can i bet on when prediction markets will collapse due to rampant insider bets?
Granted: that's what almost every Polymarket user is actually doing. But that's a bad thing. The insider whales are the only ones actually using it for its intended purpose.
Interestingly, it doesn't necessarily incentivize them to publish the detailed results of their investigations. They're incentivized to reveal what they expect to happen (based on how they bet), but not necessarily incentivized to reveal why they think so, or how they know. E.g. if you became able to predict the weather more accurately than other models over some timeframe, prediction markets would incentivize you to reveal (some aspects of) your predictions, but not your method for making those predictions.
https://www.overcomingbias.com/p/its-your-job-to-keep-your-s...
Apparently there's also something about the duration of a White House press conference where the press secretary may have been deliberately helping some people?
I continue to think prediction markets are potentially extremely useful and valuable, but I feel like there's a huge conceptual muddle about why people would (1) care about an outcome of a market and (2) be willing to bet on the outcome of a market. And perhaps (3) whom else they would be happy or unhappy to have participating in the market with them. I doubt people will be super-content with prediction markets until those issues are a bit clearer for more participants in any given market. (And I don't know exactly how we can make them so.)
Robin Hanson can credibly claim to have invented prediction markets as we understand them today.
I can see this, and I guess maybe my issue is with the phrasing of "aggregating" insider information. Because you aren't just aggregating insider info, you are also aggregating non-insider information, but no one (but the insider) knows what is right.
Is there different types of prediction markets then? One where there is a true insider and one without? For example, you could take bets on weather it will rain on Saturday. People can make educated guesses, but no one really knows (no insider). On the flip side, Kanye could create a bet on whether he will run for president. He would be the only insider, so again, aggregating insider and non insider information.
You're not really aggregating non-insider information, because in these cases, it's not really "information", it's just (at best) rational guessing or (at worst) gambling.
But yes, Kalshi and Polymarket essentially aggregate gambling, rational guesses, and insider information that's likely to be correct. It's a losing game unless you're an insider, and these companies profit off of other people's addictions.
What's the difference between a "Monday it will rain" market and a NCAAF prop bet on a team's rushing yards? I could argue that DraftKings prop bets are actually more like prediction markets than these "will it rain" bets. People actually do have directional information to contribute to sports propositions!
(I think online sports betting is evil.)
How would you define the difference?
Cat bond premiums absolutely bet on near-term weather odds. I’d argue they’re prediction-esque.
Are you arguing that weather forecasts (based on either sophisticated modeling or just extrapolating average historical data) are not a thing?
Like, prediction markets have questions ranging from what the weather will be in a certain year, to who will win elections, to what stock prices or exchange rates will be, to whether companies will announce specific products, to whether particular people will start dating, to whether a specific person will say a specific word during a conference (some of the Manifold "prop bets" for Manifest).
These are not the same kinds of questions in terms of whether there are insiders at all or who the insiders are. Maybe we can't expect prediction markets to have the same dynamics in all of these cases.
Depending on what you want out of a prediction market, there's probably a sweet spot in terms of whom you should expect (or want) to be trading in it.
In the most exogenous events, those that are most outside of the control of individuals or groups, I think Robin Hanson hoped (in proposing "idea futures") that people would be incentivized to invest in research in order to gain a statistical edge in the market, but also assumed that there wasn't anyone who was inherently drastically better positioned to get information about the question than anyone else. E.g. "I will spend $X to get a better estimate of this probability (hopefully by otherwise ethical means?), and that will make my expected return from buying $Y worth of prediction contracts greater than $(X+Y)". Indeed not something retail investors or gamblers should probably participate in.
It's also true that in some cases where there are true insiders it can give the insiders a financial incentive to reveal confidential information. From the point of view of trying to get the most accurate possible estimate of the likelihood of future events, that would indeed also be a success, even if the process was "unfair" to non-insiders.
Although maybe the villainy would come in more from deceiving people about whether or not an event was under your control, more than merely encouraging people to bet on an event that was clearly and unambiguously under your control.
Non-insiders can't make predictions? I'm not into betting as a hobby but I make minor bets with myself or friends on topics with clear win-loss conditions in areas of politics where I consider myself knowledgeable. I'm pretty good at it since I find it easy to distinguish between results I'd like to see vs what I expect to actually happen.
If it helps, draw a line between "entertainment" and "enterprise", and use whatever term you like for uses on the "entertainment" side of the line. Either way: it has stark implications for the notion of insider impropriety.
Some kinds of gambling are truly random (unless they are scams) and no prediction is possible. Other kinds involve some degree of skill and predictive power. For example, people can make predictions on races based on past form, even though the element of chance can't be eliminated. It seems like you're trying to redefine 'prediction' to mean 'anticipated outcome as assessed by the most informed' in order to disqualify the validity of any opinions held by non-insiders.
I get that you want everyone to be aware of how prediction arguments were originally a fun way for experts to drive decision making without writing ever-longer arguments for their position. But you seem to be overlooking the the fact that objections are not so much to insiders disrupting hte prediction market as the impropriety of government officials or their special friends cashing in on military adventurism. Said government officials defend engaging military adventures without consent or even notice to Congress by citing security, yet placing big bets on markets to make a quick profit is highly insecure.
The irony here is that the one bank-shot argument I'd see in the medium term for "insider trading" enforcement at places like Polymarket is Nevada Gaming Commission-style gambling regulation.
Well, it's the legal theory underpinning insider trading laws in much (all?) of the EU.
And the US might have a different legal theory underpinning their regulations, but practically, it largely amounts to the same effect, so under POSIWID, it's questionable whether the difference matters much.
> no, it's not at all true that the only rational actors on financial markets are insiders.
Then a non-insider-trading prediction market should be possible and at least somewhat useful too, no? You'd essentially create incentives to do thorough research and analysis of public information and publish the results.
Whether it's practically possible to enforce is a different question.
>But if someone knows the actual weight, no one would play.
Now what if someone in the audience knew the weight of an average elephant, giving them an advantage. Would people still bet. I would guess yes, but they wouldn't bet as much as the person who did because they have less information.
While having better information may make it more likely for you to win, it is not surefire. Things can change last minute.
Honestly, of all the vices, I think I pity gamblers a lot. It’s just so visible and understandable to see the harm. Something like being too into porn or drink, those are less visible harm. Where running out of money is comprehensible to even a child.
That said, at some point it would then be more accurate to call them reality modification bounty markets.
Polymarket needs a second and third oracle network