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69 sats \ 7 replies \ @SimpleStacker 17 Dec \ on: prediction markets aren't just gambling oracle
I've commented a number of times on my views of prediction markets, e.g. #1343781, #344998, #861623
Overall, while I'm not against them per se, I'm a bit skeptical of their effectiveness as information aggregators, except for very high interest markets like presidential elections. I think for most markets, the market volume will be quite small, limited to a few, highly confident insiders, plus gamblers who are just along for the ride.
that being said, I am pretty convinced that while perhaps offering some informational utility, the revenue model is going to skew towards preying on gamblers.
I do like your traditional unravelling argument
It's a traditional unraveling argument.
It's only profitable for me to trade in this market if I have more knowledge (including the interpretability of the knowledge), than the average market participant. Knowing this, I drop out if I have zero private info. This elevates the average level of knowledge among the remaining participants, which elevates the knowledge requirement to be profitable. Thus, the traders who have more limited info drop out. The process continues until only the most knowledgeable trader stays in the market.
Does this rely on the efficient market hypothesis?
In an event, I agree that the revenue model is going to skew towards preying on gamblers.
I think Predyx is still fun because there are so few people joining, lots of inefficiencies to take advantage of. Also, the feeling of being able to steer the market one way or another.
For that reason, I don't feel like joining the much bigger Polymarket or Kalshi platforms, even if they had LN payments enabled.
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The unraveling argument doesn't rely on the efficient market hypothesis per se, but I think it rests on similar assumptions. Namely, that everyone is hyper rational and can strategize many moves ahead. In reality, people aren't that super rational, so the market won't unravel completely. But people are somewhat rational, so the dynamic will still be there.
I think it makes sense to not want to participate in the larger platforms. There, you are more likely to be betting against real insiders. (Not to mention, some oracle shenanigans in Polymarket). For a relatively small and unknown platform, you're more likely to be betting against people just having fun.
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Compared to what, though?
The odds will tend to be close to what traditional books have but prediction markets have unilateral exit. It seems like that greatly reduces downside risks for gamblers.
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It does seem a superior way to gamble than with bookies, though I suppose bookies do have some sort of liquidity / market-making function.
I think my skepticism towards prediction markets is more towards the idea that you can have a functioning prediction market for every event under the sun. Some niche markets I think just won't have enough volume to generate a good prediction.
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you can have a functioning prediction market for every event under the sun.
Is that a strawman or do people really expect that?
I wonder if they can’t absorb more of the financial sector than we’re anticipating, though. Most people don’t make investments for the purpose of actually owning the instruments they’re buying. They just want exposure to the asset growth. There might be less friction-y ways to do some of that stuff on a prediction market.
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I guess it's a bit of a straw man but a lot of the people supporting prediction markets don't often make those qualifications or state where they think the predictive utility ends
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That seems fair. It’s a pretty new thing so we probably need to FAFO for a bit to separate the wheat from the chaff.
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