8 ms·

Prediction markets have an elections problem

144 points by throwup238 3y ago

zzzeek 3y ago
[flagged]
- adrienphila 3y ago
  [deleted]
  - nostromo 3y ago
    No conspiracy thinking required. Biden has a non-zero chance of dying before the election and Harris is very unpopular. It's not unthinkable that should Biden not be able to run, someone like Obama would step in at the last minute. Would I pay 20:1 odds for that scenario? Hell no. But I might buy at 100:1 or greater.
    - Spivak 3y ago
      I'm sorry, what? The line of presidential succession has been long established, it's in the constitution, and Kamala Harris is next in line. And then a lot of people who aren't Obama.
      - simonw 3y ago
        That's a different issue. Presidental succession says who replaces Biden if he dies in office, but the question here is who would stand as the Democratic candidate for the 2024 election if he died. Harris would be likely, but maybe not a 100% certainty.
        laidoffamazon 3y ago
        The edge cases are people like Pritzker or Newsom, not Michelle Obama who has repeatedly said she would never run for office.
      - pessimizer 3y ago
        Elections have nothing to do with presidential succession. It will be a party decision, Harris is a guaranteed loss, and M. Obama is a possible win.
        laidoffamazon 3y ago
        This is, again, a conspiratorial mindset considering Michelle Obama has repeatedly said she would never run and Kamala Harris would never be replaced.
        nostromo 3y ago
        Politicians always say that. Obama himself denied wanting to run for president repeatedly right up until he announced his run for president.
        laidoffamazon 3y ago
        Notably Barack Obama was an actual politician in February 2007, unlike Michelle Obama. It's a nonsensical comparison.
      - function_seven 3y ago
        Lines of succession are a separate thing from winners of elections. If Biden were to die before election day, that doesn't mean Harris would be on the ticket as the presidential nominee. I'd wager against that for sure. So who would be tapped to fill in for the recently-deceased candidate? Could be Harris, or Obama, or a dozen other hopefuls.
      - laidoffamazon 3y ago
        In the minds of conservatives and some leftists, the concept that Kamala being unpopular is so ingrained that they cannot believe that she would be the nominee no matter what the circumstances. In reality she's not much more unpopular than her President and would likely see a massive approval bump if the worst happens to the current POTUS. Even without that, she's the odds-on favorite to be the nominee in 2028 by incumbency alone. Basically anyone that follows politics understands this, but the silly conspiracies are based on motivated reasoning.
- polytropos2 3y ago
  [flagged]
- yodsanklai 3y ago
  > I would assume 90% dudes with strong conservative leanings So that would be a good place to make money, and ultimately make these markets better at predicting.
  - lkbm 3y ago
    This is something a number of people do on PredictIt, since that one does have a conservative lean. It takes a lot more than the individual limit to fully price correct, though. I personally haven't maxed out on it (I think the limit is $800), but I've got a few hundred bet that Biden will be the Dem nominee / that Newsome won't be. Not sure why we don't have more people picking up the free money, but given that I haven't picked up a much as I possibly can, I'm not one to criticize.
  - pragmar 3y ago
    I remember Nate Silver speaking of the golden age of online poker, when amateurs were the dominant audience, and a decent (non-pro) strategy player could make a living. Word got out, and just like that, it was over.
  - zzzeek 3y ago
    sure, and thanks for agreeing with my premise! but liberals are not really into stupid gambling games, so this "market" is inherently stocked with a limited supply of mindshare
    - polytropos2 3y ago
      mindshare on this site would probably vastly expand after you delete your account
- rspeele 3y ago
  As somebody who made a decent chunk of change (enough to get a 1099 from PredictIt in 2020 and 2021) off the situation... long shot bets are almost always overpriced on PredictIt. PredictIt specifically encourages these long shots to be over weighted thanks to their $850 risk limit in any given market. If one long-shot bettor places a max buy order for YES at 10c per share, the order book has 8500 buys at that price point. I can come along, see that what they're betting on is absolutely nuts and max out NO... but at 90c per share I can only fill 944 of those orders before I'm maxed out at my $850 risk limit. I might be supremely confident and WANT to bet $7,650 on this but I simply am not allowed to. So it takes eight more people like me to come along and plunk that money down before we're moving the needle on the order book. In the 2020 election they somewhat mitigated this by making a dozen markets that were all basically the same question: Is Trump going to succeed at overturning this? They had markets for each state, plus combo markets they added like "Will Trump win any of AZ, GA, PA", plus the electoral college markets, the margin-of-victory markets, etc. But it was still way more effort to go in with a big chunk of change and manage spreading your bets out across all those different markets to max your $850 caps as efficiently as possible. This is in addition to the other factors, that it is simply more FUN for people to gamble on long odds because it's like buying lottery tickets (who wouldn't want a 10:1 return?). And that, when you factor in fees, opportunity cost (I could have this money in the S&P 500), and counterparty risk (how long will my money be tied up if PredictIt gets shut down), it's really not very attractive to put money in shares in the $0.90-0.99 range unless A. you already have the cash sitting in your PredictIt balance and B. the end date of the market is known and approaching rapidly.
jncfhnb 3y ago
Someone should make a tool to invest against the prediction markets overconfidence without considering the specific predictions
- Powdering7082 3y ago
  Could you give a specific example?
  - jncfhnb 3y ago
    Do an analysis of odds vs. outcomes to get a sense of typical calibration errors based on characteristics (eg political) and the odds given. Identify areas of likely incorrect spreads, and invest against them.
recursivecaveat 3y ago
Is it actually possible to make money against these small odds predictions? If I look at this page, it has dems win by 215+ at 2 cents. https://www.predictit.org/markets/detail/8077/What-will-be-the-Electoral-College-margin-in-the-2024-presidential-election https://www.predictit.org/markets/detail/8077/What-will-be-t... So I buy a "no" contract for 98 cents, and sell it for $1 in most of a year. Maybe someone who has used the platform can chime in, but the terms of service seem to suggest I don't get any interest on my contract money meanwhile. So I'm underwater already probably, then I pay 5% to the platform when I withdraw. Obviously the time-value thing gets better as the end approaches, but you'd expect most low-probability events to decline in price too.
- rspeele 3y ago
  You are absolutely correct. It doesn't make sense to buy that contract unless you already have the money in your PredictIt balance, you want to keep it there as "dry powder", and you really can't think of a better market to park it in (unlikely). Time value of money being what it is... contracts like that have a pretty dead market. There is no reason to hold either the longshot YES that's realistically less than 1% likely OR the tie-up-your-dollar NO. Of course if you already have a balance on PI, you just won in another market, and say it's Nov 6th and you've got nothing better to do... you might as well buy 99c shares because the $1 payout could be in as little as a couple days and what else are you doing with the money? So the high priced shares DO eventually sell but basically anything that's months away dies out in trading volume before it reaches the 99c mark. Personally if I still had money sitting in PI I'd probably park my dry powder in NO on "Joe Biden resign in his first term", which has been as high as 10c this month, but even assuming I could get 90c NO shares that is not worth me moving money from my bank back into PI just to skim those pennies.
- deleted 3y ago
  [deleted]
- iouwhldkfjgklj 3y ago
  [flagged]
  - 3y ago
kelseyfrog 3y ago
What's the author's call to action: understand prediction market failures better? To what end?
mindslight 3y ago
Another thing I don't think the article touched upon - it makes sense to use these markets as a hedge for things you're hoping won't happen, especially as prediction markets become less of a niche thing. For example, it would make sense to put down a bunch of money on Trump winning in 2024. Not because you'd be happy if he won, but rather so that if he does win your earnings can mitigate damage elsewhere in your life. Of course you might not want that contract to be denominated in USD...
optimalsolver 3y ago
[flagged]
OscarCunningham 3y ago
It would be nice to have a site like electionbettingodds.com but with intervals rather than point preditions. Given the betting odds it's possible to calculate upper and lower bounds on the probabilities. Ideally you would take into account the fees and the opportunity cost of having your money locked in the bet. The bounds would be the range in which it wouldn't be possible to make an expected profit by betting either way. The advantage would be that instead of an absurd point estimate like "Michelle Obama has a 6.90% of winning the election" you'd get something like "the probability of Michelle Obama winning the election is between 7.0% and 0.01%". Which makes it clear that while the upper bound can't be driven to 0, the lower bound is perfectly sensible.
- Xcelerate 3y ago
  > instead of an absurd point estimate like "Michelle Obama has a 6.90% of winning the election" A probability distribution is defined over a set of outcomes. If “Michelle Obama winning” is one independent, categorical outcome, then there is one probability associated with that outcome. > you'd get something like "the probability of Michelle Obama winning the election is between 7.0% and 0.01%" Stacking another layer of probability on top of probability distributions still results in only one final distribution for prediction purposes. I think maybe what you’re trying to capture is how your “confidence” about a prediction ties into the evaluation of the reward or penalty. This would just be modulated by adjusting how wide/uniform your probability distribution is and the amount that you bet, but perhaps the websites could add some tools to help people visualize this better.
  - OscarCunningham 3y ago
    Yes, I agree that in principle every person should have a probability for each event. But what does the market tell us about what our own belief should be? If you don't have any nonpublic information and you trust the market to be efficient then your assumption should be that you yourself cannot make an expected profit in the market. So the useful information from the market can be given in terms of the bounds within which you can't bet profitably. You yourself should update your probabilities to be within those bounds.
cyberax 3y ago
Prediction markets are stupid, fundamentally. If you have some deep subject knowledge to make a prediction, your bet will be drowned by others. Sure, you can make a buck from your prediction, but you won't get instantly rich, and you won't be able to make these kinds of bets consistently.
- iouwhldkfjgklj 3y ago
  If you concede that people with subject knowledge can make money, that sounds to me the opposite of stupid. Sounds to that it's working as intended.
  - kmeisthax 3y ago
    People with subject knowledge can make money, but no mechanism guarantees that the majority of people using the market are subject matter experts. If anything, most people using the prediction market are going to be people paying to make their chosen outcome look more preferable. They aren't trying to make a financial payoff on the bet, they're trying to make an emotional payoff and are willing to lose money doing so.
    - gnepon 3y ago
      This is the best case scenario for prediction markets I think, as it means the odds more accurately reflect the outcome likelihood (e.g. people aren't betting against their favourite in an hedge against emotions). At least then they would break even in an efficient market. But it isn't an efficient market due to fees and opportunity cost... So you're right, it is irrational to participate.
