The Demon King does not solely attack the Frozen Fortress to profit on prediction markets. The story tells us that the demons engage in regular large-scale attacks, large enough to serve as demon population control. There is no indication that these attacks decreased in size when they were accompanied with market manipulation (and if they did, that would be a win in and of itself).
So the prediction market’s counterfactual is not that the Demon King’s forces don’t attack, but that they attack at an indeterminate time with the same approximate frequency and strength. By letting the Demon King buy and profit from “demon attack on day X” shares, the Circular Citadel learns with decently high probability when these attacks take place and can allocate its resources more effectively. Hire mercenaries on days the probability is above 90%, focus on training and recruitment on days of low-but-typical probability, etc.
This ability to allocate resources more efficiently has value, which is why the Heroine organized the prediction market in the first place. The only thing that doesn’t go according to the Heroine’s liking is that the Circular Citadel buys that information from the Demon King rather than from ‘the invisible hand of the market’.
more generally the Demon King would only do this if the information revealed weren’t worth the market cost
The Demon King would sell the information as soon as she thinks it is in her best interests, which is different from it being bad for the Circular Citadel. Especially considering the Circular Citadel doesn’t even have to pay the full cost of the information—everyone who bets is also paying.
It is very possible that the Demon King and the Circular Citadel both profit from the prediction market existing, while the demon ground forces and naive prediction market bettors lose.
The Demon King does not solely attack the Frozen Fortress to profit on prediction markets. The story tells us that the demons engage in regular large-scale attacks, large enough to serve as demon population control. There is no indication that these attacks decreased in size when they were accompanied with market manipulation (and if they did, that would be a win in and of itself).
So the prediction market’s counterfactual is not that the Demon King’s forces don’t attack, but that they attack at an indeterminate time with the same approximate frequency and strength. By letting the Demon King buy and profit from “demon attack on day X” shares, the Circular Citadel learns with decently high probability when these attacks take place and can allocate its resources more effectively. Hire mercenaries on days the probability is above 90%, focus on training and recruitment on days of low-but-typical probability, etc.
This ability to allocate resources more efficiently has value, which is why the Heroine organized the prediction market in the first place. The only thing that doesn’t go according to the Heroine’s liking is that the Circular Citadel buys that information from the Demon King rather than from ‘the invisible hand of the market’.
The Demon King would sell the information as soon as she thinks it is in her best interests, which is different from it being bad for the Circular Citadel. Especially considering the Circular Citadel doesn’t even have to pay the full cost of the information—everyone who bets is also paying.
It is very possible that the Demon King and the Circular Citadel both profit from the prediction market existing, while the demon ground forces and naive prediction market bettors lose.