Comment by llamataboot
14 hours ago
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.