If prediction markets could tell the future one would imagine the first person to harness them would now be the most wealthy and powerful person to have ever lived.
So, you know, DOUBT.
Despite the pearl clutching on HN about assassinations (killing a CEO after shorting stock is a very similar profit outcome, yet no one does this because that’s totally insane), prediction markets have been fairly popular for a few years as blockchain tech has risen. And the sky has not fallen!
One example is Polymarket:
I would like to test whether prediction markets are worse than they were during zero-interest land. The incentive to create sophisticated models to get low percentage points of edge is much lower today than it was before. Why risk time and effort trying to predict the 2024 election for a few pp of edge when you can… just buy a 1y tbill instead? Sure there are probably better ways to express an opinion on these types of things too. Options that favour a team red or team blue win come to mind, but no matter what you’re still competing with 5% yield.
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.
There's an old word for the operator of a prediction market: "bookie".
While the game-ability of prediction markets is a major concern, I believe that the potential of prediction markets to further exacerbate inequalities may be a greater threat. It is important to keep in mind that while markets optimize for total value, it doesn't guarantee that it will optimize for things we as individuals want.
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.
Whats the difference between a prediction market and a futures market?
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..
>they incentivize participants to distort the market in order to make their prediction come true (and thus receive a payout)
Isn’t that true of any goal directed activity, or desire?
They work a lot like binary options, which can fool a lot of unsophisticated investors. The line is a lot thinner between prediction markets and gambling.
Prediction markets incentivize people with insider info to participate
Looks like an interesting article but behind a paywall
Prediction markets and bookmakers really strongly expected a Clinton win in 2016. Irish bookies were so sure Trump would lose that one firm began paying out to those who bet Clinton even before the election.
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...
The problem with predictions markets is that they incentivize participants to distort the market in order to make their prediction come true (and thus receive a payout). It quickly stops being a place to gauge the likelihood of an event, and turns into a roundabout contract bidding mechanism, the most famous example being "the likelihood that so-and-so famous politician will be dead by next year" is just an anonymized assassination contract. There's a reason that insider trading is illegal; prediction markets are inordinately susceptible to Goodhart's Law.