    - immibis 3y ago
      So bet the correct way and make the financial payoff those people won't. What's the problem?
- bitshiftfaced 3y ago
  Hypothetically someone who was confident they had better knowledge would be willing to invest more in their prediction. Those who were right about that would have more money to invest on the next iteration, which would amplify this effect over time. Realistically, to my knowledge, this isn't really possible on current platforms since they have built in limitations and fees.
enjeyw 3y ago
I worked at a prediction market startup for a while. Even completely rational prediction markets generally have a structural problem with events with likelihoods close to 1.0 or 0.0. This leads to cases where conspiracy type events have much higher likelihoods than they should, leading people to assume the market has lost all rationality when actually it hasn't. For example, imagine if there's an event with a predicted likelihood of 1 in 50, but it should actually be 1 in 1000. Assuming the market uses real money, then on paper someone should be able to make a roughly 2% return by betting that the event won't occur. However, if this market isn't closing for a while (for example for an election at the end of the year), then no-one is incentivised to take the bet and correct the market, because they'll get a much better risk free return just by putting their money in a term deposit and collecting the interesting. And so the market remains un-corrected. Basically prediction markets have an accuracy upper bound determined by the current risk free return. For markets using "play" money a slightly different effect is at play. When it's not real money involved, generally the people are incentivised to try and top a leaderboard of some sort. In this case, a really effective strategy for people who currently aren't near the top of the leaderboard is to take long shot bets. If they loose, who cares they weren't gonna win anyways, but if the the bet plays off they have a lot to gain. Basically there's an asymmetry in returns that once again messes with probabilities.
- xur17 3y ago
  > Assuming the market uses real money, then on paper someone should be able to make a roughly 2% return by betting that the event won't occur. However, if this market isn't closing for a while (for example for an election at the end of the year), then no-one is incentivised to take the bet and correct the market, because they'll get a much better risk free return just by putting their money in a term deposit and collecting the interesting. And so the market remains un-corrected. Basically prediction markets have an accuracy upper bound determined by the current risk free return. What if the deposited USD automatically earned interest at the current risk free return (think something like USDC on Aave in crypto land)?
  - enjeyw 3y ago
    Yeah as far as I’m aware that’s the solution. Though then the market can’t use the deposit to make money for themselves, and needs to rely on other mechanisms like trading fees etc. So really it comes down to how much the market cares about the accuracy of long tail events.
alphazard 3y ago
It seems like there is a lot of resistance to these kinds of markets. Both in terms of bureaucratic restrictions, but also in terms of sentiment, including here on HN. It's not that people disagree with the market clearing price, and are motivated to take a position. It's that they don't want other people to converge on a prediction in this way, and want to ban it, or keep the stakes so small that the market doesn't attract real expertise. It's like people are more into beliefs as decoration, rather than as something to compare and test against other people's beliefs.
- sctb 3y ago
  I find this interesting but I'm not sure I understand and I'd like to. Are you suggesting that there is a psychological aversion to prediction markets when the outcomes in question are as personal as politics? Would a similar analogy be, say, reluctance to the idea of finding one's romantic partner through a formalized process like algorithmic matchmaking?
  - alphazard 3y ago
    What I have observed is: people calling these markets or their participants stupid. Then when they are told they can make money off of these supposedly stupid market participants, another made up reason is given why they won't put their money where their mouth is. If the algorithms for finding romantic partners are similar to netflix recommendations, then I think the aversion to them is totally warranted; I don't think that's the same thing. If a closed source algorithm makes bad recommendations, I can dismiss it as useless. If I don't like the price of a prediction market, I am forced to reconcile what I know about the structure of the market, with my personal beliefs. Anytime these markets come up in conversation or are used in a thought experiment, it reveals how few of an individual's outwardly professed beliefs they themselves take seriously. It's almost like most of the time someone says they believe something they are actually trying to manipulate anyone listening, rather than solicit criticism to refine the belief.
- rspeele 3y ago
  Another reason to keep the stakes small is to avoid problems like the assassination market[0]. I'd rather have podunk, inaccurate prediction markets like PredictIt than one which amounts to putting massive bounties on public figures. Or incentivizing public figures to do their job badly like make a surprise change in their vote on an important bill, just to win a longshot bet. PredictIt even used to have markets on, like, which SCOTUS justice would be the next to leave. People got paid when RBG died. That literally would've been this, if it weren't for the fact that the small investment limit kept the returns low. Realistically I don't think anybody was going to be committing assassinations just to make a thousand bucks. The same things that keep prediction markets inaccurate keep them from causing bigger problems. [0]https://en.wikipedia.org/wiki/Assassination_market https://en.wikipedia.org/wiki/Assassination_market
rspeele 3y ago
Copying my comment from the dead zzzeek post: Long shot bets are almost always overpriced on PredictIt. PredictIt specifically encourages these long shots to be over weighted thanks to their $850 risk limit in any given market. If one long-shot bettor places a max buy order for YES at 10c per share, the order book has 8500 buys at that price point. I can come along, see that what they're betting on is absolutely nuts and max out NO... but at 90c per share I can only fill 944 of those orders before I'm maxed out at my $850 risk limit. I might be supremely confident and WANT to bet $7,650 on this but I simply am not allowed to. So it takes eight more people like me to come along and plunk that money down before we're moving the needle on the order book. In the 2020 election they somewhat mitigated this by making a dozen markets that were all basically the same question: Is Trump going to succeed at overturning this? They had markets for each state, plus combo markets they added like "Will Trump win any of AZ, GA, PA", plus the electoral college markets, the margin-of-victory markets, etc. But it was still way more effort to go in with a big chunk of change and manage spreading your bets out across all those different markets to max your $850 caps as efficiently as possible. This is in addition to the other factors, that it is simply more FUN for people to gamble on long odds because it's like buying lottery tickets (who wouldn't want a 10:1 return?). And that, when you factor in fees, opportunity cost (I could have this money in the S&P 500), and counterparty risk (how long will my money be tied up if PredictIt gets shut down), it's really not very attractive to put money in shares in the $0.90-0.99 range unless A. you already have the cash sitting in your PredictIt balance and B. the end date of the market is known and approaching rapidly.
Powdering7082 3y ago
I made pretty good returns (e.g. 40% annualized) during the 2020 election on predictit. I even found a pure arbitrage opportunity. But you can't really scale up to make it worthwhile on PredictIt due to bet size limitations.
- teraflop 3y ago
  The one and only time I traded on PredictIt, around the beginning of the pandemic, I made an easy couple hundred bucks on this market: https://www.predictit.org/markets/detail/4683 https://www.predictit.org/markets/detail/4683 The majority of traders seemingly looked at the headline and failed to understand the contract terms, which only required a "quarterly annualized" GDP growth of 5%, during at least one quarter of 2020. So a severe economic downturn in Q2, followed by even a modest recovery in Q3, would have made a "yes" outcome all but guaranteed. The comments became pretty hilarious once someone pointed this out.
  - dataflow 3y ago
    > The majority of traders seemingly looked at the headline and failed to understand the contract term Nice way to blame the masses. Seems to me more like the terms contradicted the headline, thus making this a mechanism for exploiting people who assume they're making an honest bet. Seems like fraud, honestly.
    - mikeyouse 3y ago
      Seems like fraud to spell out the terms of the bet in plain language and then enforce those terms? The annual rate of increase in real gross domestic product (GDP) in one or more quarters prior to or including the fourth quarter of 2020, as rounded to the nearest tenth of a percent, per the advance, second or third estimate, as published subsequent to the launch of this market for any such quarter by the Bureau of Economic Analysis (BEA), shall be 5.0% or higher.
      - dataflow 3y ago
Imnimo 3y ago
Is there any possibility of unwinding the distortion caused by site fees, time-value issues, and other market imperfections to recover the true odds implied by the betting markets, or is it just too complicated for that to be feasible?
- OscarCunningham 3y ago
  Yes, but instead of getting a single number you'll get a range. Like it might be that if the probability of Biden winning the election is anywhere between 49% to 55% then it's not worth betting for him or against him. The worse the imperfections are the wider the interval gets.
fulladder 3y ago
The author does not understand bid-ask spreads, does not understand distortions created by fees, does not understand that the last trade price is not the same as what you can get at present, and just generally does not understand the realities of trading in markets. This article is a zero-information void.
- bmer 3y ago
  Any resources that you'd recommend for learning such things?
  - jldugger 3y ago
    Business school[1]? Trading on IEM[2] for six months? [1]: https://oyc.yale.edu/economics/econ-252 https://oyc.yale.edu/economics/econ-252 [2]: https://iem.uiowa.edu/iem/ https://iem.uiowa.edu/iem/
- j_maffe 3y ago
  The article shows that the average predicted likelihood is frequently illogical. That is not zero-information.
  - eli 3y ago
    But those things at least partly explain the apparent irrationality. PredictIt charges 10% fee on profits and another 5% fee on withdrawals. So bets that have the potential to earn a few cents on the dollar aren't necessarily worth it. That's before considering how long you have to lock up your money in this contract.
    - neilkk 3y ago
      The implied probability of Brexit a few days before was around 25%. The implied probability of Trump beating Clinton a few days before was around 20%. Neither the time value of money nor the cost of trading explain these dislocations.
oramit 3y ago
The 2020 elections were such a shitshow on PredictIt. So many trades were skewed by partisan bias that it was shockingly easy to make money. My favorite trade that year was for some reason the "market" was pricing in a lower turnout in 2020 vs 2016. I grabbed a strip of the over bets at big discounts. I still to this day don't understand what people were thinking with their bets there. A hugely contested election during a pandemic when there was nothing else to do, of course there was going to be huge turnout!
- rspeele 3y ago
