[tptacek]

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.

[schoen]

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.

[tptacek]

He wrote a whole paper on this.

https://mason.gmu.edu/~rhanson/insiderbet.pdf

[schoen]

Thanks, I forgot about that one. I've read some of his other writing on this subject and I didn't remember this paper.

[tptacek]

It's OK, I didn't have it in cache either, I just remembered "people like Robin Hanson have said insider trading on prediction markets is a feature not a bug" and GPT5 tracked it down for me. :)

[schoen]

It's a bit late to reply now, but Robin Hanson just weighed in on the current thing, or, if you prefer, doubled down:

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.)

[tptacek]

I could go either way on prediction markets but I don't think the dilemma here is all that complicated. I think most people interacting with them are just valorizing gambling, and want a Nevada Gaming Commission to step in and make sure that the games are fair. They're not supposed to be fair! They're supposed to predict! It's in the name!

[giarc]

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.....

[tptacek]

The idea is that people have all sorts of fragmentary information about future events that they can't directly reveal, due to confidentiality or trade obligations (among other things), and that a prediction market effectively liberates the directional content of that information by converting it into prices.

Robin Hanson can credibly claim to have invented prediction markets as we understand them today.

[giarc]

"that a prediction market effectively liberates the directional content of that information by converting it into prices."

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.

[kelnos]

> you are also aggregating 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.

[tptacek]

I would argue that a "market" in whether it will rain on Saturday isn't really a prediction market, or even a market, at all. It's just a bookmaking operation. The core function of any market, in anything, is price discovery.

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.)

[kasey_junk]

Tradeable risk is the difference between the ncaaf bet and rain futures. Levine has joked that perhaps there is some tenuous way that sports gambling is poolable risk to owners, players and coaches but there is real and obvious economic utility with rain. Neither get the advantages of prediction markets.

[JumpCrisscross]

> would argue that a "market" in whether it will rain on Saturday isn't really a prediction market, or even a market, at all. It's just a bookmaking operation

How would you define the difference?

Cat bond premiums absolutely bet on near-term weather odds. I’d argue they’re prediction-esque.

[lxgr]

What would you then call, for example, the markets for weather futures on the CME? https://www.cmegroup.com/markets/weather.html

Are you arguing that weather forecasts (based on either sophisticated modeling or just extrapolating average historical data) are not a thing?

[lxgr]

You seem to be arguing that that's the canonical definition of a prediction market, and anything else, including markets merely aggregating non-insider beliefs about future events, should be called something else. Do you have a better proposal?

[tptacek]

I don't need one.

[lxgr]

Sure, but then discussions about these types of markets are bound to become somewhat confusing for purely nominalistic reasons. (Turns out not every hard naming problem is automatically computer science :)