Update on the Mysterious Trump Buyers on Polymarket

Thirty million dollars is a lot of money, but there are plenty of smart rich people who don't mind taking risks. So, once the identity and (apparent) motives of the Trump whale were revealed, why didn't a handful of them mop up the free EV?

Well, first I think you're right to say "a handful". My (limited but nonzero) experience of "sufficiently rich" people who made their money in "normal" ways, as opposed to by speculating on crypto or whatever, is that they're too busy to invest a lot of time in playing this kind of market personally, especially if they have to pay enough attention to play it intelligently. They're not very likely to employ anybody else to play for them either. Many or most of them will see as the whole thing as basically an arcane, maybe somewhat disreputable game. So the available pool is likely smaller than you might think.

That conjecture is at least to some degree supported by the fact that nobody, or not enough people, stepped in when the whole thing started. Nothing prevented the market from moving so far to begin with. It may not have been as certain what was going on then, but things looked weird enough that you'd expect a fair number of people to decide that crazy money was likely at work, and step in to try to take some of it... if enough such people were actually available.

In any case, whether when the whole thing started, after public understanding was reasonably complete, or anywhere along the way, the way I think you'd like to make your profit on the market being miscalibrated would be to buy in, wait for the correction, and then sell out... before the question resolved and before unrelated new information came in to move the price in some other way.

But would be hard to do that. All this is happening potentially very close to resolution time, or at least to functional resolution time. The market is obviously thin enough that single traders can move it, and new information is coming in all the time, and the already-priced-in old information isn't very strong and therefore can't be expected to "hold" the price very solidly, and you have to worry about who may be competing with you to take the same value, and you may be questioning how rational traders in general are^[1].

So you can't be sure you'll get your correction in time to sell out; you have a really good chance of being stuck holding hold your position through resolution. If "markets can remain irrational longer than you can remain solvent", then they can also stay irrational for long enough that trading becomes moot.

If you have to hold through resolution, then you do still believe you have positive expected value, but it's really uncertain expected value. After all, you believe the underlying question is 50-50, even if one of those 50s would pay you more than the other would lose you. And you have at best limited chance to hedge. So you have to have risk tolerance high enough that, for most people, it'd be in the "recreational gambling" range rather than the "uncertain investment" range. The amount of money that any given (sane) person wants to put at risk definitely goes down under that much uncertainty, and probably goes down a lot. So you start to need more than a "handful" of people.

Also, don't forget the point somebody made the other day about taxes. Unless you're a regular who plays many different questions in such volume that you expect to offset your winnings with losses, you're going to stand to "win" a double-digit percentage less than you stand to "lose", whether on selling off your position or on collecting after resolution. Correcting 60-40 to 50-50 may just plain not be profitable even if you collect.

There are probably other sources of friction, too.