  I really enjoyed the market "Will either Biden or Trump concede within 2 weeks of the election?" As I recall "no concession" was priced at like 40c, at the same time that Biden winning the election was priced at something like 55c-60c. I was pretty sure Trump was not going to concede, period, so this was just a substantially cheaper version of betting "Biden wins". And as it turned out, it also had the advantage that it closed much, much sooner than the actual election market -- thus freeing up my funds to go into those other markets that hung at 85c or so till December.
- silisili 3y ago
  I think 2016 was easier wrt odds, because few thought Trump had any real chance. I made pretty good money just betting on him to win PA and FL.
jrm4 3y ago
There's no problem here at all; except perhaps the wildly absurd fantasy of "perfectly rational (and/or intelligent) markets," which the popularity of e.g. lotteries and casinos immediately disproves. Not much to see here.
- hcks 3y ago
  Your comment has no substance
- mattmaroon 3y ago
  Neither of those are markets, and the fact that dumb money exists in markets doesn’t change the fact that they are rational on balance because smart money will eat the dumb money fairly quickly.
- UncleMeat 3y ago
  The number of people who have told me "because betting markets have Trump at X% in 2024, that's the odds that he wins" in the past six months is staggering. I think some distribution of the idea that betting markets aren't actually pure likelihood estimators is a good thing.
  - deleted 3y ago
    [deleted]
- aleph_minus_one 3y ago
  > There's no problem here at all; except perhaps the wildly absurd fantasy of "perfectly rational (and/or intelligent) markets," which the popularity of e.g. lotteries and casinos immediately disproves. Not much to see here. The behaviour of customers of lotteries is indeed clearly not perfectly rational if you consider the monetary expected value of your wins. On the other hand, the customers' behaviour gets much more rational if you consider the customer's utility function: a huge lottery win has a disproportional benefit for the customer with respect to the customer's utility function (since the lottery win will hopefully change the customer's life). In other words: what the customer optimizes for is the expected value of his utility function.
chadash 3y ago
The answer is stupidly simple but only touched on briefly in the article. It is the fees and the limits bet sizes combined. Let’s take a simple example, which is Donald Trump‘s current odds of winning the Republican nomination. Predictit currently has this at $0.92. Realistically I think the odds are higher. Not 100% but higher than $0.92. The problem is that the maximum I can bet is $500, so that’s 543 “shares” that I can buy. And I’ll make $0.08 on each share if he wins, so that’s $43. Then when I withdraw my money I will get a 5% fee, so my initial $500 turns in to $516. Oh, and then I have to wait until primaries, and for it to actually pay out. And there IS a non zero chance trump loses. Very few individuals will care about turning $500 into $515, so this bet makes sense. And since you have a cap on bet size, no institution will care either. sounds like a rational market to me.
- FergusArgyll 3y ago
  + Opportunity costs
- phire 3y ago
  I think at this point, the chance of Trump not winning the Republican Nomination is basically the chance of him dying before the convention.
paulcole 3y ago
Haralabob Voulgaris is a pretty well known NBA (basketball) gambler. He has talked about how his biggest lifetime score ever was betting Biden after it was clear Biden was going to win but before the race was called. He talked about it on Bill Simmons Podcast and was just incredulous at how people could be that stupid and how much money had made betting on something that was a stone cold lock.
PaulRobinson 3y ago
This isn't an awful breakdown, it's just a bit pearl-clutching about several problems that are well understood. First, let's clear up some confusion. Markets are not accurate ways to determine accurate predictions. Somebody, somewhere is getting confused with "Wisdom of the Crowds" thinking. In the "Wisdom of the Crowds" - take, for example, everyone at the State fair taking a guess at how heavy a bull is - everyone has a single guess (and only one guess), and on aggregate you'll probably (that word is doing a lot of work here), get a more accurate answer than any one answer probably (again, lot of work there), will. You're reducing a distribution of guesses into a single number, and the distribution of those guesses is likely uniform, and likely going to find an average (and a median), quite close to the true value. Markets are not that. They are not efficient, they aren't accurate predictions. They are about weight of money. One moron who is hellbent on a World view with $10m in his account goes up against 1000 people with $10 each in their account, is going to move the number in their favour. We see this irrationality every day in sports trading, stocks, commodities, options, FX, crypto, you name it. In fact irrationality is so common in markets because of the weight of money there is a famous saying (often misattributed to Keynes): "The market can remain irrational longer than you can remain solvent." Time and time again its come true. All you need to do is look into the LTCM fiasco where Nobel Prize winners in economics (literally the creators of the Black-Scholes model), took a rational view of the market, bet on it big, and almost took down Wall Street in its entirety. They weren't wrong, they were just on the wrong side of the weight of money. I spend a lot of time trading sports (gambling is legal and tax free where I live, and well regulated betting exchanges exist), and thinking a lot about value. What does it mean to say a price about a selection in a market is wrong when it comes to some men running a field after a ball? There's a lot of people interested in this problem, and there is some evidence that they're not awful at it (Vegas lines on NFL games for example, adjusted to remove the house edge, converted into probabilities, aren't far away from observed outcomes), but every day awful prices are put up all over the place and still taken as if value by morons. Is it any surprise that newly-minted crypto-millionaires hold a lot of money in a market and can throw the price off? Not really. What you should do about it? Bet against. Take the action. Understand Kelly criterion, do the math, and trade that. You will bring the market back to reasonable pricing through applying your own weight of money and make a profit while doing so. Why aren't others doing so? Who knows. Liquidity, being busy with something else, not wanting to, there's a multitude of reasons. But when you spot value - somebody offering you money on the table betting for things that are literally impossible - I suggest you stop complaining and fill your boots. Morons are born every minute, but it's not often enough a lucky millionaire one is prepared to hand you their money on a plate. If media pundits are looking at these things as predictors of something, well you know there is one less media pundit to trust on this topic as they clearly have got confused. The next time they spout something that sounds statistical or mathematical or based in science, question if it actually is. Or if they, like many others before them, have confused markets for efficient proxies to uncover genuine wisdom, through the use of weight of money as the best means to extract secrets from the gods.
efitz 3y ago
The example the author gives is the 2020 election. Without rehashing anything or endorsing anyone’s viewpoint, there were lots of issues being raised, lots of court cases in flight, and possible procedural issues in the states and in the Congress related to electors and certification. The election wasn’t “over” until certification happened (late) on January 6. Why should bettors be prohibited from continuing to bet? And worse, if bets were resolved too early, then chaos would have ensued in the betting market if the electors were not certified and the House selected Donald Trump. Many ppl here may be too young to remember 2000 where recounts kept going on and on in Florida and the Supreme Court intervened. Again, I’m not advocating any position, I’m just pointing out that the election isn’t over just because $NEWS_SOURCE declares a winner.
- nelox 3y ago
  Elections should be perceived to be conducted in a fair and impartial manner as well as actually be conducted fairly and impartially. Therefore, betting on elections should be banned because an incentive is created to rig the outcome.
  - idontpost 3y ago
    [dead]
  - efitz 3y ago
    Elections are about power; there could hardly be a bigger motivator to rig the outcome even in the absence of any external factor like betting markets.
- ffitz 3y ago
  [dead]
- ajross 3y ago
  > Many ppl here may be too young to remember 2000 where recounts kept going on and on in Florida and the Supreme Court intervened. FWIW, Gore conceded after 36 days within hours of the release of the SCOTUS decision.
mattmaroon 3y ago
I am a former professional gambler and now I don’t gamble much, because I have neither the time nor interest to find good wagers, but what I do is on predictit. Being a great gambler mostly means not gambling until you have an edge, and what he says about and market being less accurate than 538 is true in my experience. I’ve been betting on there every couple years for maybe ten or so, it’s held up well. As many mentioned here, the fees are high. That contributes to market inefficiency for sure. Arbitrage opportunities pop up there all the time, but ones that are profitable after the fees less so. They do happen though. He is neglecting how long contracts take to settle. There’s a lag of two months between when the election and when president is sworn in. It’s not unreasonable to sell your winning position at 98% just to be able to bet on more things. It was the first time in 20 years of hoping for such an opportunity that I managed to get to bet on something that had already happened. That’s every gambler’s dream and I’m unaware of many instances of it happening without breaking laws or trickery. But even then, you bet 93 cents to win 7 and then pay 5% on cashout so it wasn’t exactly making people rich.
- blitzar 3y ago
  > I managed to get to bet on something that had already happened. In less liquid in play sports betting exchanges have this happen all the time - generally you are getting $1 for every $1000 wagered and settlement will take anywhere from minutes to days depending upon the event.
- deleted 3y ago
  [deleted]
- bluedays 3y ago
  How does that work? Being a professional gambler, I mean. I'd love to know more about this.
  - Geezus_42 3y ago
    Pretty sure it's a joking way of saying they used to be a day trader.
beefman 3y ago
The favorite-longshot bias is a well-known feature of markets https://en.wikipedia.org/wiki/Favourite-longshot_bias https://en.wikipedia.org/wiki/Favourite-longshot_bias https://github.com/gotoConversion/goto_conversion https://github.com/gotoConversion/goto_conversion
arisAlexis 3y ago
The penies on the market for Biden win reflected the very small odds it would be overturned. How can the author not understand this?
deleted 3y ago
[deleted]
bitshiftfaced 3y ago
I'm not surprised that PredictIt performed so poorly. They take 10% of your profit, so you need a large margin of expected value to justify getting in and correcting a mispriced question. To my knowledge, these markets are deliberately restricted. If you allowed unlimited betting, then experts would come in and eat these uninformed bettor's lunches. Except if you allowed that, then you face an ethical problem. You'd be providing a way for people to profit from influencing outcomes (e.g. questions that could resolve based on someone's death).
EGreg 3y ago
I thought they were going to talk about how when a prediction market gets too large, it can actually cause candidates to throw an election. Like assassination markets can affect the external world too
AlbertCory 3y ago
> We know that this tidal wave of money is dumb money because we can see intense tribal behavior on these sites and research tells us that the more one identifies with a “team,” the worse one’s predictions for that team are. People will bet for candidates and parties not because they have an evidence-based analysis supporting their bet, but as an expression of identity. This first sentence is completely unsupported. How do you know that the volume of comments tells you the amount of money bet? Actually, sports betting does have a fan bias. I doubt many 49'er fans are going to bet on the Chiefs in the Super Bowl. It could well be that prediction markets give the wrong answer, but I'll still give them as much weight as FiveThirtyEight. Or more. FiveThirtyEight is hardly non-ideological, cold-eyed realism. It's also true that smart money is not feasting on the dumb money, as a market really needs. The low volume and high costs of betting do make prediction markets less than perfect.
