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I could make a lot more money by manipulating the information in the marketplace, creating volatility in the prices of the prediction bets, capitalizing on each

by aamar 13y ago

I could make a lot more money by manipulating the information in the marketplace, creating volatility in the prices of the prediction bets, capitalizing on each fluctuation, while still holding some inventory in the correct outcome. And one extreme version of this is mounting a credible campaign then "throwing" the race or withdrawing abruptly. This is attractive whenever the possible winnings in the prediction market are large and the market is insufficiently regulated. In ordinary financial markets, there can be special scrutiny paid to shorts, but the zero-sum game structure of a prediction market loses the distinction.

jonnathanson 13y ago
True, although not every trade is zero-sum per se, depending upon the prediction market. More sophisticated trading strategies involve profiting off of the changes in probability of a given outcome over time (or at least the changes in perception of that probability), rather than simply buying and holding a one-sided bet on fixed odds. They amount to psychological manipulation of the market, buying and selling the same positions over time at local minima and maxima. You're absolutely right about the power to "throw" a prediction market, however, provided the right parties can conspire to do so. This is essentially what Arnold Rothstein and associates did in fixing the 1919 World Series. Most people casually assume the fixers bribed the players to throw the game, then profited off the results. In actuality, their strategy was slightly more nuanced. They spread the rumor that the game had been fixed long before they actually fixed the game, thereby forcing an adjustment of odds on (illegal, unregulated) gambling books. This allowed them to hedge long against their predominantly short bet, covering them adequately in the event that the fix was insufficient to adjust the game's most likely outcome.

by aamar 13y ago

jonnathanson 13y ago

True, although not every trade is zero-sum per se, depending upon the prediction market. More sophisticated trading strategies involve profiting off of the changes in probability of a given outcome over time (or at least the changes in perception of that probability), rather than simply buying and holding a one-sided bet on fixed odds. They amount to psychological manipulation of the market, buying and selling the same positions over time at local minima and maxima. You're absolutely right about the power to "throw" a prediction market, however, provided the right parties can conspire to do so. This is essentially what Arnold Rothstein and associates did in fixing the 1919 World Series. Most people casually assume the fixers bribed the players to throw the game, then profited off the results. In actuality, their strategy was slightly more nuanced. They spread the rumor that the game had been fixed long before they actually fixed the game, thereby forcing an adjustment of odds on (illegal, unregulated) gambling books. This allowed them to hedge long against their predominantly short bet, covering them adequately in the event that the fix was insufficient to adjust the game's most likely outcome.