Here are two different ways you can engage with a stock/prediction market:
You form your own opinion and aggregate it to the market. This requires forming an inside view.
You observe other people’s opinions and notice an opportunity for arbitrage. This requires you to be good at aggregating and noticing the implications of other people’s beliefs, such that you can make risk-free profit off of the market’s lack of logical omniscience.
The following is guess/speculation:
These methods live on opposite ends of a continuous scale. The scale indicates how “inside-ey” or self-generated your view is.
Predictions that are closer to method 2 are how you get good returns, whereas those that lean closer to method 1 serve to calibrate your own opinion, potentially at the expense of your money.
This suggests that I was majorly confused about the role that competitively successful forecasters and/or performers on markets serve for sense-making. My guess is now that top forecasters have shown evidence that they excel at arbitraging other people’s opinions, but not much evidence of their ability to form inside views. I previously thought they showed proof of both qualities.
This is a distinction that I haven’t seen explicitly made yet. Is there something I’m missing? has someone else already thought of this? let me know :)
Here are two different ways you can engage with a stock/prediction market:
You form your own opinion and aggregate it to the market. This requires forming an inside view.
You observe other people’s opinions and notice an opportunity for arbitrage. This requires you to be good at aggregating and noticing the implications of other people’s beliefs, such that you can make risk-free profit off of the market’s lack of logical omniscience.
The following is guess/speculation:
These methods live on opposite ends of a continuous scale. The scale indicates how “inside-ey” or self-generated your view is.
Predictions that are closer to method 2 are how you get good returns, whereas those that lean closer to method 1 serve to calibrate your own opinion, potentially at the expense of your money.
This suggests that I was majorly confused about the role that competitively successful forecasters and/or performers on markets serve for sense-making. My guess is now that top forecasters have shown evidence that they excel at arbitraging other people’s opinions, but not much evidence of their ability to form inside views. I previously thought they showed proof of both qualities.
This is a distinction that I haven’t seen explicitly made yet. Is there something I’m missing? has someone else already thought of this? let me know :)