A lot of commentary here confuses individual returns with improving information. Stocks generally have returns from business, and this is important to information-free investors. But those don’t matter for info purposes. Even in the stock market, all of the information value about where to direct capital comes from those trying to BEAT the market. Those with opinions backed by money making individual relative decisions. The masses buying indices or simple spreads don’t actually increase the effectiveness of capital allocation.
Prediction markets have a “market average” of 0. There is no reason to buy a prediction index fund, and no benefit to the market if someone did so.
Predictions ONLY have information value—if you can make better predictions than the average, you get paid when it resolves, and you improve the accuracy in the meantime. If you make worse predictions, you lose money. It’s really that simple.
But it’s easy to forget, in the comparison with stocks, that “participation” means making and standing behind predictions, not just putting money in.
Nope, that’s my point. MOST people putting money into stocks are NOT providing any information. They’re just buying a fund or following general rules that don’t deviate from aggregate measures or move any part of the market relative to others.
Those who are seriously attempting to BEAT the market are giving actual price signals about how their beliefs differ from the current average.
I think Yair is saying that the people putting in money randomly is what allows “beat the market” to be profitable. Isn’t the return on beating the market proportional to the size of the market? In which case, if more people put money into the prediction markets suboptimally, this would be a moneymaking opportunity for professional forecasters, and you could get more/better information from the prediction markets.
A lot of commentary here confuses individual returns with improving information. Stocks generally have returns from business, and this is important to information-free investors. But those don’t matter for info purposes. Even in the stock market, all of the information value about where to direct capital comes from those trying to BEAT the market. Those with opinions backed by money making individual relative decisions. The masses buying indices or simple spreads don’t actually increase the effectiveness of capital allocation.
Prediction markets have a “market average” of 0. There is no reason to buy a prediction index fund, and no benefit to the market if someone did so.
Predictions ONLY have information value—if you can make better predictions than the average, you get paid when it resolves, and you improve the accuracy in the meantime. If you make worse predictions, you lose money. It’s really that simple.
But it’s easy to forget, in the comparison with stocks, that “participation” means making and standing behind predictions, not just putting money in.
But all the people putting money into stocks, provide the market makers for the people with better information to make money.
Nope, that’s my point. MOST people putting money into stocks are NOT providing any information. They’re just buying a fund or following general rules that don’t deviate from aggregate measures or move any part of the market relative to others.
Those who are seriously attempting to BEAT the market are giving actual price signals about how their beliefs differ from the current average.
I think Yair is saying that the people putting in money randomly is what allows “beat the market” to be profitable. Isn’t the return on beating the market proportional to the size of the market? In which case, if more people put money into the prediction markets suboptimally, this would be a moneymaking opportunity for professional forecasters, and you could get more/better information from the prediction markets.