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.
For the market to be trading at 16%, there need to be market participants on both sides of the trade
Assuming a market is trading.. Manifold, Kalshi, and Polymarket all display percentages on markets that have literally never had any volume, so UIs mislead those not inspecting orderbooks/volume/etc. Currently, Kalshi is the only one of those that even requires limit orders placed in the orderbook to start displaying percentages
> why would anyone buy Yes > there’s an equal number of Yes and No shares circulating
at unequal pricing. For those heeding return rates, incentives to buy away from 50% are limited before incentives to buy towards 50%. In markets around 1%, one only needs a bit over 1.01% for more incentive than any possible return in the other direction; therefore, incentives can be unilaterally broken in a single direction: https://polymarket.com/event/will-jesus-christ-return-in-2025
No one believes the Jesus market will resolve to Yes
That’s why I chose that market as an example of incentives being unilaterally broken in a single direction; ~everyone agrees that ~3% market won’t happen, but no one has much incentive to trade in that direction collecting >$30k USD correcting that market because that’d return lower than the risk-free rate. Both posts similarly claim interest rates are essential to understanding how much prediction markets reflect actual event probabilities, and interest rate distortion becomes more unilaterally directional the further a market should be from 50%
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.
Assuming a market is trading.. Manifold, Kalshi, and Polymarket all display percentages on markets that have literally never had any volume, so UIs mislead those not inspecting orderbooks/volume/etc. Currently, Kalshi is the only one of those that even requires limit orders placed in the orderbook to start displaying percentages
> why would anyone buy Yes
> there’s an equal number of Yes and No shares circulating
at unequal pricing. For those heeding return rates, incentives to buy away from 50% are limited before incentives to buy towards 50%. In markets around 1%, one only needs a bit over 1.01% for more incentive than any possible return in the other direction; therefore, incentives can be unilaterally broken in a single direction:
https://polymarket.com/event/will-jesus-christ-return-in-2025
No one believes the Jesus market will resolve to Yes. See https://www.lesswrong.com/posts/LBC2TnHK8cZAimdWF/will-jesus-christ-return-in-an-election-year for an explanation of what people are betting on
That’s why I chose that market as an example of incentives being unilaterally broken in a single direction; ~everyone agrees that ~3% market won’t happen, but no one has much incentive to trade in that direction collecting >$30k USD correcting that market because that’d return lower than the risk-free rate. Both posts similarly claim interest rates are essential to understanding how much prediction markets reflect actual event probabilities, and interest rate distortion becomes more unilaterally directional the further a market should be from 50%