renewiltord 3y ago
PredictIt and friends were fun when: - money was cheap (low interest rates) - bets were short-term Otherwise, the profit-share demolished gains as a de-facto trading fee. Plus you could only make money on a few hundred at a time. I did some of the cheap bets that were mispriced but also some more obvious ones. A few multiples on the money, but it was too unwieldy to play it. The politics ones are easy. People like to bet on the outcome they'd like to occur rather than the one they think will occur. I understand, though. I find it hard to bet against Arsenal. Just seems like a miserable way to live.
powerbroker 3y ago
Am I the only one who notices this article professes to be published _February_ 2024, as I read it on January 29, 2024? It seems like a mistake a time traveler would make... who doesn't care enough to fix their mistakes.
- Mountain_Skies 3y ago
  That was extremely common with print magazines when those still existed in large numbers. Maybe still is common but it's been at least a decade since I last purchased one.
- kqr 3y ago
  I'm unrelated to this article but I often share previews of new unpublished articles with HN to get intelligent feedback on them.
kibwen 3y ago
A predictions market is one of those things that sounds fine on paper and works terribly in practice. The crucial failure is the inability to separate the incentives created by the prediction from the event being predicted. The tail ends up wagging the dog. So despite the "advocates claim that by providing a marketplace for bets on uncertain events, prediction markets give predictors a financial incentive to be correct", what happens is that prediction markets give predictors a financial incentive to make it be correct, which leads to all sorts of shenanigans in practice. Look at the stock market, which largely is a predictions market, and look at how much regulatory machinery is needed to dissuade obvious scams like insider trading and pump & dumps. And even then, the stock market is highly irrational precisely because of the financial incentive; look at how many years it's taken the GME fiasco to shake out and how many true believers are not merely still holding the bag, but buying up as many bags as they can. The ultimate example that I always trot out is that a predictions market on the topic of "will $PROMINENT_POLITICIAN be dead by $DATE" is just a distributed assassination contract (to be fair, it's also a distributed bodyguard contract...). Welcome to the free market, I hope your friends are richer than your enemies!
NotSuspicious 3y ago
> But instead, the majority of the bettors against Biden bet on the astonishing outcome of “Trump wins by 280+ electoral votes.” That, it should be clear, was impossible — it would require results to be overturned not just in states with tight races but also in Democratic bellwethers like California. That was not impossible at all once you take into account Trump's VP certification plan, which many people understood very early on. A longshot, yes, but certainly not impossible. If anything, the prediction markets priced in an insurrection better than any pundit I recall watching. To flip it around and call prediction markets "irrational" in this situation is misguided and ignorant of political history.
banannaise 3y ago
Happy to see that the article gets there eventually, but it's buried pretty deep: People betting on Donald Trump to win the election he had just lost weren't actually betting money. They were spending it. They are saying "I will spend $,000 just to show that I support Trump to the point where I [pretend to] believe him when he says he won the election [that he clearly just lost]". It's MAGA culture's way of - wait for it - virtue signaling. And the prediction market is just vacuuming up most of that money for themselves. You can bet against it for a nominal profit, but you're paying the vig to do it, and the vig is a big chunk when the odds are sitting at 9:1.
015a 3y ago
Participants are not required to be rational for the market to be rational.
ummonk 3y ago
The article briefly mentions causes for market inefficiency such as the time value of money and platform fees, but then inexplicably goes on to ignore them as potential reasons for inefficient markets. Plenty of arbitrage opportunities exist on PredictIt that can’t be taken advantage of either because the platform’s cut of any profit you make on a bet will negate the arbitrage or because resolution is so far off that it would be more profitable to just invest in a CD.
- tshaddox 3y ago
  I would expect that platform risk would be even more significant than fees and time. I haven't looked into any of the popular prediction market platforms, but by default I would be more concerned about the risk of them resolving markets in ways I fundamentally disagree with or simply ceasing to exist.
- caf 3y ago
  That is not how I read it at all. To me, it reads as "there are likely many reasons these markets aren't operating efficiently". The time value of money and fees certainly are part of it, but they don't explain things like, for example, the weight of money in the Trump-by-280+-EV contract.
  - ummonk 3y ago
    The point (which the author misses) is that irrational actors (such as those putting money in Trump winning by 280+) wouldn't significantly distort market odds if the market weren't severely crippled by so many restrictions and fees.
fasthands9 3y ago
I think for now they are still pretty good at assessing something like "Are the odds that Trump wins Wisconsin in 2024 closer to 2/3 or 1/2". The post-election stuff was annoying (I had several thousand dollars on the site) but the market limits + uncertainty over the platform made is understandable. It would be nice if there was a platform that didn't have limits and had interest rates closer to savings interest rates.
vagab0nd 3y ago
Someday, I'll be able to buy the prediction that my travel destination rains during my stay there. Someday.
- hobs 3y ago
  It's not that far away, they already sell insurance for this problem.
  - kqr 3y ago
    Do you have a link? This is something I've wanted.
    - hobs 3y ago
      Huh, I swear Delta offered me something that would give me like 50 bucks back if it was a rainy day but I see it nowhere on the internet so maybe it was a dream!
- jamilton 3y ago
  Kalshi has some weather markets, but I have no clue how they compare to just checking forecasts.
JohnMakin 3y ago
I remember in 2020 election markets, from ~mid 2019 onward you could take whether hillary clinton would run in 2020. It was a funny market until she started missing filing deadlines and something weird happened - the line became MORE favorable towards hillary running. It went on like that for quite a long time, well past the point where anyone with a room temp IQ would figure out she had zero chance of running because she wasnt running. Even up to about a week before the actual 2020 election, she was still trading at almost 10 cents on the dollar for “yes she is running.” Just wild. I don’t think it’s a problem for these markets, just the nature of the beast being that people easily believe conspiracy theories and propaganda and if you’re a gambler there’s a lot of money to make.
tmansour 3y ago
We're trying to fix that at kalshi.com :)
glerk 3y ago
> Unless we make sure that market structures are providing the right incentives in the right way, we shouldn’t be surprised if prediction markets continue to struggle. This conclusion is incredibly vague. What are "the right incentives in the right way"? Is there anything concrete that the author proposes here?
bparsons 3y ago
There was a non zero chance that the GOP would block the result and keep Trump in power. That is why you could still bet on that outcome after the voting results were finalized.
samschw 3y ago
I think the better title here is Prediction markets have a regulation problem. Out of the prediction markets you mentioned only one is regulated: Kalshi and only one is unable to list election markets: Kalshi. With their current lawsuit against the CFTC I am hopeful regulated election markets will be a reality very soon
m463 3y ago
What if elections are rigged? (serious question)
kwar13 3y ago
There are all sorts of anomalies. Here is a trade I did from the last US presidential election. https://kavehtehrani.medium.com/free-money-on-inauguration-day-almost-671cac8f1dbd https://kavehtehrani.medium.com/free-money-on-inauguration-d...
- dustypotato 3y ago
  Curious. How profitable was this for you? I assume the transaction fees ate a lot of it
  - kwar13 3y ago
    I can't quite recall since it was a while ago but I built a fairly large USDC position in it over 1 month, as much as the liquidity allowed me to. My main concern was counter party risk since in crypto lots of projects fail and didn't want a ton of capital sitting on the platform.
vintermann 3y ago
Political campaigns spend billions to make their candidate win. We know that one of the most important things in order to get a candidate to win, is the perception of strength. There's the theoretical risk of complacency, that people don't turn up to vote for your candidate because they think he will win anyway, but in practice that seems to be more than made up for with discouragement on the other side - especially on the donor's side. Voters may be willing to turn up to cast a vote of defiance, but self-interested donors will not throw money at a candidate who won't get in a position to reward them for it. So if people are paying attention to prediction markets at all, why wouldn't a campaign pour money into it to create the perception that their candidate is doing better than they are? Betting on a statistically impossible walkover win isn't a problem if your goal is to create the impression of fanatic support anyway. There's not that much money in these markets, so it shouldn't take all that much money to move them, in the scale of a US presidental election.
Marazan 3y ago
I'm going to talk about political gambling but I'm not going to talk about PredictIt. PredicitIt is irrelevant to the conversation. It's high fees an miniscule limits completely distorts what is "rational" or "reasonable" to expect the market to do. Betfair on the other hand is a reasonable thing to talk about. 2% fee on net winnings on a market and zero deposit or withdrawl fees makes it a pretty efficeint market for political betting. The Betfair political markets are dumb as a bag of rocks and there simply isn't enough smart money to suck up the dumb money. Political markets are incredibly thin, the average India Premier League cricket match gets way, way more action than all but the very largest political markets. The 2020 Presidential election was fairly unique in that the majority of the money was wagered after the election happened and after it was clear Biden had even. Idiot Trump supporters buying into conspiracy theories flooded the market with money. Political betting is very easy _but_ compared to sports gambling there is no where near enough events to make a living doing it. It's all very well having a huge edge (and betting on a even that has already completed is the largest edge you could ever have) but if you only get 1 betting opportunity a year that's not a way to make a living. It is a great way to have some fun though. Even in 2016, two days after the election, Clinton was @1.05 to win the popular vote. Right now on Betfair, despite almost £6 million having been traded on the market Michelle Obama is the 2nd favourite for the Democratic nomination @9.2 (that's a better than 10% chance). (For comparison about market size currently the Comilla Victorians vs Rangpur Riders match has over 4.5 million wagered).
winstonewert 3y ago
An important aspect of this is that it's not legal for most people to run a prediction market. PredictIt is allowed to operate because it is run by a university, and even that is now under question. The result is that there is little competition in this space, which is why PredictIt has huge fees and limits. As others have pointed out, that's a big part of why these markets deviate from reality.

