Intrade and IEM don’t usually pay interest on deposits, so for long term bets you can win the bet and still lose overall. The obvious solution is for them to pay such interest, but then they’d lose a hidden tax many customers don’t notice.
There are many details of Intrade that encourage a long-shot bias. These may be “hidden taxes,” good for Intrade’s bottom line, but I suspect that the long-shot bias is also, in itself, good for Intrade.
It’s nice that Intrade generates the positive externality of information, but if we want better information, it’s not surprising that we’d have to pay for it, such as providing other revenue streams than these hidden taxes.
Intrade and IEM don’t usually pay interest on deposits, so for long term bets you can win the bet and still lose overall. The obvious solution is for them to pay such interest, but then they’d lose a hidden tax many customers don’t notice.
There are many details of Intrade that encourage a long-shot bias. These may be “hidden taxes,” good for Intrade’s bottom line, but I suspect that the long-shot bias is also, in itself, good for Intrade.
It’s nice that Intrade generates the positive externality of information, but if we want better information, it’s not surprising that we’d have to pay for it, such as providing other revenue streams than these hidden taxes.
That wouldn’t really fix the problem, as interests paid on deposits would be much smaller than interest you have to pay for loaning collateral.