[jonbecker]

tl;dr

dataset: 72.1m trades and $18.26b volume on kalshi (2021-2025)

core findings:

longshot bias: well documented longshot bias is present on kalshi. low probability contracts are systematically overpriced. contracts trading at 5 cents only win 4.18% of the time.

wealth transfer: liquidity takers lose money (-1.12% excess return) while liquidity makers earn it (+1.12%).

optimism tax: the losses are driven by a preference for "yes" outcomes. buying "yes" at 1 cent has a -41% expected value. buying "no" at 1 cent has a +23% expected value.

category variation: finance markets are efficient (0.17% maker-taker gap) while high-engagement categories like media and world events are inefficient (>7% gap).

mechanism: makers do not win by out-forecasting takers. they win by passively selling "yes" contracts to optimistic bettors

[KPGv2]

This reminds me of the old scheme where if you just bet against ND football you'd make money because ND fans were so rabid that the "ND is good" positions became overpriced.

[hbarka]

Yes, in the study they pinpointed this beautifully: “A fan betting on their team to win the championship is not calculating expected value; they are purchasing hope.”

[hbarka]

> Optimism tax: the losses are driven by a preference for "yes" outcomes. buying "yes" at 1 cent has a -41% expected value. buying "no" at 1 cent has a +23% expected value.

This is interesting and makes a statement about positive or negative orientation in human psychology. Also, couldn’t the bets just be worded in the double negative instead of the affirmative to influence the optimism bet?

[tasuki]

I wish I had read the comments (ie your comment, as it's the only one now) before reading the article!

[TZubiri]

I don't think that makers sell "yes" they take both ends of the bet, but they make more money on selling yes,apparently.

[snovv_crash]

The question is how long this alpha continues to exist...