144 points by throwup238 3y ago

zzzeek 3y ago

[flagged]

adrienphila 3y ago
[deleted]
- nostromo 3y ago
  No conspiracy thinking required. Biden has a non-zero chance of dying before the election and Harris is very unpopular. It's not unthinkable that should Biden not be able to run, someone like Obama would step in at the last minute. Would I pay 20:1 odds for that scenario? Hell no. But I might buy at 100:1 or greater.
  - Spivak 3y ago
    I'm sorry, what? The line of presidential succession has been long established, it's in the constitution, and Kamala Harris is next in line. And then a lot of people who aren't Obama.
    - simonw 3y ago
      That's a different issue. Presidental succession says who replaces Biden if he dies in office, but the question here is who would stand as the Democratic candidate for the 2024 election if he died. Harris would be likely, but maybe not a 100% certainty.
      - laidoffamazon 3y ago
        The edge cases are people like Pritzker or Newsom, not Michelle Obama who has repeatedly said she would never run for office.
    - pessimizer 3y ago
      Elections have nothing to do with presidential succession. It will be a party decision, Harris is a guaranteed loss, and M. Obama is a possible win.
      - laidoffamazon 3y ago
        This is, again, a conspiratorial mindset considering Michelle Obama has repeatedly said she would never run and Kamala Harris would never be replaced.
        nostromo 3y ago
        Politicians always say that. Obama himself denied wanting to run for president repeatedly right up until he announced his run for president.
        laidoffamazon 3y ago
        Notably Barack Obama was an actual politician in February 2007, unlike Michelle Obama. It's a nonsensical comparison.
    - function_seven 3y ago
      Lines of succession are a separate thing from winners of elections. If Biden were to die before election day, that doesn't mean Harris would be on the ticket as the presidential nominee. I'd wager against that for sure. So who would be tapped to fill in for the recently-deceased candidate? Could be Harris, or Obama, or a dozen other hopefuls.
    - laidoffamazon 3y ago
      In the minds of conservatives and some leftists, the concept that Kamala being unpopular is so ingrained that they cannot believe that she would be the nominee no matter what the circumstances. In reality she's not much more unpopular than her President and would likely see a massive approval bump if the worst happens to the current POTUS. Even without that, she's the odds-on favorite to be the nominee in 2028 by incumbency alone. Basically anyone that follows politics understands this, but the silly conspiracies are based on motivated reasoning.
polytropos2 3y ago
[flagged]
yodsanklai 3y ago
> I would assume 90% dudes with strong conservative leanings So that would be a good place to make money, and ultimately make these markets better at predicting.
- lkbm 3y ago
  This is something a number of people do on PredictIt, since that one does have a conservative lean. It takes a lot more than the individual limit to fully price correct, though. I personally haven't maxed out on it (I think the limit is $800), but I've got a few hundred bet that Biden will be the Dem nominee / that Newsome won't be. Not sure why we don't have more people picking up the free money, but given that I haven't picked up a much as I possibly can, I'm not one to criticize.
- pragmar 3y ago
  I remember Nate Silver speaking of the golden age of online poker, when amateurs were the dominant audience, and a decent (non-pro) strategy player could make a living. Word got out, and just like that, it was over.
- zzzeek 3y ago
  sure, and thanks for agreeing with my premise! but liberals are not really into stupid gambling games, so this "market" is inherently stocked with a limited supply of mindshare
  - polytropos2 3y ago
    mindshare on this site would probably vastly expand after you delete your account
rspeele 3y ago
As somebody who made a decent chunk of change (enough to get a 1099 from PredictIt in 2020 and 2021) off the situation... long shot bets are almost always overpriced on PredictIt. PredictIt specifically encourages these long shots to be over weighted thanks to their $850 risk limit in any given market. If one long-shot bettor places a max buy order for YES at 10c per share, the order book has 8500 buys at that price point. I can come along, see that what they're betting on is absolutely nuts and max out NO... but at 90c per share I can only fill 944 of those orders before I'm maxed out at my $850 risk limit. I might be supremely confident and WANT to bet $7,650 on this but I simply am not allowed to. So it takes eight more people like me to come along and plunk that money down before we're moving the needle on the order book. In the 2020 election they somewhat mitigated this by making a dozen markets that were all basically the same question: Is Trump going to succeed at overturning this? They had markets for each state, plus combo markets they added like "Will Trump win any of AZ, GA, PA", plus the electoral college markets, the margin-of-victory markets, etc. But it was still way more effort to go in with a big chunk of change and manage spreading your bets out across all those different markets to max your $850 caps as efficiently as possible. This is in addition to the other factors, that it is simply more FUN for people to gamble on long odds because it's like buying lottery tickets (who wouldn't want a 10:1 return?). And that, when you factor in fees, opportunity cost (I could have this money in the S&P 500), and counterparty risk (how long will my money be tied up if PredictIt gets shut down), it's really not very attractive to put money in shares in the $0.90-0.99 range unless A. you already have the cash sitting in your PredictIt balance and B. the end date of the market is known and approaching rapidly.

jncfhnb 3y ago

Someone should make a tool to invest against the prediction markets overconfidence without considering the specific predictions

Powdering7082 3y ago
Could you give a specific example?
- jncfhnb 3y ago
  Do an analysis of odds vs. outcomes to get a sense of typical calibration errors based on characteristics (eg political) and the odds given. Identify areas of likely incorrect spreads, and invest against them.

recursivecaveat 3y ago

Is it actually possible to make money against these small odds predictions? If I look at this page, it has dems win by 215+ at 2 cents. https://www.predictit.org/markets/detail/8077/What-will-be-the-Electoral-College-margin-in-the-2024-presidential-election https://www.predictit.org/markets/detail/8077/What-will-be-t... So I buy a "no" contract for 98 cents, and sell it for $1 in most of a year. Maybe someone who has used the platform can chime in, but the terms of service seem to suggest I don't get any interest on my contract money meanwhile. So I'm underwater already probably, then I pay 5% to the platform when I withdraw. Obviously the time-value thing gets better as the end approaches, but you'd expect most low-probability events to decline in price too.

rspeele 3y ago
You are absolutely correct. It doesn't make sense to buy that contract unless you already have the money in your PredictIt balance, you want to keep it there as "dry powder", and you really can't think of a better market to park it in (unlikely). Time value of money being what it is... contracts like that have a pretty dead market. There is no reason to hold either the longshot YES that's realistically less than 1% likely OR the tie-up-your-dollar NO. Of course if you already have a balance on PI, you just won in another market, and say it's Nov 6th and you've got nothing better to do... you might as well buy 99c shares because the $1 payout could be in as little as a couple days and what else are you doing with the money? So the high priced shares DO eventually sell but basically anything that's months away dies out in trading volume before it reaches the 99c mark. Personally if I still had money sitting in PI I'd probably park my dry powder in NO on "Joe Biden resign in his first term", which has been as high as 10c this month, but even assuming I could get 90c NO shares that is not worth me moving money from my bank back into PI just to skim those pennies.
deleted 3y ago
[deleted]
iouwhldkfjgklj 3y ago
[flagged]
- 3y ago

kelseyfrog 3y ago

What's the author's call to action: understand prediction market failures better? To what end?

mindslight 3y ago

Another thing I don't think the article touched upon - it makes sense to use these markets as a hedge for things you're hoping won't happen, especially as prediction markets become less of a niche thing. For example, it would make sense to put down a bunch of money on Trump winning in 2024. Not because you'd be happy if he won, but rather so that if he does win your earnings can mitigate damage elsewhere in your life. Of course you might not want that contract to be denominated in USD...

optimalsolver 3y ago

[flagged]

OscarCunningham 3y ago

It would be nice to have a site like electionbettingodds.com but with intervals rather than point preditions. Given the betting odds it's possible to calculate upper and lower bounds on the probabilities. Ideally you would take into account the fees and the opportunity cost of having your money locked in the bet. The bounds would be the range in which it wouldn't be possible to make an expected profit by betting either way. The advantage would be that instead of an absurd point estimate like "Michelle Obama has a 6.90% of winning the election" you'd get something like "the probability of Michelle Obama winning the election is between 7.0% and 0.01%". Which makes it clear that while the upper bound can't be driven to 0, the lower bound is perfectly sensible.

Xcelerate 3y ago
> instead of an absurd point estimate like "Michelle Obama has a 6.90% of winning the election" A probability distribution is defined over a set of outcomes. If “Michelle Obama winning” is one independent, categorical outcome, then there is one probability associated with that outcome. > you'd get something like "the probability of Michelle Obama winning the election is between 7.0% and 0.01%" Stacking another layer of probability on top of probability distributions still results in only one final distribution for prediction purposes. I think maybe what you’re trying to capture is how your “confidence” about a prediction ties into the evaluation of the reward or penalty. This would just be modulated by adjusting how wide/uniform your probability distribution is and the amount that you bet, but perhaps the websites could add some tools to help people visualize this better.
- OscarCunningham 3y ago
  Yes, I agree that in principle every person should have a probability for each event. But what does the market tell us about what our own belief should be? If you don't have any nonpublic information and you trust the market to be efficient then your assumption should be that you yourself cannot make an expected profit in the market. So the useful information from the market can be given in terms of the bounds within which you can't bet profitably. You yourself should update your probabilities to be within those bounds.

cyberax 3y ago

Prediction markets are stupid, fundamentally. If you have some deep subject knowledge to make a prediction, your bet will be drowned by others. Sure, you can make a buck from your prediction, but you won't get instantly rich, and you won't be able to make these kinds of bets consistently.

