Prediction markets like Polymarket solve this by not having bookies. Just bet against other players.
Why bet against a house who takes an enormous cut even when you win when you could bet in an efficient market and keep 100% of your winnings?
Why bet against a house who takes an enormous cut even when you win when you could bet in an efficient market and keep 100% of your winnings?
Assume bettor's model and the bookie's model represent the true probability of an event with added random noise, neither model is perfect but one is not better than the other. For any bet, the true probability will on average be between the bettor and the bookie's implied probability. However, the bettor bets only when their model shows a higher probability than the bookmaker's, thus they gain positive value over time. The bookie is disadvantaged because they can't use the bettor's information to set odds, while the bettor can use the bookmaker's odds and make a decision to bet. Remember here that they are running the same model, the bettor doesn't even have an advantage. Because of this, there is no one on Polymarket running a model offering odds on all possible markets (acting like a bookmaker), it will just lose money. A bookie probably has to offer all odds on all games, in order to compete with other bookmakers. The idea is from William Benter's paper[1], the guy who made a 1bn betting on horses. The books are probably well aware of this, which is why they will ban anyone who wins consistently with a good enough model, they can only ban the person or stop making odds on that market which obviously is not a good idea
[1] https://gwern.net/doc/statistics/decision/1994-benter.pdf
Get a huge bet on paul that you don't have offset? offer better odds on tyson till it balances. as a bookie your goal at the end of the day is to have the most total amount of bets on the book (say 1M in total wagers) where the money placed at the odds completely evens out so that at the end of the day you take 10% of 1 million for providing the market (the vig) and pay one set of betters with the other's money. In fact as the house you're just building creating your own arbitrage by inventing currency exchange rates.
Basically, the house takes their cut from all the bets. The house cannot lose. Then they share whatever's left amongst the winners.
The returns for a $1 bet on a horse are calculated in real time and displayed on the screens. THESE ARE NOT THE FINAL ODDS, they change as bets are placed right up until the race starts, which is the starting price (and where the term SP bookmakers comes from).
Contrast this with bookmakers at the track who offer fixed odds when the bets are placed. They stand a chance of losing if they get their numbers wrong.
Is "NVDA" the NVIDIA ticker?
What do the 400 basis points mean?
Who is paying for, and who is getting free drinks?
Only professionals can maintain perfect basic 21 for any serious stretch, a tourist who keeps their wits is probably at something like a 4% disadvantage, or 400 bps.
I was making fun of people who sit down at a table with Citadel as their counterparty and don’t consider it gambling.
Anyhow the comparison doesnt make a whole lot of sense
People (uninformed speculators) routinely think they have alpha by virtue of knowledge that was priced into a Citadel regression days, weeks, or months before they obtained it.
Uninformed speculators are almost by definition gamblers, and it’s pretty much a set cover between gamblers and arbitrageurs.
I wasn’t making fun of arbitrageurs.
P.S. Equities on Island and ARCA are decimalized on the consolidated tape, lit venues can’t have a spread less than one penny.
Over longer horizons it gets more complicated because compounding, but it's not obviously in favour of the speculator, even though it has historically turned out that way.
It isn’t my intention to condescend, I know a bit about this stuff and try to make informative comments when the opportunity arises.
Thank you for having my back on the substantial accuracy of the comment.
It is in fact a time when HODL the Magnificent Seven has been a great trade for years: it hasn’t been this easy to turn money into more money since the 1920s.
But that’s a combination of sanctioned monopoly fraud and wild levels of stimulus: in the last decade we basically transferred half of all wealth from working people to Boomer 401ks, and the New Wall St guys got a pretty hefty cut.
NVIDIA has some very smart people, but they don’t fab EUV wafers and they don’t do whatever it is where it’s ok for a dorky guy in a leather jacket to sign a girl’s breasts.
The price of the stock is “supported”.
Why does it matter whether NVDA fabricates wafers or not? It's not their business model.
The dorky guy sells something all of the mag7 and more want desperately.
> The price of the stock is “supported”.
Supported by gigantic growing cashflows. Did you ever valuate/analyze a business? You know people don't put random numbers on the stock price (looking at longer timewindows obviously).
I assume by speculators short term holders and traders. Sure these people wont have alpha over entities that take it seriously.
Anyway I don't think EMH holds at most a very very weak version of it. It's quite obvious that smallcaps, micro- and nanocaps are from time to time mispriced. The big traders are also not around to mess with those.
Right, so anyone with a time machine can beat the market? That's not how this works.
Can you confidently point to a stock today that will have out-earned the market by next decade? That is the question facing investors and it's a much harder one.
Usually opportunities come from time to time. For example us met coal mines during covid. ESG boomed and funds dropping them, banks stopped giving new loans, supply chain messed up, priced for bankruptcy. Plenty of people treated met coal the same as thermal coal. Clearly steel is was not going away so a couple hand picked west virginian and alabama met coal mines did wonders. I spend a lot of time researching calling emailing companies there is no free lunch. Its fun and makes me very good money.
Anyway Im not going to peddle my small caps here. Indexing is still the best strategy in general.
Minus fees I’m guessing.
The broker can also set the odds and act as a market maker, like principal based trading in finance.