Your point about AMM usage allowing prediction markets to reflect true probability by increasing liquidity is wrong imo. Even if an AMM makes it easier to trade an illiquid asset, a large capital allocator with prime information about a topic will use their information to profit in the most profitable/liquid venue, which is often a stock market or spot asset rather than a prediction market. It's simply not worth onboarding and managing small positions. Liquidity brings liquidity which brings information.
I agree! The argument in that section was not that liquidity is sufficient to make the price efficient, only that it enables there to be a meaningful notion of price at all — “the market’s best probability estimate”, which of course from what I’ve said there may yet be totally wrong. You need to do additional work to argue that this estimate is reflective of reality; some of that work is done elsewhere.
And regarding the point that informed traders will only trade in the most profitable venue, which is usually some already existing, more liquid financial market: this is obviously true in situations where the information has an obvious connection, but as I argue, there are many kinds of information either not reflected in those markets (which exist for other reasons, and yield information only as a byproduct) or has no obvious associated trade.
It seems to me that transaction costs are more important: given that these markets are offering you (an informed trader) some amount of free money, you will simply take it in addition to any other trading you might be doing; unless it’s very inconvenient or expensive or time-consuming to do so. That problem is solved by introducing liquidity.
You made a lot of great points but this resonated the most: pm ≠ polls. Polls show what ppl say, pm show what they’ll stake. Skin in the game filters noise fast
I suppose my minor problem with your "encourages vice" reply is that the average opponent of prediction markets on the grounds that gambling is a vice would very gladly ban slot machines, meme coins, and probably casinos too. It doesn't seem a strong response to say "aha, but these other things you hate are legal!". The anti-gambler knows this, they just dislike the fact.
Obviously there are other responses on this point! Narrowly: I don't think what I say depends on comparison to those other things. Obviously you could ban them all, and maybe for some people that would be preferred. My point is that the inclination exists, and is going to express itself somehow -- if only by not buying insurance, or engaging in more physically risk activity, or whatever. For that reason, it's clearly better if at least some of the inclination can be channelled into something with positive externalities rather than negative ones. I also note that it seems a weirdly un-conservative position to think that just banning every outlet through which people express risk-seeking behaviour could actually affect human nature. On that, see:
Sure, sure. In this case I'm not actually positively arguing one case or another. I'm simply saying that I think it's a weak response on the grounds that it just says to the anti-gambling moralist, "well, wouldn't you have to do this thing that you also want to do?". Their answer will of course be "...yes?".
Though for what it's worth, I think on a purely empirical level it is demonstrably a historical conservative position to ban the expression of human vices, common or not. Conservatism is not libertarianism, and never has been.
I think this is a mistake on the part of conservatives, and for this reason I follow Hayek in being a liberal who recognised the necessity of absorbing some fundamental insights of conservatism, rather than a conservative.
I think your hypothetical responder here proves too much, as shown by the examples of varying attitudes to risk in what sorts of holidays people go on, sports they play, whatever. The point of that argument was to comment on the *demand* for risk-seeking — which is a facet of human nature — rather than to make a simple comparison with these particular outlets for risk-seeking. Otherwise yes, plainly one could argue for the proscription of all such outlets; this doesn’t address the question of demand.
(This goes slightly in circles, because the conservative is mistaken in her readiness to proscribe perceived vice).
Your point about AMM usage allowing prediction markets to reflect true probability by increasing liquidity is wrong imo. Even if an AMM makes it easier to trade an illiquid asset, a large capital allocator with prime information about a topic will use their information to profit in the most profitable/liquid venue, which is often a stock market or spot asset rather than a prediction market. It's simply not worth onboarding and managing small positions. Liquidity brings liquidity which brings information.
I agree! The argument in that section was not that liquidity is sufficient to make the price efficient, only that it enables there to be a meaningful notion of price at all — “the market’s best probability estimate”, which of course from what I’ve said there may yet be totally wrong. You need to do additional work to argue that this estimate is reflective of reality; some of that work is done elsewhere.
And regarding the point that informed traders will only trade in the most profitable venue, which is usually some already existing, more liquid financial market: this is obviously true in situations where the information has an obvious connection, but as I argue, there are many kinds of information either not reflected in those markets (which exist for other reasons, and yield information only as a byproduct) or has no obvious associated trade.
It seems to me that transaction costs are more important: given that these markets are offering you (an informed trader) some amount of free money, you will simply take it in addition to any other trading you might be doing; unless it’s very inconvenient or expensive or time-consuming to do so. That problem is solved by introducing liquidity.
You made a lot of great points but this resonated the most: pm ≠ polls. Polls show what ppl say, pm show what they’ll stake. Skin in the game filters noise fast
I suppose my minor problem with your "encourages vice" reply is that the average opponent of prediction markets on the grounds that gambling is a vice would very gladly ban slot machines, meme coins, and probably casinos too. It doesn't seem a strong response to say "aha, but these other things you hate are legal!". The anti-gambler knows this, they just dislike the fact.
Obviously there are other responses on this point! Narrowly: I don't think what I say depends on comparison to those other things. Obviously you could ban them all, and maybe for some people that would be preferred. My point is that the inclination exists, and is going to express itself somehow -- if only by not buying insurance, or engaging in more physically risk activity, or whatever. For that reason, it's clearly better if at least some of the inclination can be channelled into something with positive externalities rather than negative ones. I also note that it seems a weirdly un-conservative position to think that just banning every outlet through which people express risk-seeking behaviour could actually affect human nature. On that, see:
https://home.uchicago.edu/~vlima/courses/econ200/spring01/friedman.pdf
https://en.wikipedia.org/wiki/Friedman%E2%80%93Savage_utility_function
Sure, sure. In this case I'm not actually positively arguing one case or another. I'm simply saying that I think it's a weak response on the grounds that it just says to the anti-gambling moralist, "well, wouldn't you have to do this thing that you also want to do?". Their answer will of course be "...yes?".
Though for what it's worth, I think on a purely empirical level it is demonstrably a historical conservative position to ban the expression of human vices, common or not. Conservatism is not libertarianism, and never has been.
I think this is a mistake on the part of conservatives, and for this reason I follow Hayek in being a liberal who recognised the necessity of absorbing some fundamental insights of conservatism, rather than a conservative.
I think your hypothetical responder here proves too much, as shown by the examples of varying attitudes to risk in what sorts of holidays people go on, sports they play, whatever. The point of that argument was to comment on the *demand* for risk-seeking — which is a facet of human nature — rather than to make a simple comparison with these particular outlets for risk-seeking. Otherwise yes, plainly one could argue for the proscription of all such outlets; this doesn’t address the question of demand.
(This goes slightly in circles, because the conservative is mistaken in her readiness to proscribe perceived vice).