How? Then why would non-insiders bet? The classic prediction market is guessing the weight of an elephant (or some animal) at a circus. The average guess of the crowd will actually get very close. But if someone knows the actual weight, no one would play.
The entire idea of a prediction market is to aggregate insider information. If you don't have insiders, you're not doing predictions, you're just doing gambling.
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.
No, the entire point is gambling. Yes there is insider trading mixed in as well, but the vast majority of events these markets are pushing and people are betting on don't have "insiders" at all. Sports, election winners, Bitcoin/stock/commodity prices, weather forecasts, movie box office receipts. None of this is about insider information, just pure gambling.
The real point of Polymarket is gambling, we agree. I'd extend that argument to every prediction market that is open to all comers in which people can meaningfully gamble. But that's not the original concept of a prediction market. I'm not here to defend Kalshi and Polymarket, both of which I think are pretty evil.
It's not 'predicting' when the outcome/answer is known. From the wiki entry on prediction markets "The main purpose of prediction markets are eliciting aggregating beliefs about an unknown future event."
I think you should probably read more about the background of prediction markets. Robin Hanson is a useful place to start. The whole concept of a prediction market is to convert private information into prices. That only works with "insider" information.
As I said in a parallel comment, Hanson was also thinking about scientific questions, where there are asymmetries in knowledge but people can often invest in research that improves their own knowledge (like by performing an experiment or a scientific expedition or something). So, Hanson believed that prediction markets could incentivize people to invest in scientific research in order to get an edge over other market participants in such questions. That doesn't exactly make them insiders, though.
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.
I don't know much, but I can't see why betting on a known outcome is good? Why not just ask the knower? Also, just because Robin Hanson says "it's about aggregating insider information" makes it true. He writes some stuff.....
Well, it's confusing because you have markets on questions with very different characteristics in terms of whether they are exogenous or not (and whether they are exogenous from the perspective of particular groups), or just with different degrees of asymmetry regardless of whether there are literal "insiders".
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.
Yeah, I mean, they're a wretched hive of scum and villainy, I preemptively agree. I'm just saying, insider bets don't have the same ethical or legal valence on a prediction market that they do in the financial markets (even there, at least in the US, the principles underlying insider trading law are really poorly understood.)
It's funny to think that the most villainous markets might be some of the humorous prop bets where the person creating the market (or a friend of the person creating the market) literally completely controls the outcome. Like "will I say SOME_WEIRD_WORD on stage at the conference tomorrow?".
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.
If you don't have insiders, you're not doing predictions, you're just doing gambling.
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.
I don't think you have a real point here, and are just using pejorative language about gambling to suggest one. Your thesis seems to be that only insiders can make valid predictions, which is nonsense.
I would say that the popular conception of insider trading as a problem of fairness to other traders on financial markets is misapprehended, but no, it's not at all true that the only rational actors on financial markets are insiders.
> the popular conception of insider trading as a problem of fairness to other traders on financial markets is misapprehended
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.
Non insiders would be if they think the odds are in their favor or that they predict that the market's opinion will shift.
>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.
One way to use a market rationally as a non-insider is to bet big against something you want to happen. You've just set a bounty for someone to do it. Presumably for some reason this is even more in your favor outside the betting market.
Isn’t this a classic fool’s money game. The betting markets have a strong incentive to pretend it isn’t an insider’s game.
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.
It could reasonably be a non-insider, just someone monitoring comms activity, ship movement, pentagon pizza and parking indexes, and other open sources.
They won't collapse, but they won't reach their full potential. I would hate to be a16z sitting on their $10B post-money valuation Kalshi bags, that's for sure.