What dampens my enthusiasm for prediction markets is who participates:
As zero-sum contests (or negative-sum with transaction and opportunity costs included), they get two kinds of participants: (a) insiders, for whom the expected return is positive, and (b) gamblers, for whom the expected return is negative but they like the thrill of gambling anyway. If you aren't in one of these categories you have no incentive to participate.
Neither group's participation strikes me as morally good. Insiders trade on privileged knowledge, which is either illegal or at least morally questionable. The gamblers meanwhile feed a self-destructive addiction, and like Vegas it's the losses of these addicts that fund the entire enterprise. Value is siphoned from addicts to the pockets of insiders, market makers, and outside observers who benefit from information implicit in the market clearing prices.
Now you could argue that "insiders talking to journalists" also creates a moral hazard to divulge secret information. However most of the time that is not for direct personal gain at another's expense, as it is for trading. There's a good reason we treat insider stock trades more seriously than we do information leaks.
ALL financial market trades are "zero sum", compared to holding market assets. If people who want info subsidize markets on topics of interest to them, traders w/ info can profit w/o anyone else losing.
In equities markets the expected return is positive so even if a gambler actively trades in a zero-sum way, they aren't getting fleeced in the long run. The enterprise is funded by economic value creation in the underlying firms.
I would be interested to learn about how to fund prediction markets by some means other than gamblers getting fleeced. All of the public ones seem to have this property which to my mind puts them in the same moral category as lotto or cigarette taxes. Not things that should be banned necessarily, but hard to put forward as a net good for society.
There's quite a spectrum from someone who meets the legal definition of "insider trading" and a zero-information gambler. Consider someone has diligently read the published research literature about controlled nuclear fusion, and so makes a bet on when it will yield energy at competitive prices. They are substantially better informed than most of us (including me), and I won't call them a gambler, but do they possess *privileged* information? I don't see a fence with them inside it and myself outside.
A smart external observer/analyst is fine. The problem arises when you have non-public information that directly pertains to a wager. This was the case e.g. for the Mr. Beast producer who was making Kalshi bets having to do with Mr. Beast's production schedule.
My original point was that for many of these bets the only participants who can expect a positive return are insiders with privileged information. It isn't the stock market where the system overall is positive-sum. For prediction markets there is no reason a smart external analyst would participate; at worst they are at an information deficit relative to insiders, and at best the outcome is random and they have a negative return when transaction fees are accounted for.
Leaking information isn't for direct personal gain? Basically every leaking story I have read about is to further one's own career or policy preferences at the expense of someone else. Something like, a senator leaking classified info to sabotage the president.
You say it's morally questionable to gamble on insider knowledge. What is morally questionable about it?
The typical unsophisticated bettor on Polymarket etc. doesn't understand they are betting against people with privileged information. The market doesn't exactly warn them. To my mind yes, it is morally questionable to lure people in to get fleeced but you may see it differently.
Is there any transaction where two people have identical information? I don't think so, so to me this seems like a criticism of market mechanisms generally.
I think it's a question of norms for different types of transactions.
In general we all understand information asymmetry. But if you try to sell a home with a major flaw that you fail to disclose to a buyer, that is illegal. Another example is equities trading where insider activity is explicitly illegal.
Where do prediction markets fit on this spectrum of norms? The markets themselves promote the idea that they are fair. E.g. yesterday Kalshi announced an insider trading action against a producer for Mr. Beast, and a politician in California. IMHO to the unsophisticated bettors they are trying to attract that assurance of fairness is disingenuous at best.
I don't see how you equate journalism with a financial market trading. It is information but it isn't trading. Normally I pay a set fee on an annual basis for journalists to provide me with information about my nation , the world, the environment, culture, etc. that I might not get otherwise. I'm not paying that fee in the hopes to make financial gain from it.
What are the benefits of sports betting? Are there any - other than it being an addicting behavior that generates a lot of money for a small number of large corporate interests?
You suggest that prediction markets are a form of protected political speech. They are not a form of political speech. They are a business transaction. They are no different than going to the racetrack and placing a bet on a particular horse to place or to win. One could argue that it is speech in that your presence at the track is a statement that you want to purchase the bet. But that bet is not really a political statement. It's a pretty minimal form of speech.
What is your evidence that prediction markets are consistently more accurate than other sources? You make this statement but offer no evidence. How do you define accuracy? You state that "an expectation of manipulation attempts on average makes such markets more accurate." This suggests exactly what critics have been saying. These markets are simply a means for insiders to make money through manipulation. It doesn't make them "accurate" it makes them rigged. Prediction markets should be regulated before they create market instabilities that cause financial crises we can't predict. At a minimum, banks should never be allowed to invest directly in prediction markets.
