I see how this would be confusing, and it is definitely possible to construct a more realistic scenario.
The use of Laplace’s demon was an attempt to show that in my scenario, all the information (both causal and conditional) is available to all participants in the market. This allows me to show where all the probabilities come from; readers can just look it up in a table which shows the truth.
It was also intended to illustrate that the problem has nothing to do with information asymmetry or inefficient markets (because the true value of the contract is known to all participants).
I see how this would be confusing, and it is definitely possible to construct a more realistic scenario.
The use of Laplace’s demon was an attempt to show that in my scenario, all the information (both causal and conditional) is available to all participants in the market. This allows me to show where all the probabilities come from; readers can just look it up in a table which shows the truth.
It was also intended to illustrate that the problem has nothing to do with information asymmetry or inefficient markets (because the true value of the contract is known to all participants).