securities law. https://en.wikipedia.org/wiki/Insider_trading#United_States_...
Or put another way: when people can maximize their profit by manipulating the measurement or market at least some of them will attempt to do so.
Stock markets are more difficult (but far from impossible) to control. To make Target's numbers come in low you'd have to suppress their retail sales or their supply chain. Whereas who wins X Race is a singular event that only requires one person (in the most optimistic case) to participate thereby controlling the outcome. In a sense a lot of what prediction markets make book on amounts to penny stocks and are just as risky. If you want to make such markets widely available you need regulation on what kind of events allow bets and strict rules against insider trading (eg sports participants and their families must be prohibited from participating).
So, you know, DOUBT.
1. It's unclear how you or any person in particular would be "the most wealthy and powerful person to have ever lived", because other people would also be able to exploit it
2. Many predictions are hard to act upon, even if you know they're accurate.
https://www.economist.com/finance-and-economics/2023/10/30/w...
One example is Polymarket:
I think this is solvable by having some kind of betting token that itself accrues interest over time to reduce the opportunity cost but if regulators already don’t like prediction markets boy they especially wouldn’t like that.
Prediction markets are nearly 50-50 for democrat vs republican president currently. That is a 100% yield if you are correct. It isn't about the yield. It is about much more accurate you are. If your oracle gives you 60-40, you will still lose lots of bets but you will easily beat the 5% yield of treasure bills.
Free markets tend to lead to a positive feedback loop. Someone who has a lot of money will be able to predict the market better than someone who has less. Their advantage generates more wealth which helps them to predict the market better. Wealth generates more wealth.
In theory, this is offset by the notion that the market is not a zero sum game. The person may be generating new, previously unavailable, wealth. But while stock performance is tied to the success of a company (which can generate new wealth), prediction markets are tied to transient questions (where intrinsic value diminishes the closer you get to expiry). In this sense, how "predictions" might generate "new value" is unclear.
Which sounds like a joke. But I am unable to think of one right now.
Actually... how is this different from the stock market. You buy and sell based on how the market is predicted to go..
Isn’t that true of any goal directed activity, or desire?
And we all know how that turned out.
Nov. 7, 2016:
"Hillary Clinton’s odds of winning the presidency rose from 78% last week to 91% Monday before Election Day, according to CNN’s Political Prediction Market."
https://www.cnn.com/2016/11/07/politics/political-prediction...
Even if it were 90%, I'm not sure that's an indictment of prediction markets. A probability of 90% means that 10% of the time, the other thing happens. It's a bit like saying "wow, it's cold today; I guess global warming isn't real." You'd want to to an analysis across many many prediction markets in order to see if they're generally accurate. That already exists, it's here if you'd like to look at it[3].
[1]: https://www.predictit.org/markets/detail/1234/Who-will-win-t...
[2]: https://electionbettingodds.com/WIN_chart_maxim_lott_john_st...
Their FAQ says that they aren't a prediction market, and they operate differently. People aren't placing bets, so it isn't weighted in favor of the wealthy. They weight people based on past prediction success.
So, maybe their approach works better.
I remember several people IRL saying "well the market thinks it's a 90% chance of remain so I'm not worried"
[1]: https://www.predictit.org/markets/detail/1413/Will-the-UK-vo...
prediction markets participants are idiots with no underlying knowledge betting according to their bias
they are no different to the "markets" created at the dog track
as someone who has spent most of their career working on trading floors watching professional traders do their jobs
I'm perfectly happy staying the hell away from prediction "markets", thank you very much
you have completely misunderstood
I have zero interest in losing money by "investing" in outcomes of events that are essentially random
because it's not investing, it's gambling
The difference is that a Poker tournament is just entertainment for the audience. With prediction markets there is the very useful side effect of accurate forecasts.