Interesting. Am I correct that this implies the larger the house’s cut, the more systematically off we should expect the payouts to be? It seems like PredictIt’s 10% effectively moves the point at which it isn’t worth it to correct the inefficiency further out from equilibrium than in the case of free trades.
That’s exactly correct. It’s a standard taxation-begets-misallocation scenario.
For reference, PI’s current rules have this effect to roughly 0-3% per contract, potentially adding across multiple contracts in a bundle. Prices closer to 50% are worse (though prices further away have their own biases, as Zvi explains).
Interesting. Am I correct that this implies the larger the house’s cut, the more systematically off we should expect the payouts to be? It seems like PredictIt’s 10% effectively moves the point at which it isn’t worth it to correct the inefficiency further out from equilibrium than in the case of free trades.
That’s exactly correct. It’s a standard taxation-begets-misallocation scenario.
For reference, PI’s current rules have this effect to roughly 0-3% per contract, potentially adding across multiple contracts in a bundle. Prices closer to 50% are worse (though prices further away have their own biases, as Zvi explains).