My knee-jerk reaction to the argument was negative, but now I’m confused enough to say something.
If the contract is trading for M$p, then the “arbitrage” of “buy a share of yes and cause the contract to settle to 1″ nets you M$(1-p) per share. Pushing up the price reduces the incentive for a new player to hit the arb.
If you sell the contract, you are paying someone to press the button and hoping they do not act on their incentive.
An interesting plot twist: after you buy the contract, your incentive has changed—instead of the M$(1-p) available before purchase, you now have an incentive of a full M$1 for the button to be pushed rather than not (which maybe translates to a somewhat lower incentive to personally push the button, but I’m not sure that’s the right comparison)
This is a classical example where having a prediction market creates really bad incentives.
If $10 of fake money is enough to blow up your Petrov Day celebration maybe celebrate differently.
I bought 1000 yes. Will donate/waste profits if someone says how I can do it without it having further bad impacts.
My knee-jerk reaction to the argument was negative, but now I’m confused enough to say something.
If the contract is trading for M$p, then the “arbitrage” of “buy a share of yes and cause the contract to settle to 1″ nets you M$(1-p) per share. Pushing up the price reduces the incentive for a new player to hit the arb.
If you sell the contract, you are paying someone to press the button and hoping they do not act on their incentive.
An interesting plot twist: after you buy the contract, your incentive has changed—instead of the M$(1-p) available before purchase, you now have an incentive of a full M$1 for the button to be pushed rather than not (which maybe translates to a somewhat lower incentive to personally push the button, but I’m not sure that’s the right comparison)