In the scenario I provided, the contracts will be traded at the following prices after the demon reveals his information:
Hillary elected and US nuked: $14.3 (1/7 of $100)
Hillary elected and US not nuked: $28.6 (2/7)
Jeb elected and US nuked: $14.3 (1/7)
Jeb elected and US not nuked: $42.9 (3/7)
Like you said, if people change their votes based on the market, the prices may be distorted by the market predicting itself.
Given how you have set this problem up, what do you think will be the relative prices of the 4 contracts you specified?
In the scenario I provided, the contracts will be traded at the following prices after the demon reveals his information:
Hillary elected and US nuked: $14.3 (1/7 of $100) Hillary elected and US not nuked: $28.6 (2/7) Jeb elected and US nuked: $14.3 (1/7) Jeb elected and US not nuked: $42.9 (3/7)
Like you said, if people change their votes based on the market, the prices may be distorted by the market predicting itself.