5 ms·

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 a

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.
    - eli 3y ago
      The polls implied about a 20% chance of Trump beating Clinton too. I guess I'm not sure what you're getting at. That seems like the perfect example of not a sure thing.
    - blitzar 3y ago
      > The implied probability of Brexit a few days before was around 25%. It was one of the 25 days out of 100 not one of the 75 days out of 100. > these dislocations The market puts the chance of flipping a coin and getting heads at 50%, when it comes up tails it doesn't mean that the market was irrationally pricing heads.
    - n2d4 3y ago
      If anything then that means that they work! Situations with a 25% chance do occur sometimes! If prediction markets show 75% odds and are right 3/4 times, they are doing their job well - if they show 75% odds and right 4/4 times, they are doing their job badly! Meanwhile, both polls and analysts got those elections completely wrong, much more so than prediction markets. (IIRC, 538 was the only outlet that gave Trump a >20% chance to win, and they got a lot of bad words for their prediction pre-election.) Unfortunately, people keep falling for this. You can always cherrypick elections from 7 years ago as "evidence" against prediction markets, but if you look at the bigger picture, you will see that they get a vast majority of elections right. But when they don't, even just once in a decade, they get all the blame. There's plenty of research on this: https://researchdmr.com/RothschildPOQ2009.pdf https://researchdmr.com/RothschildPOQ2009.pdf
      - MostlyStable 3y ago
        538 got screwed in both directions: before the election they were derided for having Trump too high. After the election they were lambasted for "only" giving him 20-30% chance.
        cosmojg 3y ago
        I'm forever puzzled by the lack of rigorous coursework in probability and statistics in the American public school system, at all levels. I mean, heck, it's pretty much the only mathematical subject for which the question, "When are we ever going to use this in real life?" is trivially answered! And all the other more traditional math subjects (algebra, calculus, etc.) fall right out of it anyway. It's the perfect foundation. Honestly, why hasn't probability-centric mathematical pedagogy taken the world by storm?
- mike_d 3y ago
  > average predicted likelihood is frequently illogical What is being pointed out is that is not illogical when you fully understand it. I will let you bet me that Taylor Swift is not the current president of the United States. For every $1 you bet, I will return $1.05 to you*. You can bet as much as you like and as often as you want - my email address is in my profile. * 10% transaction fee applies
  - chadash 3y ago
    I’ll offer the same bet but no transaction fee. But it pays out on Jan 1, 2028
    - anonymouskimmer 3y ago
      That's a really good loan rate.
      - nick222226 3y ago
        Especially for unsecured debt!
    - baq 3y ago
      US government offers the same bet, except it settles April/May 2024, and is tax-advantaged.
- codexb 3y ago
  The author claimed that 90% was illogical; that it should have been closer to 98-99%. What the author failed to realize is that there are overhead costs in betting -- 10% rake, 5% withdrawal, etc. that cut into that 98-99% margin.
  - caf 3y ago
    The author didn't fail to realise any of that, because he pointed all of those things out (and more) in the article.
hackerlight 3y ago
Also isn't there a small bet size limit on predictit? That would screw up price discovery because a single informed trader can't correct any inefficiencies.
- caf 3y ago
  Bet limits are also mentioned as one of the factors in the article.
i_have_an_idea 3y ago
His entire argument is that market odds don't match up with his "common sense".
joenot443 3y ago
My cynical observation here is that betting odds[1] aren't looking great for the incumbent. The author, Jeremiah Johnson, is the founder of a Washington NGO for the center-left [2] and probably has some skin in the game in keeping the status-quo in the White House come November. [1] www.electionbettingodds.com [2] www.cnliberalism.org
Marazan 3y ago
On Betfair, which has miniscule fees compared to predictit and effectively unlimited wagering caps, the same "You can bet on Joe Biden to win the election weeks after Joe Biden won the election" phenomena existed. Political Markets are filled with dumb money and not enough sharps. They are absurdly profitable to bet in bit are not frequent enough for pro gamblers to focus on.

