Also, more generally, no prediction market price means you can immediately conclude what the probability of any outcome is, because most markets we have only subjective probability (maybe this is always true but I’m trying to ignore things like fair coin flips that have agreed upon “objective” probabilities), so there is no fact of the matter about what the real probability of something happening is, only the subjective probability based on the available information.
Instead a prediction market is simply, in the ideal case, the market clearing price at which people are willing to take bets on either side of the question at this moment in time. This price represents a marginal trading point—participants with higher subjective probabilities than the market price will buy, while those with lower will sell. This is importantly different from the true probability of an outcome, and it’s a general mistake people make to treat them as such.
Then there are other factors, like you mention with interest, but also issues with insufficient volume, large traders intentionally distorting the market, etc. that can make the market clearing price less useful for inferring what subjective probability an observer should treat a possible outcome as having.
Instead a prediction market provides aggregate information that can be used for a person to make their own assessment of the subjective probability of an outcome, and if they differ from the market in their assessment they can make a bet that will be subjectively positive value in expectation, but still in no way is the market price of any prediction market the probability of any outcome.
Also, more generally, no prediction market price means you can immediately conclude what the probability of any outcome is, because most markets we have only subjective probability (maybe this is always true but I’m trying to ignore things like fair coin flips that have agreed upon “objective” probabilities), so there is no fact of the matter about what the real probability of something happening is, only the subjective probability based on the available information.
Instead a prediction market is simply, in the ideal case, the market clearing price at which people are willing to take bets on either side of the question at this moment in time. This price represents a marginal trading point—participants with higher subjective probabilities than the market price will buy, while those with lower will sell. This is importantly different from the true probability of an outcome, and it’s a general mistake people make to treat them as such.
Then there are other factors, like you mention with interest, but also issues with insufficient volume, large traders intentionally distorting the market, etc. that can make the market clearing price less useful for inferring what subjective probability an observer should treat a possible outcome as having.
Instead a prediction market provides aggregate information that can be used for a person to make their own assessment of the subjective probability of an outcome, and if they differ from the market in their assessment they can make a bet that will be subjectively positive value in expectation, but still in no way is the market price of any prediction market the probability of any outcome.
When you say “true probability”, what do you mean?
The current hypotheses I have about what you mean are (in part non-exclusive):
You think some notion of objective, non-observer dependent probability makes sense, and that’s the true probability.
You do not think “true probability” exists, you are referencing to it to say the market price is not anything like that.
You define “true probability” a probability that observers contextually agree on (like a coin flip observed by humans who don’t know the thrower).