Comment by JohnMakin | Hacker News Reader

Comment by JohnMakin | Hacker News Reader

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I can shed some light on this, maybe -

In the year before the 2020 election, a market opened on predictit called "Will Hillary run for president? Yes/No"

First this was a reasonable market, but quickly it became obvious she wasn't running (because she repeatedly said she wasn't, there was no campaign created at all, absolutely zero indicators she was running because she wasn't). Predictit allowed a comment section where people worked themselves into a frenzy every time some hillary "news" dropped that somehow secretly indicated she was running a phantom campaign. She missed primary registration deadlines - that only made the "Yes" market move up. There were still people hammering Yes up until a few weeks before the actual election and they closed the market.

Anyway it was the same thing. Low % "Yes" and 95+% "No." However, I found an edge holding on to a "baseline" Yes I'd established (1-2%, I can't remember) and just sell the waves of "news" that would spike it to 5+%. Then buy again at the baseline. There were a lot of shenanigans in the comments and people attempting to move the market with various tactics - it was a wild ride and one of my favorite markets I'd ever studied/participated in.

There are probably some true believers in the "Yes" jesus purchasers here but I imagine a lot of what I'm describing here too.

This is a reminder of how prediction markets don't always accurately estimate probability of events happening.

The most interesting part of the article IMO was the fact that the 3% probability is artificially high because there is no one willing to take the otherside of the bet, because betting "No" requires you to give your money to the prediction market for 6+ months, and if you're only getting a 1% return if you win the bet, you'll make more money if you put the cash in a high yield savings account.

Seems like prediction/betting markets only really work well when there is a reasonable chance of either outcome occurring, and is less accurate the more obvious one outcome is compared to another?

> This is a reminder of how prediction markets don't always accurately estimate probability of events happening.

I'm well aware that people believe that these markets are accurate estimators of probability of events, but I've (as a life long gambler) always viewed it as a measure of people's confidence in an event happening at a particular probability. People are wrong/delusional at scale all the time (think of the mandela effect), it can be the case that large groups of them converge on the right outcome via market forces, but it kind of makes the big assumption every participant is in good faith, rational, and informed.

https://calibration.city/

I came here to say this, but you explained it better than I could have. At 3% odds, it's not worth it to participate in this market because a money market fund gives a better return, even if you believe the odds of this happening are 0 (and they're never 0, there was a first coming of Jesus after all, you don't have to believe in the supernatural to see how it could happen.)

It’s possible I’m being a jerk, but actually maybe betting services could do a social good: allowing people who believe things despite all reason to incur some small cost to themselves and hopefully course-correct?

We can even both-sides this; Hillary fans and people who believe Jesus will come back soon are usually on opposing sides, right?

Prediction markets were initially proposed to provide a social good, the idea being that the ratio of the current price of a share in a prediction market to the value of that share if the market resolves to "yes" is how likely the market thinks the market is to resolve "yes" as a probability. The social good is that you could use this to predict the future.

The people who were “Yes” hillary stans were very much not hillary fans. very much the opposite. much of it seemed fueled by far right wing conspiracy theories

Sounds similar in theme with what happened to Hertz. I think at some point it was bankrupt but speculation still had the share price way above what it was worth (nothing).

The original shares ended up being worth $8. There might have been a point during the bankruptcy were they were worth nothing (due to changing used car values) but in the end they were worth something.

https://nypost.com/2021/05/12/hertz-investors-snag-8-a-share...

Yea but that's the thing, if a company is bankrupt, shouldn't it be 0? Like rationally? In that sense, it feels thematically similar as people were trying to outsmart each other with trickery.

Rationally, I agree. But IRL it's surprisingly hard to measure the value of a company - both the assets and the value of continuing operations - even without considering they are in constant flux, even if there's no trickery.

there's a really interesting book called "When Prophecy Fails" that documents a doomesday cult. the cult had predicted a huge flood sometime in the 1950s and some sociologists infiltrated the group posing as believers to document their psychological response to the calamity not occuring

one of the core theses of the book is that adherents to a prophecy paradoxically believe in it much more strongly AFTER it's been disproven

This is exactly what the article is arguing people are doing when betting on the Jesus thing:

> [Time Value of Money] The Yes people are betting that, later this year, their counterparties (the No betters) will want cash (to bet on other markets), and so will sell out of their No positions at a higher price.

...

> Has this galaxy-brained trade ever gone well? Yes! In late October of last year — a week before the election — Kamala Harris was trading around 0.3% in safe red states like Kentucky, while Donald Trump was trading around 0.3% in safe blue states like Massachusetts. On election day, these prices skyrocketed to about 1.5%, because “No” bettors desperately needed cash to place other bets on the election. Traders who bought “Yes” for 0.3% in late October and sold at 1.5% on election day made a 5x profit!

No, not really. What I was doing was playing predictable spikes in volatility in the market over a long span - theoretically i could have done it forever had the market never closed. I also doubt the hillary market moved because of liquidation needs in other markets - it was driven almost entirely by conspiracy theory news. I followed it very closely, it was not this at all.

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