[burningChrome]

So in prediction markets I've heard a lot of times people will collaborate in order to make certain predictions pay off higher sums by having more people put money on a certain bet.

Is it true with these markets the more people bet on a specific day and time, the value will increase more, increasing the overall payout? If that is true, I wonder if they're looking at anybody else helping place the bets or a group of people trying to wager a higher amount of money to increase the return?

[bostik]

It's a bit more nuanced than that, because we're not talking about outright market manipulation. Absent any other information, the market makers always assume that they might be trading against a better informed counterparty - so absent any other signal, the prices at which executions happen are themselves a signal.

Think about it: you have N market makers offering both sides of the trade with a spread between them. When there is no other meaningful activity, the best prices are more or less stable. Now someone comes in and buys one side of the trade. Each marker maker will, individually, make the same two decisions:

    1. "If you bought at that price, I should raise my price and charge you more"
    2. "Since you bought at that price, I must assume you have more information and I should get out the way to avoid an expensive mistake"

The magnitude of the decisions made depends on various factors, but as a short-hand the size of the made trades in respect to the overall liquidity available near the midpoint directs how strongly the market makers react. A tiny trickle of insignificant trades does not move the price in any meaningful way (unless the sizes are so small that the execution commission starts to make a difference). A sustained directional flood of trades will cause the midpoint (and volume) to move to the direction where the market makers can sell at higher prices and avoid accumulating any further losses.

[floam]

Well yes. Someone has the other side of the bet, and it’s not 1:1 long:short. That’s how folks could hypothetically hire somebody to kill me, by putting $5M on “floam will survive the month” - if I’m not killed conspirators get their money back, with interest. But if I am verifiably dead, whoever knew in advance a hit man will kill me, that man gets paid.