[rwmj]

Can you make massive bets if there's no one to take the other side of the bet? In a prediction market that allowed insiders, if you don't have insider knowledge you shouldn't bet very much because you're probably going to lose to someone who is an insider.

[tsimionescu]

If a million people bet 5$, even if it's 50-50, there's plenty of upside for an insider to take a massive bet on the known outcome.

[rwmj]

In an iterated game, either people would be happy to lose occasionally small amounts like $5 (with the benefit to society that insider knowledge is revealed), or if they didn't like losing even small amounts they'd learn not to bet if they didn't have real insight.

[tsimionescu]

Well, look at current prediction markets, which are not theoretical and very clearly do allow insiders, with no limitations whatsoever. And people still routinely bet on things that they know insiders can control.

[watwut]

That is not true. That is not how gambling works at all.

That is how theoretical mathematical construction works. Which has nothing to do with how real world people behave in iterated gambling games. And the less you regulate what the gambling company can or can not do, the less the real world version resembles the theoretical construction.

[hrimfaxi]

Doesn't that assume that people are rational? How many gamblers have lost everything?