A key active ingredient here seems to be that exact ability to disguise your true position. Even if someone knows your trades, they don’t know why you did them. You could have a different fair value (probability estimate), you could be hedging risk, you could expect the price to move in a direction without thinking that move is going to be accurate, and so on.
By not requiring the trader to be pinned down to anything (except profit and loss) we potentially extract more information.
And all of that applies to non-prediction markets, too.
Note that most markets don’t have any transparency about who buys or sells, and external factors are often more plausible reasons than a naive outsider expects. A drop in the share price of a retailer could be reflecting lower confidence in their future earnings, or result from a margin call on a firm that made a big bet on the firm that it needed to unwind, or even be because a firm that was optimistic about the retailer decided to double down, and move a large call options position out 6 months, so that their counterparty sold to hedge their delta—there is no way to tell the difference. (Which is why almost all market punditry is not only dishonest, but laughable once you’ve been on the inside.)
A key active ingredient here seems to be that exact ability to disguise your true position. Even if someone knows your trades, they don’t know why you did them. You could have a different fair value (probability estimate), you could be hedging risk, you could expect the price to move in a direction without thinking that move is going to be accurate, and so on.
By not requiring the trader to be pinned down to anything (except profit and loss) we potentially extract more information.
And all of that applies to non-prediction markets, too.
Note that most markets don’t have any transparency about who buys or sells, and external factors are often more plausible reasons than a naive outsider expects. A drop in the share price of a retailer could be reflecting lower confidence in their future earnings, or result from a margin call on a firm that made a big bet on the firm that it needed to unwind, or even be because a firm that was optimistic about the retailer decided to double down, and move a large call options position out 6 months, so that their counterparty sold to hedge their delta—there is no way to tell the difference. (Which is why almost all market punditry is not only dishonest, but laughable once you’ve been on the inside.)