This ends up being pretty important in practise for decision markets (“if I choose to do X, will Y?”), where by default you might e.g. only make a decision if it’s a good idea (as evaluated by the market), and therefore all traders will condition on the market having a high probability which is obviously quite distortionary.
Hm, do you want to go into more depth? Intuitively I agree this is obviously distortionary, but I’m finding it awkward to think through the details of the distortion.
One thing that comes to mind is “if the market is at 10% but you think 5% is “correct” according to what seems like the spirit of the question, you’re going to expect that the market just doesn’t get resolved, so why bother betting it down”. But I feel like there’s probably more than that. (E: oh, the dynomight essay linked above mentions this one as well.)
This ends up being pretty important in practise for decision markets (“if I choose to do X, will Y?”), where by default you might e.g. only make a decision if it’s a good idea (as evaluated by the market), and therefore all traders will condition on the market having a high probability which is obviously quite distortionary.
Hm, do you want to go into more depth? Intuitively I agree this is obviously distortionary, but I’m finding it awkward to think through the details of the distortion.
One thing that comes to mind is “if the market is at 10% but you think 5% is “correct” according to what seems like the spirit of the question, you’re going to expect that the market just doesn’t get resolved, so why bother betting it down”. But I feel like there’s probably more than that. (E: oh, the dynomight essay linked above mentions this one as well.)