iouwhldkfjgklj 3y ago
If you concede that people with subject knowledge can make money, that sounds to me the opposite of stupid. Sounds to that it's working as intended.
- kmeisthax 3y ago
  People with subject knowledge can make money, but no mechanism guarantees that the majority of people using the market are subject matter experts. If anything, most people using the prediction market are going to be people paying to make their chosen outcome look more preferable. They aren't trying to make a financial payoff on the bet, they're trying to make an emotional payoff and are willing to lose money doing so.
  - gnepon 3y ago
    This is the best case scenario for prediction markets I think, as it means the odds more accurately reflect the outcome likelihood (e.g. people aren't betting against their favourite in an hedge against emotions). At least then they would break even in an efficient market. But it isn't an efficient market due to fees and opportunity cost... So you're right, it is irrational to participate.
  - immibis 3y ago
    So bet the correct way and make the financial payoff those people won't. What's the problem?
bitshiftfaced 3y ago
Hypothetically someone who was confident they had better knowledge would be willing to invest more in their prediction. Those who were right about that would have more money to invest on the next iteration, which would amplify this effect over time. Realistically, to my knowledge, this isn't really possible on current platforms since they have built in limitations and fees.

enjeyw 3y ago

I worked at a prediction market startup for a while. Even completely rational prediction markets generally have a structural problem with events with likelihoods close to 1.0 or 0.0. This leads to cases where conspiracy type events have much higher likelihoods than they should, leading people to assume the market has lost all rationality when actually it hasn't. For example, imagine if there's an event with a predicted likelihood of 1 in 50, but it should actually be 1 in 1000. Assuming the market uses real money, then on paper someone should be able to make a roughly 2% return by betting that the event won't occur. However, if this market isn't closing for a while (for example for an election at the end of the year), then no-one is incentivised to take the bet and correct the market, because they'll get a much better risk free return just by putting their money in a term deposit and collecting the interesting. And so the market remains un-corrected. Basically prediction markets have an accuracy upper bound determined by the current risk free return. For markets using "play" money a slightly different effect is at play. When it's not real money involved, generally the people are incentivised to try and top a leaderboard of some sort. In this case, a really effective strategy for people who currently aren't near the top of the leaderboard is to take long shot bets. If they loose, who cares they weren't gonna win anyways, but if the the bet plays off they have a lot to gain. Basically there's an asymmetry in returns that once again messes with probabilities.

xur17 3y ago
> Assuming the market uses real money, then on paper someone should be able to make a roughly 2% return by betting that the event won't occur. However, if this market isn't closing for a while (for example for an election at the end of the year), then no-one is incentivised to take the bet and correct the market, because they'll get a much better risk free return just by putting their money in a term deposit and collecting the interesting. And so the market remains un-corrected. Basically prediction markets have an accuracy upper bound determined by the current risk free return. What if the deposited USD automatically earned interest at the current risk free return (think something like USDC on Aave in crypto land)?
- enjeyw 3y ago
  Yeah as far as I’m aware that’s the solution. Though then the market can’t use the deposit to make money for themselves, and needs to rely on other mechanisms like trading fees etc. So really it comes down to how much the market cares about the accuracy of long tail events.

alphazard 3y ago

It seems like there is a lot of resistance to these kinds of markets. Both in terms of bureaucratic restrictions, but also in terms of sentiment, including here on HN. It's not that people disagree with the market clearing price, and are motivated to take a position. It's that they don't want other people to converge on a prediction in this way, and want to ban it, or keep the stakes so small that the market doesn't attract real expertise. It's like people are more into beliefs as decoration, rather than as something to compare and test against other people's beliefs.

sctb 3y ago
I find this interesting but I'm not sure I understand and I'd like to. Are you suggesting that there is a psychological aversion to prediction markets when the outcomes in question are as personal as politics? Would a similar analogy be, say, reluctance to the idea of finding one's romantic partner through a formalized process like algorithmic matchmaking?
- alphazard 3y ago
  What I have observed is: people calling these markets or their participants stupid. Then when they are told they can make money off of these supposedly stupid market participants, another made up reason is given why they won't put their money where their mouth is. If the algorithms for finding romantic partners are similar to netflix recommendations, then I think the aversion to them is totally warranted; I don't think that's the same thing. If a closed source algorithm makes bad recommendations, I can dismiss it as useless. If I don't like the price of a prediction market, I am forced to reconcile what I know about the structure of the market, with my personal beliefs. Anytime these markets come up in conversation or are used in a thought experiment, it reveals how few of an individual's outwardly professed beliefs they themselves take seriously. It's almost like most of the time someone says they believe something they are actually trying to manipulate anyone listening, rather than solicit criticism to refine the belief.
rspeele 3y ago
Another reason to keep the stakes small is to avoid problems like the assassination market[0]. I'd rather have podunk, inaccurate prediction markets like PredictIt than one which amounts to putting massive bounties on public figures. Or incentivizing public figures to do their job badly like make a surprise change in their vote on an important bill, just to win a longshot bet. PredictIt even used to have markets on, like, which SCOTUS justice would be the next to leave. People got paid when RBG died. That literally would've been this, if it weren't for the fact that the small investment limit kept the returns low. Realistically I don't think anybody was going to be committing assassinations just to make a thousand bucks. The same things that keep prediction markets inaccurate keep them from causing bigger problems. [0]https://en.wikipedia.org/wiki/Assassination_market https://en.wikipedia.org/wiki/Assassination_market

rspeele 3y ago

Copying my comment from the dead zzzeek post: Long shot bets are almost always overpriced on PredictIt. PredictIt specifically encourages these long shots to be over weighted thanks to their $850 risk limit in any given market. If one long-shot bettor places a max buy order for YES at 10c per share, the order book has 8500 buys at that price point. I can come along, see that what they're betting on is absolutely nuts and max out NO... but at 90c per share I can only fill 944 of those orders before I'm maxed out at my $850 risk limit. I might be supremely confident and WANT to bet $7,650 on this but I simply am not allowed to. So it takes eight more people like me to come along and plunk that money down before we're moving the needle on the order book. In the 2020 election they somewhat mitigated this by making a dozen markets that were all basically the same question: Is Trump going to succeed at overturning this? They had markets for each state, plus combo markets they added like "Will Trump win any of AZ, GA, PA", plus the electoral college markets, the margin-of-victory markets, etc. But it was still way more effort to go in with a big chunk of change and manage spreading your bets out across all those different markets to max your $850 caps as efficiently as possible. This is in addition to the other factors, that it is simply more FUN for people to gamble on long odds because it's like buying lottery tickets (who wouldn't want a 10:1 return?). And that, when you factor in fees, opportunity cost (I could have this money in the S&P 500), and counterparty risk (how long will my money be tied up if PredictIt gets shut down), it's really not very attractive to put money in shares in the $0.90-0.99 range unless A. you already have the cash sitting in your PredictIt balance and B. the end date of the market is known and approaching rapidly.

Powdering7082 3y ago

I made pretty good returns (e.g. 40% annualized) during the 2020 election on predictit. I even found a pure arbitrage opportunity. But you can't really scale up to make it worthwhile on PredictIt due to bet size limitations.

teraflop 3y ago
The one and only time I traded on PredictIt, around the beginning of the pandemic, I made an easy couple hundred bucks on this market: https://www.predictit.org/markets/detail/4683 https://www.predictit.org/markets/detail/4683 The majority of traders seemingly looked at the headline and failed to understand the contract terms, which only required a "quarterly annualized" GDP growth of 5%, during at least one quarter of 2020. So a severe economic downturn in Q2, followed by even a modest recovery in Q3, would have made a "yes" outcome all but guaranteed. The comments became pretty hilarious once someone pointed this out.
- dataflow 3y ago
  > The majority of traders seemingly looked at the headline and failed to understand the contract term Nice way to blame the masses. Seems to me more like the terms contradicted the headline, thus making this a mechanism for exploiting people who assume they're making an honest bet. Seems like fraud, honestly.
  - mikeyouse 3y ago
    Seems like fraud to spell out the terms of the bet in plain language and then enforce those terms? The annual rate of increase in real gross domestic product (GDP) in one or more quarters prior to or including the fourth quarter of 2020, as rounded to the nearest tenth of a percent, per the advance, second or third estimate, as published subsequent to the launch of this market for any such quarter by the Bureau of Economic Analysis (BEA), shall be 5.0% or higher.
    - dataflow 3y ago

Imnimo 3y ago

Is there any possibility of unwinding the distortion caused by site fees, time-value issues, and other market imperfections to recover the true odds implied by the betting markets, or is it just too complicated for that to be feasible?

OscarCunningham 3y ago
Yes, but instead of getting a single number you'll get a range. Like it might be that if the probability of Biden winning the election is anywhere between 49% to 55% then it's not worth betting for him or against him. The worse the imperfections are the wider the interval gets.

fulladder 3y ago

The author does not understand bid-ask spreads, does not understand distortions created by fees, does not understand that the last trade price is not the same as what you can get at present, and just generally does not understand the realities of trading in markets. This article is a zero-information void.

bmer 3y ago
Any resources that you'd recommend for learning such things?
- jldugger 3y ago
  Business school[1]? Trading on IEM[2] for six months? [1]: https://oyc.yale.edu/economics/econ-252 https://oyc.yale.edu/economics/econ-252 [2]: https://iem.uiowa.edu/iem/ https://iem.uiowa.edu/iem/
j_maffe 3y ago
The article shows that the average predicted likelihood is frequently illogical. That is not zero-information.
- eli 3y ago
  But those things at least partly explain the apparent irrationality. PredictIt charges 10% fee on profits and another 5% fee on withdrawals. So bets that have the potential to earn a few cents on the dollar aren't necessarily worth it. That's before considering how long you have to lock up your money in this contract.
  - neilkk 3y ago
    The implied probability of Brexit a few days before was around 25%. The implied probability of Trump beating Clinton a few days before was around 20%. Neither the time value of money nor the cost of trading explain these dislocations.

oramit 3y ago

The 2020 elections were such a shitshow on PredictIt. So many trades were skewed by partisan bias that it was shockingly easy to make money. My favorite trade that year was for some reason the "market" was pricing in a lower turnout in 2020 vs 2016. I grabbed a strip of the over bets at big discounts. I still to this day don't understand what people were thinking with their bets there. A hugely contested election during a pandemic when there was nothing else to do, of course there was going to be huge turnout!

