This doesn’t seem right. To bet on No at 16%, you need to think there’s at least 84% chance it will turn into $1. To bet on Yes at 16%, you need to think there’s at least 16% chance it’ll turn into $1.
I.e., the interest rates, fees, etc. mean that in reality, you might only be willing to buy No at 84% if you think the best available probability should be significantly lower than 16%, and only willing to buy Yes if you think the probability it significantly higher than 16%.
For the market to be trading at 16%, there need to be market participants on both sides of the trade.
Transaction costs make the market less efficient, as you can collect as much money by correcting the price, but if there is trading, then there are real bets made at the market price, with one side betting on more than the market price, and another betting on less.
In your model, why would anyone buy Yes shares at the market price? Holding a Yes share means that your No share isn’t useful anymore to produce the interest; and there’s an equal number of Yes and No shares circulating.
This doesn’t seem right. To bet on No at 16%, you need to think there’s at least 84% chance it will turn into $1. To bet on Yes at 16%, you need to think there’s at least 16% chance it’ll turn into $1.
I.e., the interest rates, fees, etc. mean that in reality, you might only be willing to buy No at 84% if you think the best available probability should be significantly lower than 16%, and only willing to buy Yes if you think the probability it significantly higher than 16%.
For the market to be trading at 16%, there need to be market participants on both sides of the trade.
Transaction costs make the market less efficient, as you can collect as much money by correcting the price, but if there is trading, then there are real bets made at the market price, with one side betting on more than the market price, and another betting on less.
In your model, why would anyone buy Yes shares at the market price? Holding a Yes share means that your No share isn’t useful anymore to produce the interest; and there’s an equal number of Yes and No shares circulating.