Can't beat them, join 'em??
Prediction markets are kind of ridiculous... or impressive, or loose rent-seeking or crafty way of getting insider information out into the world.
Welcome to Over/Under, a newsletter on prediction markets, gambling, and the culture of risk in America. Platforms such as Kalshi and Polymarket are changing how people interact with modern life—politics, video games, movies, and even the weather.
Coverage of "the culture of risk" I'd be extremely interested to follow!
Even for those who don’t partake, this phenomenon is difficult to ignore. Athletes are signing multimillion-dollar sponsorship deals to expand their reach. Livestreamers spend hours playing slots and other online casino games while millions watch. News organizations (not ours!) are entering into corporate partnerships with top prediction markets. Last month, a titanic image of Sydney Sweeney appeared on a billboard in Times Square, coaxing viewers to log on and trade. And the betting itself is just a few taps away on our smartphones.
"this all feels reminiscent of the crypto boom"
Yes: it's tech and there are obvious winners and losers. (and some, e.g., Polymarket, is straight up powered by crypto shitcoinery...) but otherwise the comparison is nada-que-ver.
users are betting on things that would make at least some of the bookies of the past squirm: war, disease, and natural disasters. Politicians are betting on their own odds of being elected. A master sergeant in the Army allegedly deployed insider knowledge on Polymarket to profit from the kidnapping of Venezuelan President Nicolás Maduro. Federal prosecutors are just starting to crack down on the insider-trading problem—and the industry is still figuring out how it wants to respond.
Insider trading isn't a problem; it's the point (ish...) #1556891
I'm excited to see the kind of (complete asshattery?) shit, Mr. Gottsegen brings to the table.... probably launching a podcast, too, because why not?
If we could just pay people to be honest and tell us things, we would. But unfortunately we don't know who has the information we need nor whether the people we are talking to are honest.
But a market can solve this problem. We make people who are dishonest lose money, and provide an incentive to those who have information to share it. Prediction markets seem like they are great.
I'm still unconvinced. If the insiders are known to trade in the markets, then there wouldn't be much incentive for non-insiders to participate. If non-insiders don't participate, then there wouldn't be much incentive for insiders to participate either (no one to take advantage of for gains.) Thus, there won't be enough liquidity to really get a good signal about event probabilities.
The "prediction markets reveal inside information" hypothesis seems to require the long run presence of uninformed traders who consistently lose money to insiders, which doesn't seem plausible at a large scale.
Yes, it requires insiders who are not actually insiders.
But I believe this is a real and, more importantly, arrogant category. There are loads of people who think they have the inside scoop, but really they are just deluding themselves. These people get washed out of the market quickly, but luckily there seems to be an endless supply of them.
Also, how different is this than any case of arbitrage? Couldn't we argue that all arbitrage consists of people who think they have knowledge that others don't? But they serve a useful purpose of making the market more competitive.
The main difference is that people without inside information can still participate profitably in the stock market, since it's not a zero sum game. (Stocks represent shares in business ventures which generate future income).
In a prediction market, it's a zero sum game, so on average there isn't any point participating unless you have inside info. But if the only people participating are the ones with inside info, it lessens the incentive for insiders to participate.
I think your earlier point about there always being overconfident people to participate is probably true. Another related issue is insiders who have conflicting info. But if the market is populated primarily by overconfident people or conflicted insiders, then it's not 100% obvious to me that the market price shakes out to the correct probability.
lemons! It's a lemons market, omg!
Where's Akerlof when we need him?!
Since it's the Atlantic, I bet most of the stories will have the flavor of "look at these poor rubes finding a glimmer of hope at the casino".
If I were a little bit less lazy, I’d do more commentary on prediction market odds.
Cost of opportunity of selling your shares on time before @grayruby dumps the market
we all play on prediction markets at the behest of the Gray Wizard
Last time I checked I am 79th and -16k sats for the month so not much wizardry happening. Granted part of that is setting myself up to ensure a solid profit on the world series market at the end of the month but it doesn't look good and makes me sad.
schade.
Your loss is our gain! Thanks bro