rspeele 3y ago
I really enjoyed the market "Will either Biden or Trump concede within 2 weeks of the election?" As I recall "no concession" was priced at like 40c, at the same time that Biden winning the election was priced at something like 55c-60c. I was pretty sure Trump was not going to concede, period, so this was just a substantially cheaper version of betting "Biden wins". And as it turned out, it also had the advantage that it closed much, much sooner than the actual election market -- thus freeing up my funds to go into those other markets that hung at 85c or so till December.
silisili 3y ago
I think 2016 was easier wrt odds, because few thought Trump had any real chance. I made pretty good money just betting on him to win PA and FL.

jrm4 3y ago

There's no problem here at all; except perhaps the wildly absurd fantasy of "perfectly rational (and/or intelligent) markets," which the popularity of e.g. lotteries and casinos immediately disproves. Not much to see here.

hcks 3y ago
Your comment has no substance
mattmaroon 3y ago
Neither of those are markets, and the fact that dumb money exists in markets doesn’t change the fact that they are rational on balance because smart money will eat the dumb money fairly quickly.
UncleMeat 3y ago
The number of people who have told me "because betting markets have Trump at X% in 2024, that's the odds that he wins" in the past six months is staggering. I think some distribution of the idea that betting markets aren't actually pure likelihood estimators is a good thing.
- deleted 3y ago
  [deleted]
aleph_minus_one 3y ago
> There's no problem here at all; except perhaps the wildly absurd fantasy of "perfectly rational (and/or intelligent) markets," which the popularity of e.g. lotteries and casinos immediately disproves. Not much to see here. The behaviour of customers of lotteries is indeed clearly not perfectly rational if you consider the monetary expected value of your wins. On the other hand, the customers' behaviour gets much more rational if you consider the customer's utility function: a huge lottery win has a disproportional benefit for the customer with respect to the customer's utility function (since the lottery win will hopefully change the customer's life). In other words: what the customer optimizes for is the expected value of his utility function.

chadash 3y ago

The answer is stupidly simple but only touched on briefly in the article. It is the fees and the limits bet sizes combined. Let’s take a simple example, which is Donald Trump‘s current odds of winning the Republican nomination. Predictit currently has this at $0.92. Realistically I think the odds are higher. Not 100% but higher than $0.92. The problem is that the maximum I can bet is $500, so that’s 543 “shares” that I can buy. And I’ll make $0.08 on each share if he wins, so that’s $43. Then when I withdraw my money I will get a 5% fee, so my initial $500 turns in to $516. Oh, and then I have to wait until primaries, and for it to actually pay out. And there IS a non zero chance trump loses. Very few individuals will care about turning $500 into $515, so this bet makes sense. And since you have a cap on bet size, no institution will care either. sounds like a rational market to me.

FergusArgyll 3y ago
+ Opportunity costs
phire 3y ago
I think at this point, the chance of Trump not winning the Republican Nomination is basically the chance of him dying before the convention.

paulcole 3y ago

Haralabob Voulgaris is a pretty well known NBA (basketball) gambler. He has talked about how his biggest lifetime score ever was betting Biden after it was clear Biden was going to win but before the race was called. He talked about it on Bill Simmons Podcast and was just incredulous at how people could be that stupid and how much money had made betting on something that was a stone cold lock.

PaulRobinson 3y ago

This isn't an awful breakdown, it's just a bit pearl-clutching about several problems that are well understood. First, let's clear up some confusion. Markets are not accurate ways to determine accurate predictions. Somebody, somewhere is getting confused with "Wisdom of the Crowds" thinking. In the "Wisdom of the Crowds" - take, for example, everyone at the State fair taking a guess at how heavy a bull is - everyone has a single guess (and only one guess), and on aggregate you'll probably (that word is doing a lot of work here), get a more accurate answer than any one answer probably (again, lot of work there), will. You're reducing a distribution of guesses into a single number, and the distribution of those guesses is likely uniform, and likely going to find an average (and a median), quite close to the true value. Markets are not that. They are not efficient, they aren't accurate predictions. They are about weight of money. One moron who is hellbent on a World view with $10m in his account goes up against 1000 people with $10 each in their account, is going to move the number in their favour. We see this irrationality every day in sports trading, stocks, commodities, options, FX, crypto, you name it. In fact irrationality is so common in markets because of the weight of money there is a famous saying (often misattributed to Keynes): "The market can remain irrational longer than you can remain solvent." Time and time again its come true. All you need to do is look into the LTCM fiasco where Nobel Prize winners in economics (literally the creators of the Black-Scholes model), took a rational view of the market, bet on it big, and almost took down Wall Street in its entirety. They weren't wrong, they were just on the wrong side of the weight of money. I spend a lot of time trading sports (gambling is legal and tax free where I live, and well regulated betting exchanges exist), and thinking a lot about value. What does it mean to say a price about a selection in a market is wrong when it comes to some men running a field after a ball? There's a lot of people interested in this problem, and there is some evidence that they're not awful at it (Vegas lines on NFL games for example, adjusted to remove the house edge, converted into probabilities, aren't far away from observed outcomes), but every day awful prices are put up all over the place and still taken as if value by morons. Is it any surprise that newly-minted crypto-millionaires hold a lot of money in a market and can throw the price off? Not really. What you should do about it? Bet against. Take the action. Understand Kelly criterion, do the math, and trade that. You will bring the market back to reasonable pricing through applying your own weight of money and make a profit while doing so. Why aren't others doing so? Who knows. Liquidity, being busy with something else, not wanting to, there's a multitude of reasons. But when you spot value - somebody offering you money on the table betting for things that are literally impossible - I suggest you stop complaining and fill your boots. Morons are born every minute, but it's not often enough a lucky millionaire one is prepared to hand you their money on a plate. If media pundits are looking at these things as predictors of something, well you know there is one less media pundit to trust on this topic as they clearly have got confused. The next time they spout something that sounds statistical or mathematical or based in science, question if it actually is. Or if they, like many others before them, have confused markets for efficient proxies to uncover genuine wisdom, through the use of weight of money as the best means to extract secrets from the gods.

efitz 3y ago

The example the author gives is the 2020 election. Without rehashing anything or endorsing anyone’s viewpoint, there were lots of issues being raised, lots of court cases in flight, and possible procedural issues in the states and in the Congress related to electors and certification. The election wasn’t “over” until certification happened (late) on January 6. Why should bettors be prohibited from continuing to bet? And worse, if bets were resolved too early, then chaos would have ensued in the betting market if the electors were not certified and the House selected Donald Trump. Many ppl here may be too young to remember 2000 where recounts kept going on and on in Florida and the Supreme Court intervened. Again, I’m not advocating any position, I’m just pointing out that the election isn’t over just because $NEWS_SOURCE declares a winner.

nelox 3y ago
Elections should be perceived to be conducted in a fair and impartial manner as well as actually be conducted fairly and impartially. Therefore, betting on elections should be banned because an incentive is created to rig the outcome.
- idontpost 3y ago
  [dead]
- efitz 3y ago
  Elections are about power; there could hardly be a bigger motivator to rig the outcome even in the absence of any external factor like betting markets.
ffitz 3y ago
[dead]
ajross 3y ago
> Many ppl here may be too young to remember 2000 where recounts kept going on and on in Florida and the Supreme Court intervened. FWIW, Gore conceded after 36 days within hours of the release of the SCOTUS decision.

mattmaroon 3y ago

I am a former professional gambler and now I don’t gamble much, because I have neither the time nor interest to find good wagers, but what I do is on predictit. Being a great gambler mostly means not gambling until you have an edge, and what he says about and market being less accurate than 538 is true in my experience. I’ve been betting on there every couple years for maybe ten or so, it’s held up well. As many mentioned here, the fees are high. That contributes to market inefficiency for sure. Arbitrage opportunities pop up there all the time, but ones that are profitable after the fees less so. They do happen though. He is neglecting how long contracts take to settle. There’s a lag of two months between when the election and when president is sworn in. It’s not unreasonable to sell your winning position at 98% just to be able to bet on more things. It was the first time in 20 years of hoping for such an opportunity that I managed to get to bet on something that had already happened. That’s every gambler’s dream and I’m unaware of many instances of it happening without breaking laws or trickery. But even then, you bet 93 cents to win 7 and then pay 5% on cashout so it wasn’t exactly making people rich.

blitzar 3y ago
> I managed to get to bet on something that had already happened. In less liquid in play sports betting exchanges have this happen all the time - generally you are getting $1 for every $1000 wagered and settlement will take anywhere from minutes to days depending upon the event.
deleted 3y ago
[deleted]
bluedays 3y ago
How does that work? Being a professional gambler, I mean. I'd love to know more about this.
- Geezus_42 3y ago
  Pretty sure it's a joking way of saying they used to be a day trader.

beefman 3y ago

The favorite-longshot bias is a well-known feature of markets https://en.wikipedia.org/wiki/Favourite-longshot_bias https://en.wikipedia.org/wiki/Favourite-longshot_bias https://github.com/gotoConversion/goto_conversion https://github.com/gotoConversion/goto_conversion

arisAlexis 3y ago

The penies on the market for Biden win reflected the very small odds it would be overturned. How can the author not understand this?

deleted 3y ago

[deleted]

bitshiftfaced 3y ago

I'm not surprised that PredictIt performed so poorly. They take 10% of your profit, so you need a large margin of expected value to justify getting in and correcting a mispriced question. To my knowledge, these markets are deliberately restricted. If you allowed unlimited betting, then experts would come in and eat these uninformed bettor's lunches. Except if you allowed that, then you face an ethical problem. You'd be providing a way for people to profit from influencing outcomes (e.g. questions that could resolve based on someone's death).

