What’s the rational way to behave in a prediction market where you suspect that other participants might be more informed than you?
Stay out of the market.
Alternatively, if you have a strong prior, you can treat the bets of other better-informed participants as evidence and do Bayesian updating. But it will have to be a pretty strong prior to still bet against them.
Of course, if the market has both better-informed and worse-informed participants and you know who they are, you can just bet together with the better-informed participants.
Have you seen my reply to Coscott? You can’t naively treat the actions of less informed people as evidence, because they might be rational and try to mislead you. (See “bluffing” and “sandbagging” in poker.) The game-theoretic view makes everything simpler, in this case almost too simple.
Stay out of the market.
Alternatively, if you have a strong prior, you can treat the bets of other better-informed participants as evidence and do Bayesian updating. But it will have to be a pretty strong prior to still bet against them.
Of course, if the market has both better-informed and worse-informed participants and you know who they are, you can just bet together with the better-informed participants.
Have you seen my reply to Coscott? You can’t naively treat the actions of less informed people as evidence, because they might be rational and try to mislead you. (See “bluffing” and “sandbagging” in poker.) The game-theoretic view makes everything simpler, in this case almost too simple.