Speculations Concerning the First Free-ish Prediction Market

You know, Polymarket really works and anyone can use it right now, including US citizens; the only really serious problem with it is that it costs a flat fee of about ~$50 to deposit and withdraw, and you have to be able to figure out how to send cryptocurrency.

Some comments:

• As a random smart LW person, I actually rarely have interest in participating in a prediction market, because I have to work hard to have any edge on anything, and even if I have an edge I risk betting against someone who has true inside information. I would have to value my time less or enjoy modelling things more to be an active participant. It's not like the stock market where you are incentivized to use it even if you don't know anything special.
• It's hard to get people to participate in long-term markets, because the payoff just isn't very good. I have zero desire to work hard on a model so that I can make an expected profit of 10% two years from now.
• $25k is a joke -- is that for real? That does not pay off someone for making a good model. It also doesn't let smart money fix a wrong price even if they magically have a perfect model. You would have to organize some kind of fund with many traders working on many models who all shared info and went in on all of each others' trades.

you really could have been the first mover on a few of these new enterprises back in 2021 if you had brainstormed a bit. Describe one of them.

Fun!

• Curated data services for forecasting.
• High-trust paid newsletter/research service oriented around interesting markets. Maintain a publicly-verifiable scoreboard linked to market positions to demonstrate reliability.
• Insurance markets - take an extreme position as a catastrophe hedge, use this to subsidize market making.
• Social network - rationales and discussion for various markets. Content discovery algorithms could include historic accuracy so truth propagates more easily.
• Infrastructure to annotate opinion pieces with concrete predictions, link to market positions.
• ... [will update if more occur to me]

By the way, here's a Metaculus question about when Kalshi will launch.

Regarding betting on inflation, TIPS already exist.

On the question of subsidization and liquidity, has anyone considered investing money locked into a prediction to create outcomes which aren't zero-sum? I imagine prediction markets like PredictIt invest the funds sunk into their markets in some manner already, but those returns/losses aren't accessible to bettors.

Currently, the money placed into a prediction market just idles there from the perspective of bettors.

Suppose instead of distributing earnings/losses based solely on the market outcome, in the meantime the money was placed into high yields savings. At the resolution of the market, the payout would include not only the money put in the market but also any interest earned. On the flipside investment losses could erode winnings.

Of course, this gives rise to the possibility of markets which have major market repercussions being mispriced, reflecting concerns over investment losses. But if anything that teases out more useful information from the market. It also erases the opportunity cost of storing money a betting market over other financial markets.

Counterpoint:

Why do people trade?

We often trade to express an opinion on whether a future event will drive value up or down.

You believe that a vaccine will be widely distributed, so you try investing in travel stocks. You believe emissions regulation is coming, so you try shorting auto companies.

But these trades don’t provide direct exposure to the event. There’s a lot of noise that gets in the way. Kalshi enables you to isolate trading on the event itself.

This makes me pessimistic about it, see Prediction Markets Fail To Mooch.