EGreg 3y ago

I thought they were going to talk about how when a prediction market gets too large, it can actually cause candidates to throw an election. Like assassination markets can affect the external world too

AlbertCory 3y ago

> We know that this tidal wave of money is dumb money because we can see intense tribal behavior on these sites and research tells us that the more one identifies with a “team,” the worse one’s predictions for that team are. People will bet for candidates and parties not because they have an evidence-based analysis supporting their bet, but as an expression of identity. This first sentence is completely unsupported. How do you know that the volume of comments tells you the amount of money bet? Actually, sports betting does have a fan bias. I doubt many 49'er fans are going to bet on the Chiefs in the Super Bowl. It could well be that prediction markets give the wrong answer, but I'll still give them as much weight as FiveThirtyEight. Or more. FiveThirtyEight is hardly non-ideological, cold-eyed realism. It's also true that smart money is not feasting on the dumb money, as a market really needs. The low volume and high costs of betting do make prediction markets less than perfect.

renewiltord 3y ago

PredictIt and friends were fun when: - money was cheap (low interest rates) - bets were short-term Otherwise, the profit-share demolished gains as a de-facto trading fee. Plus you could only make money on a few hundred at a time. I did some of the cheap bets that were mispriced but also some more obvious ones. A few multiples on the money, but it was too unwieldy to play it. The politics ones are easy. People like to bet on the outcome they'd like to occur rather than the one they think will occur. I understand, though. I find it hard to bet against Arsenal. Just seems like a miserable way to live.

powerbroker 3y ago

Am I the only one who notices this article professes to be published _February_ 2024, as I read it on January 29, 2024? It seems like a mistake a time traveler would make... who doesn't care enough to fix their mistakes.

Mountain_Skies 3y ago
That was extremely common with print magazines when those still existed in large numbers. Maybe still is common but it's been at least a decade since I last purchased one.
kqr 3y ago
I'm unrelated to this article but I often share previews of new unpublished articles with HN to get intelligent feedback on them.

kibwen 3y ago

A predictions market is one of those things that sounds fine on paper and works terribly in practice. The crucial failure is the inability to separate the incentives created by the prediction from the event being predicted. The tail ends up wagging the dog. So despite the "advocates claim that by providing a marketplace for bets on uncertain events, prediction markets give predictors a financial incentive to be correct", what happens is that prediction markets give predictors a financial incentive to make it be correct, which leads to all sorts of shenanigans in practice. Look at the stock market, which largely is a predictions market, and look at how much regulatory machinery is needed to dissuade obvious scams like insider trading and pump & dumps. And even then, the stock market is highly irrational precisely because of the financial incentive; look at how many years it's taken the GME fiasco to shake out and how many true believers are not merely still holding the bag, but buying up as many bags as they can. The ultimate example that I always trot out is that a predictions market on the topic of "will $PROMINENT_POLITICIAN be dead by $DATE" is just a distributed assassination contract (to be fair, it's also a distributed bodyguard contract...). Welcome to the free market, I hope your friends are richer than your enemies!

NotSuspicious 3y ago

> But instead, the majority of the bettors against Biden bet on the astonishing outcome of “Trump wins by 280+ electoral votes.” That, it should be clear, was impossible — it would require results to be overturned not just in states with tight races but also in Democratic bellwethers like California. That was not impossible at all once you take into account Trump's VP certification plan, which many people understood very early on. A longshot, yes, but certainly not impossible. If anything, the prediction markets priced in an insurrection better than any pundit I recall watching. To flip it around and call prediction markets "irrational" in this situation is misguided and ignorant of political history.

banannaise 3y ago

Happy to see that the article gets there eventually, but it's buried pretty deep: People betting on Donald Trump to win the election he had just lost weren't actually betting money. They were spending it. They are saying "I will spend $,000 just to show that I support Trump to the point where I [pretend to] believe him when he says he won the election [that he clearly just lost]". It's MAGA culture's way of - wait for it - virtue signaling. And the prediction market is just vacuuming up most of that money for themselves. You can bet against it for a nominal profit, but you're paying the vig to do it, and the vig is a big chunk when the odds are sitting at 9:1.

015a 3y ago

Participants are not required to be rational for the market to be rational.

ummonk 3y ago

The article briefly mentions causes for market inefficiency such as the time value of money and platform fees, but then inexplicably goes on to ignore them as potential reasons for inefficient markets. Plenty of arbitrage opportunities exist on PredictIt that can’t be taken advantage of either because the platform’s cut of any profit you make on a bet will negate the arbitrage or because resolution is so far off that it would be more profitable to just invest in a CD.

tshaddox 3y ago
I would expect that platform risk would be even more significant than fees and time. I haven't looked into any of the popular prediction market platforms, but by default I would be more concerned about the risk of them resolving markets in ways I fundamentally disagree with or simply ceasing to exist.
caf 3y ago
That is not how I read it at all. To me, it reads as "there are likely many reasons these markets aren't operating efficiently". The time value of money and fees certainly are part of it, but they don't explain things like, for example, the weight of money in the Trump-by-280+-EV contract.
- ummonk 3y ago
  The point (which the author misses) is that irrational actors (such as those putting money in Trump winning by 280+) wouldn't significantly distort market odds if the market weren't severely crippled by so many restrictions and fees.

fasthands9 3y ago

I think for now they are still pretty good at assessing something like "Are the odds that Trump wins Wisconsin in 2024 closer to 2/3 or 1/2". The post-election stuff was annoying (I had several thousand dollars on the site) but the market limits + uncertainty over the platform made is understandable. It would be nice if there was a platform that didn't have limits and had interest rates closer to savings interest rates.

vagab0nd 3y ago

Someday, I'll be able to buy the prediction that my travel destination rains during my stay there. Someday.

hobs 3y ago
It's not that far away, they already sell insurance for this problem.
- kqr 3y ago
  Do you have a link? This is something I've wanted.
  - hobs 3y ago
    Huh, I swear Delta offered me something that would give me like 50 bucks back if it was a rainy day but I see it nowhere on the internet so maybe it was a dream!
jamilton 3y ago
Kalshi has some weather markets, but I have no clue how they compare to just checking forecasts.

JohnMakin 3y ago

I remember in 2020 election markets, from ~mid 2019 onward you could take whether hillary clinton would run in 2020. It was a funny market until she started missing filing deadlines and something weird happened - the line became MORE favorable towards hillary running. It went on like that for quite a long time, well past the point where anyone with a room temp IQ would figure out she had zero chance of running because she wasnt running. Even up to about a week before the actual 2020 election, she was still trading at almost 10 cents on the dollar for “yes she is running.” Just wild. I don’t think it’s a problem for these markets, just the nature of the beast being that people easily believe conspiracy theories and propaganda and if you’re a gambler there’s a lot of money to make.

tmansour 3y ago

We're trying to fix that at kalshi.com :)

glerk 3y ago

> Unless we make sure that market structures are providing the right incentives in the right way, we shouldn’t be surprised if prediction markets continue to struggle. This conclusion is incredibly vague. What are "the right incentives in the right way"? Is there anything concrete that the author proposes here?

bparsons 3y ago

There was a non zero chance that the GOP would block the result and keep Trump in power. That is why you could still bet on that outcome after the voting results were finalized.

samschw 3y ago

I think the better title here is Prediction markets have a regulation problem. Out of the prediction markets you mentioned only one is regulated: Kalshi and only one is unable to list election markets: Kalshi. With their current lawsuit against the CFTC I am hopeful regulated election markets will be a reality very soon

m463 3y ago

What if elections are rigged? (serious question)

kwar13 3y ago

There are all sorts of anomalies. Here is a trade I did from the last US presidential election. https://kavehtehrani.medium.com/free-money-on-inauguration-day-almost-671cac8f1dbd https://kavehtehrani.medium.com/free-money-on-inauguration-d...

dustypotato 3y ago
Curious. How profitable was this for you? I assume the transaction fees ate a lot of it
- kwar13 3y ago
  I can't quite recall since it was a while ago but I built a fairly large USDC position in it over 1 month, as much as the liquidity allowed me to. My main concern was counter party risk since in crypto lots of projects fail and didn't want a ton of capital sitting on the platform.

vintermann 3y ago

Political campaigns spend billions to make their candidate win. We know that one of the most important things in order to get a candidate to win, is the perception of strength. There's the theoretical risk of complacency, that people don't turn up to vote for your candidate because they think he will win anyway, but in practice that seems to be more than made up for with discouragement on the other side - especially on the donor's side. Voters may be willing to turn up to cast a vote of defiance, but self-interested donors will not throw money at a candidate who won't get in a position to reward them for it. So if people are paying attention to prediction markets at all, why wouldn't a campaign pour money into it to create the perception that their candidate is doing better than they are? Betting on a statistically impossible walkover win isn't a problem if your goal is to create the impression of fanatic support anyway. There's not that much money in these markets, so it shouldn't take all that much money to move them, in the scale of a US presidental election.

Marazan 3y ago

I'm going to talk about political gambling but I'm not going to talk about PredictIt. PredicitIt is irrelevant to the conversation. It's high fees an miniscule limits completely distorts what is "rational" or "reasonable" to expect the market to do. Betfair on the other hand is a reasonable thing to talk about. 2% fee on net winnings on a market and zero deposit or withdrawl fees makes it a pretty efficeint market for political betting. The Betfair political markets are dumb as a bag of rocks and there simply isn't enough smart money to suck up the dumb money. Political markets are incredibly thin, the average India Premier League cricket match gets way, way more action than all but the very largest political markets. The 2020 Presidential election was fairly unique in that the majority of the money was wagered after the election happened and after it was clear Biden had even. Idiot Trump supporters buying into conspiracy theories flooded the market with money. Political betting is very easy _but_ compared to sports gambling there is no where near enough events to make a living doing it. It's all very well having a huge edge (and betting on a even that has already completed is the largest edge you could ever have) but if you only get 1 betting opportunity a year that's not a way to make a living. It is a great way to have some fun though. Even in 2016, two days after the election, Clinton was @1.05 to win the popular vote. Right now on Betfair, despite almost £6 million having been traded on the market Michelle Obama is the 2nd favourite for the Democratic nomination @9.2 (that's a better than 10% chance). (For comparison about market size currently the Comilla Victorians vs Rangpur Riders match has over 4.5 million wagered).

winstonewert 3y ago

An important aspect of this is that it's not legal for most people to run a prediction market. PredictIt is allowed to operate because it is run by a university, and even that is now under question. The result is that there is little competition in this space, which is why PredictIt has huge fees and limits. As others have pointed out, that's a big part of why these markets deviate from reality.