Here’s the short version: Suppose you think a prediction is mispriced but it’s distant in the future. Instead of buying credits that pay out on resolution, you buy futures instead. You don’t have to tie up capital, since payment is due on resolution instead of upfront. Your asset equals your liability. There is no beta.
Financial derivatives solve the shorttermism problem in traditional securities markets. If you use them in prediction markets, then they will (theoretically) do the exact same thing, by (theoretically) operating the exact same way. In practice, thingsgetcausal, and that’s before you add leverage and derivatives.
One of the very anticapitalisms that I’ve noticed is that expertise doesn’t always generalize out of domain, while money can stray into whatever domain it wants to.
Doesn’t matter. It just means that prediction markets have to be sufficiently capitalized to work. A hedge fund isn’t going to throw its smartest brains at a market with only $100 of total market capitalization.
Here’s the short version: Suppose you think a prediction is mispriced but it’s distant in the future. Instead of buying credits that pay out on resolution, you buy futures instead. You don’t have to tie up capital, since payment is due on resolution instead of upfront. Your asset equals your liability. There is no beta.
Financial derivatives solve the shorttermism problem in traditional securities markets. If you use them in prediction markets, then they will (theoretically) do the exact same thing, by (theoretically) operating the exact same way. In practice, things get causal, and that’s before you add leverage and derivatives.
Doesn’t matter. It just means that prediction markets have to be sufficiently capitalized to work. A hedge fund isn’t going to throw its smartest brains at a market with only $100 of total market capitalization.