What dampens my enthusiasm for prediction markets is who participates:
As zero-sum contests (or negative-sum with transaction and opportunity costs included), they get two kinds of participants: (a) insiders, for whom the expected return is positive, and (b) gamblers, for whom the expected return is negative but they like the thrill of gambling anyway. If you aren't in one of these categories you have no incentive to participate.
Neither group's participation strikes me as morally good. Insiders trade on privileged knowledge, which is either illegal or at least morally questionable. The gamblers meanwhile feed a self-destructive addiction, and like Vegas it's the losses of these addicts that fund the entire enterprise. Value is siphoned from addicts to the pockets of insiders, market makers, and outside observers who benefit from information implicit in the market clearing prices.
Now you could argue that "insiders talking to journalists" also creates a moral hazard to divulge secret information. However most of the time that is not for direct personal gain at another's expense, as it is for trading. There's a good reason we treat insider stock trades more seriously than we do information leaks.
ALL financial market trades are "zero sum", compared to holding market assets. If people who want info subsidize markets on topics of interest to them, traders w/ info can profit w/o anyone else losing.
In equities markets the expected return is positive so even if a gambler actively trades in a zero-sum way, they aren't getting fleeced in the long run. The enterprise is funded by economic value creation in the underlying firms.
I would be interested to learn about how to fund prediction markets by some means other than gamblers getting fleeced. All of the public ones seem to have this property which to my mind puts them in the same moral category as lotto or cigarette taxes. Not things that should be banned necessarily, but hard to put forward as a net good for society.
There's quite a spectrum from someone who meets the legal definition of "insider trading" and a zero-information gambler. Consider someone has diligently read the published research literature about controlled nuclear fusion, and so makes a bet on when it will yield energy at competitive prices. They are substantially better informed than most of us (including me), and I won't call them a gambler, but do they possess *privileged* information? I don't see a fence with them inside it and myself outside.
A smart external observer/analyst is fine. The problem arises when you have non-public information that directly pertains to a wager. This was the case e.g. for the Mr. Beast producer who was making Kalshi bets having to do with Mr. Beast's production schedule.
My original point was that for many of these bets the only participants who can expect a positive return are insiders with privileged information. It isn't the stock market where the system overall is positive-sum. For prediction markets there is no reason a smart external analyst would participate; at worst they are at an information deficit relative to insiders, and at best the outcome is random and they have a negative return when transaction fees are accounted for.
Leaking information isn't for direct personal gain? Basically every leaking story I have read about is to further one's own career or policy preferences at the expense of someone else. Something like, a senator leaking classified info to sabotage the president.
You say it's morally questionable to gamble on insider knowledge. What is morally questionable about it?
The typical unsophisticated bettor on Polymarket etc. doesn't understand they are betting against people with privileged information. The market doesn't exactly warn them. To my mind yes, it is morally questionable to lure people in to get fleeced but you may see it differently.
Is there any transaction where two people have identical information? I don't think so, so to me this seems like a criticism of market mechanisms generally.
I think it's a question of norms for different types of transactions.
In general we all understand information asymmetry. But if you try to sell a home with a major flaw that you fail to disclose to a buyer, that is illegal. Another example is equities trading where insider activity is explicitly illegal.
Where do prediction markets fit on this spectrum of norms? The markets themselves promote the idea that they are fair. E.g. yesterday Kalshi announced an insider trading action against a producer for Mr. Beast, and a politician in California. IMHO to the unsophisticated bettors they are trying to attract that assurance of fairness is disingenuous at best.
I don't see how you equate journalism with a financial market trading. It is information but it isn't trading. Normally I pay a set fee on an annual basis for journalists to provide me with information about my nation , the world, the environment, culture, etc. that I might not get otherwise. I'm not paying that fee in the hopes to make financial gain from it.
What are the benefits of sports betting? Are there any - other than it being an addicting behavior that generates a lot of money for a small number of large corporate interests?
You suggest that prediction markets are a form of protected political speech. They are not a form of political speech. They are a business transaction. They are no different than going to the racetrack and placing a bet on a particular horse to place or to win. One could argue that it is speech in that your presence at the track is a statement that you want to purchase the bet. But that bet is not really a political statement. It's a pretty minimal form of speech.
What is your evidence that prediction markets are consistently more accurate than other sources? You make this statement but offer no evidence. How do you define accuracy? You state that "an expectation of manipulation attempts on average makes such markets more accurate." This suggests exactly what critics have been saying. These markets are simply a means for insiders to make money through manipulation. It doesn't make them "accurate" it makes them rigged. Prediction markets should be regulated before they create market instabilities that cause financial crises we can't predict. At a minimum, banks should never be allowed to invest directly in prediction markets.
> journalists were disused
Did you mean to write "dissed", as in the other examples?
Yes; fixed.