Comment by pinkmuffinere
1 day ago
> 73% of all polymarkets do resolve to No though.
I bet the average price for a no bet across these markets is 73 cents.
1 day ago
> 73% of all polymarkets do resolve to No though.
I bet the average price for a no bet across these markets is 73 cents.
A persistent bias in prediction markets is pricing very non likely events as slightly more likely than they are. ie; a 1% event priced at 4%, etc, because people like to bet long shots.
Whether there is enough of a predictable bias there to snag enough low return high probability bets to beat the vig and not shift the markets I have not looked into in any way,but it is a known bias with them.
The real money to be made in prediction markets is being the ones with the actual knowledge which is arguably why they are useful and why for some topics, people find them abhorrent.
It might be a bias in terms of the probability of events, but I'm not so sure this is a market inefficiency in terms of actual trading strategy. If true odds are 1% and the event is priced at 4%, I can sell NO for a 3% edge... but lose 100% once out of a hundred. Doesn't seem worth it!
I think you get less return on investment for the same absolute edge in percentage points. A 1% event priced at 4% gets you a 3/96 = ~3.1% return. A 53% event priced at 50% gets you a 6% return. You nearly double your returns by investing in the latter market even though they're both off by 3 percentage points.
If the market isn't resolving soon, the small return might not be worth it.
71 cents*, the bookie gets a cut either way it goes.
This is the truth of the matter, ultimately nobody wins except the bookie, who profits either way.
Hedging can itself be a useful service, even if the customer doesn't make money on average. Have you heard of insurance?
On Polymarket you can be the bookie and put up a yes at $0.72 and no at $0.74 if you’re confident in that 73% estimate.
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Even if a cut isn't taken and there aren't other inefficiencies, any money tied up in long-term predictions is earning 0% instead of whatever the current risk-free rate of return is.
Assuming that the prediction market is perfectly priced right? How accurate is that assumption, or are you counting that as an “inefficiency”?
Earning less than the risk free rate is a 'cut being taken'.
IBKR relentlessly advertises on the radio, so I’m aware that on their scheme you earn an interest like incentive coupon for every day you hold open the position.
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Untrue for polymarket. True for kalshi. No bookie fees on polymarket
Wow that's news to me. How does polymarket make money if not from fees?
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Wouldn't it be 75 cents then? (The cut would come out of higher pricing, since the payout is always a dollar).
Well, 75 cents for you buying the bet, 71 cent for you selling the bet.
Or something like that.
It's not. But also a lot of those stats thrown around are misleading.
If the average no costs less than 73 cents, but the 73% of all polymarkets resolve to No, that would imply that the nothing-ever-happens strategy here is profitable. Are you claiming that it is profitable? Or are one of those premises incorrect?
Edit: conversely, if the average no costs _more_ than 73 cents, but the 73% of all polymarkets resolve to No, that would imply that an everything-always-happens strategy is profitable (neglecting slippage)
> Edit: conversely, if the average no costs _more_ than 73 cents, but the 73% of all polymarkets resolve to No, that would imply that an everything-always-happens strategy is profitable (neglecting slippage)
Or just the bid-ask spread; price no at 73.25 and yes at 27.5 and you have a profitable but theoretical mid-market price.
From what I've seen and tested, it's been profitable, for the reason you said. Variance and other caveats caused me to not pursue it further. https://news.ycombinator.com/item?id=47754918
Are you willing to pay $.27 for that perspective? Sounds like we have a market!
> I bet the average price for a no bet across these markets is 73 cents.
Behavioral economics has already answered the question of whether humans are, on average, perfectly rational economic actors. They are not.
To the contrary, there is substantial evidence indicating a meaningful number of humans will mis-estimate the likelihood of uncommon future events.
It doesn't matter if a vast majority of people are not rational economic actors. It only takes 1 rational actor with enough capital to take the other side of all the bad bets, and the market will be priced correctly even if the other 99 people are irrational.
'Enough' [capital] is doing a lot of work in that sentence. In the limit of a one-sided irrational market, the 'rational actor' would need to take the other side of every open transaction.
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Well, if the price would be incorrectly set, then bots like this one would make money, which would in sufficient time cause the market to adapt and the average price would change so the bot doesn't work.
That doesn't matter so much when it happens in a place where people can make money from other people's irrationality. Even if there are a bunch of irrational people placing bad bets on uncommon future events, rational people looking to make a buck will take the other side of that bet, until the price is sensible.
The alternative would be that there's a bunch of free money sitting there waiting for someone to decide to pick it up, and nobody is, not even you.
Actually, having a bunch of noise traders around is a great attraction for the ration people to show up.
I’ll take the “no” side of that bet ;)
Why would outcomes match perceptions?
The whole premise of gambling is that they don't
The whole premise of prediction markets is that the few people whose perception do match outcomes make bets to push the money-weighted average perception toward outcomes. If perceptions still don't match outcomes at that point, average return is 0 minus transactions, with high variance.
huh? that sounds like ideology and not empirical observation.
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But in aggregate they might.