[tptacek]

If the outcome of a prop bet really is fully controlled by insiders, so that those insiders are making decisions based on betting outcomes, then allowing that betting to occur seems antisocial and counterproductive to begin with. This is another problem with the Polymarket/Kalshi species of "prediction market".

[AnthonyMouse]

The problem is it's pretty hard to tell ahead of time whether that's what happens.

Suppose some large private company has to decide whether they're going to build a new facility in city A or city B. This is useful information for all kinds of reasons. If you're a vendor then you need to start making preparations to set up shop in the city where your big customer is moving etc.

The company's analysis shows it would derive a $10M advantage from building in city A. The prediction market is correctly leaning that way. If there are only enough counterparties that someone who now bets on city B and wins would make $5M, everything works the way it should and the company goes with city A. But if there are enough counterparties that a winning bet on city B would net you $25M then the company can place the bet, eat the $10M loss by choosing city B and come out $15M ahead.

But the $10M number isn't public. It's essentially the thing you wanted the market to predict and it could be arbitrarily larger or smaller than that. So how are you supposed to know if the prediction market will be predicting the result or determining it?

[tptacek]

A private company of any real size isn't plausibly going to choose Atlanta over Chattanooga to win a prediction market bet. This is a good example of the kind of prediction that can theoretically be prosocial, and one strong indicator that it might be is that an insider bet is helpful rather than harmful.

On the other hand, at the point where the prediction market winnings are material enough that they might alter the underlying decision itself, you've clearly got an antisocial structure. Prediction markets that don't want to be seen as mere prop betting venues should refuse to run markets on those questions.

[AnthonyMouse]

> On the other hand, at the point where the prediction market winnings are material enough that they might alter the underlying decision itself, you've clearly got an antisocial structure.

How is that supposed to be determined?

There are many decisions that have only minor implications to the party making them (they're choosing between two nearly-equivalent alternatives) but massive implications for third parties (the company or city chosen gets a huge gain and knowing which one is valuable information). When the decision itself is essentially a coin flip, any prediction market winnings could alter the underlying decision. And whether it's that close of a decision is the thing the market would be trying to predict rather than something you already know.

[Eddy_Viscosity2]

A different example would be people bettering on whether a politician/celebrity will wear a certain color at an event. Since these apps allow exactly these sorts of trivial bets, this is not an stretch. That politician/celebrity or their team could easily wear a color that aligns with their bets. This seems indistinguishable from a scam.

[wutwutwat]

> This is another problem

It is insider trading, the thing everyone here is talking about