We see this a lot on major events, as I’ve noted before, like the Super Bowl or the World Cup. If you are on the ball, you’ll bet somewhat more on a big event, but you won’t bet that much more on it than on other things that have similarly crazy prices. So the amount of smart money does not scale up that much. Whereas the dumb money, especially the partisans and gamblers, come out of the woodwork and massively scale up.
This sounds like it should generalize to “in big events, especially those on which there are vast numbers of partisans on both sides, the prediction markets will reliably be insane and therefore close to useless for prediction purposes”. Is that something one sees in practice for things like the World Cup?
One way the World Cup and Super Bowl differ from the election is that in a championship match, only a modest fraction of the people interested in the tournament as a whole will be partisans for the two contestants participating in the championship match; whereas in the election, I would expect the partisan coefficient to be much higher than that. Would that affect the degree to which the dumb money will overwhelm the smart money? I would expect so.
That goes too far. What happens is that the line is less accurate than normal, and there will almost always be good value if you look around the various offerings. But there are a lot of forces that will come in hard if the number gets super wrong, and a lot of ways for even relatively dumb money to know more or less what the odds should be. So if a WC match is actually 65-35, it might be 60-40 or 70-30 instead, which is a great opportunity, but it’s not going to be useless. It depends what you already know—you should have a fair value in mind, expect a second value that’s different, then look at what you find. And if it’s not what you expected, maybe you modeled the public wrong, but also maybe you’re missing something.
Basically, if you want to know who the favorite is, the line is trustworthy unless it’s super close (52-48 or something). Exactly how big a favorite, or especially various secondary lines, and you get less trustworthy.
In an election, you don’t have those kind of anchors, so it’s easier to get far out of whack.
This sounds like it should generalize to “in big events, especially those on which there are vast numbers of partisans on both sides, the prediction markets will reliably be insane and therefore close to useless for prediction purposes”. Is that something one sees in practice for things like the World Cup?
One way the World Cup and Super Bowl differ from the election is that in a championship match, only a modest fraction of the people interested in the tournament as a whole will be partisans for the two contestants participating in the championship match; whereas in the election, I would expect the partisan coefficient to be much higher than that. Would that affect the degree to which the dumb money will overwhelm the smart money? I would expect so.
That goes too far. What happens is that the line is less accurate than normal, and there will almost always be good value if you look around the various offerings. But there are a lot of forces that will come in hard if the number gets super wrong, and a lot of ways for even relatively dumb money to know more or less what the odds should be. So if a WC match is actually 65-35, it might be 60-40 or 70-30 instead, which is a great opportunity, but it’s not going to be useless. It depends what you already know—you should have a fair value in mind, expect a second value that’s different, then look at what you find. And if it’s not what you expected, maybe you modeled the public wrong, but also maybe you’re missing something.
Basically, if you want to know who the favorite is, the line is trustworthy unless it’s super close (52-48 or something). Exactly how big a favorite, or especially various secondary lines, and you get less trustworthy.
In an election, you don’t have those kind of anchors, so it’s easier to get far out of whack.