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Iterative Prediction Markets

abstraction.substack.com

7 points by linearithmic 2 years ago · 3 comments

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snthpy 2 years ago

I don't see why this is necessary or even desirable.

If these markets were efficient then these factors should already be priced in, i.e. the time value of money should be priced into the contract prices.

If there is a market with say an August 2024 expiry and the current risk-free rate is 5% p.a then the sum of the YES and NO contract prices should be 0.95 (roughly). Similarly for longer contracts. Since there are secondary markets in these contracts you should be able to sell out at any point (equivalent to the proposed short term contracts).

If the above mentioned contract prices instead currently sum to 1 then the inefficiency probably exists because there is no good way to short ("back" in betting terminology) the contracts. So the more important market innovation would be a way to facilitate that while managing the credit risk.

If I could back both the YES and NO contracts in say $1 million, take that $1m and buy 1 year treasuries and place that collateral with the exchange until I close my positions, then that inefficiency should disappear pretty soon.

linearithmicOP 2 years ago

A post about predicting tomorrow's predictions.

lcrmorin 2 years ago

Yeah usually market provide different time horizons. I fail to see what is the substance of this article ...

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