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.
  - eli 3y ago
    The polls implied about a 20% chance of Trump beating Clinton too. I guess I'm not sure what you're getting at. That seems like the perfect example of not a sure thing.
  - blitzar 3y ago
    > The implied probability of Brexit a few days before was around 25%. It was one of the 25 days out of 100 not one of the 75 days out of 100. > these dislocations The market puts the chance of flipping a coin and getting heads at 50%, when it comes up tails it doesn't mean that the market was irrationally pricing heads.
  - n2d4 3y ago
    If anything then that means that they work! Situations with a 25% chance do occur sometimes! If prediction markets show 75% odds and are right 3/4 times, they are doing their job well - if they show 75% odds and right 4/4 times, they are doing their job badly! Meanwhile, both polls and analysts got those elections completely wrong, much more so than prediction markets. (IIRC, 538 was the only outlet that gave Trump a >20% chance to win, and they got a lot of bad words for their prediction pre-election.) Unfortunately, people keep falling for this. You can always cherrypick elections from 7 years ago as "evidence" against prediction markets, but if you look at the bigger picture, you will see that they get a vast majority of elections right. But when they don't, even just once in a decade, they get all the blame. There's plenty of research on this: https://researchdmr.com/RothschildPOQ2009.pdf https://researchdmr.com/RothschildPOQ2009.pdf
    - MostlyStable 3y ago
      538 got screwed in both directions: before the election they were derided for having Trump too high. After the election they were lambasted for "only" giving him 20-30% chance.
      - cosmojg 3y ago
        I'm forever puzzled by the lack of rigorous coursework in probability and statistics in the American public school system, at all levels. I mean, heck, it's pretty much the only mathematical subject for which the question, "When are we ever going to use this in real life?" is trivially answered! And all the other more traditional math subjects (algebra, calculus, etc.) fall right out of it anyway. It's the perfect foundation. Honestly, why hasn't probability-centric mathematical pedagogy taken the world by storm?
mike_d 3y ago
> average predicted likelihood is frequently illogical What is being pointed out is that is not illogical when you fully understand it. I will let you bet me that Taylor Swift is not the current president of the United States. For every $1 you bet, I will return $1.05 to you*. You can bet as much as you like and as often as you want - my email address is in my profile. * 10% transaction fee applies
- chadash 3y ago
  I’ll offer the same bet but no transaction fee. But it pays out on Jan 1, 2028
  - anonymouskimmer 3y ago
    That's a really good loan rate.
    - nick222226 3y ago
      Especially for unsecured debt!
  - baq 3y ago
    US government offers the same bet, except it settles April/May 2024, and is tax-advantaged.
codexb 3y ago
The author claimed that 90% was illogical; that it should have been closer to 98-99%. What the author failed to realize is that there are overhead costs in betting -- 10% rake, 5% withdrawal, etc. that cut into that 98-99% margin.
- caf 3y ago
  The author didn't fail to realise any of that, because he pointed all of those things out (and more) in the article.

hackerlight 3y ago

Also isn't there a small bet size limit on predictit? That would screw up price discovery because a single informed trader can't correct any inefficiencies.

caf 3y ago
Bet limits are also mentioned as one of the factors in the article.

i_have_an_idea 3y ago

His entire argument is that market odds don't match up with his "common sense".

joenot443 3y ago

My cynical observation here is that betting odds[1] aren't looking great for the incumbent. The author, Jeremiah Johnson, is the founder of a Washington NGO for the center-left [2] and probably has some skin in the game in keeping the status-quo in the White House come November. [1] www.electionbettingodds.com [2] www.cnliberalism.org

Marazan 3y ago

On Betfair, which has miniscule fees compared to predictit and effectively unlimited wagering caps, the same "You can bet on Joe Biden to win the election weeks after Joe Biden won the election" phenomena existed. Political Markets are filled with dumb money and not enough sharps. They are absurdly profitable to bet in bit are not frequent enough for pro gamblers to focus on.