The efficient market hypothesis is an overrated and dubious hypothesis when applied to the stock market (a market which could plausibly have the necessary conditions for EMH to be reasonable), betting market’s like predictit though are nothing like the stock market and significantly more inefficient. The necessary conditions for a market to be efficient require the market to be heavily/majority used by profit maximizing investors and this just isn’t the case for most gambling markets.
In general betting on a gambling market is a much worse idea than betting on stocks, since the transaction costs are a lot higher and you are betting on a zero-sum game instead of a historically positive-sum one. That being said there are some notable examples of the market completely failing. Take the Mayweather vs McGregor fight where the best boxer in the world for a decade only had a −400 edge against someone who had never had a professional boxing match (the line started at a much more reasonable −2500). If I had more money back in 2017 I would have bet that line heavily. Just because you are betting on a usually subpar market doesn’t mean there aren’t still good deals to be had on occasion.
My argument doesn’t require the EMH to be true in any strong sense, just true enough that you can’t beat a big, liquid market by a large margin via easy analysis of very public information. Predictit’s price is similar to Betfair’s—in fact Betfair is currently slightly less favourable to Biden—and presumably won’t diverge too far in either direction due to arbitrage. Betfair has matched about $180 million on its ‘next US President’ market. Of course a lot of its users are wild gamblers, but it is big enough to attract serious professionals (and smart opportunists with plenty of capital) too.
The efficient market hypothesis is an overrated and dubious hypothesis when applied to the stock market (a market which could plausibly have the necessary conditions for EMH to be reasonable), betting market’s like predictit though are nothing like the stock market and significantly more inefficient. The necessary conditions for a market to be efficient require the market to be heavily/majority used by profit maximizing investors and this just isn’t the case for most gambling markets.
In general betting on a gambling market is a much worse idea than betting on stocks, since the transaction costs are a lot higher and you are betting on a zero-sum game instead of a historically positive-sum one. That being said there are some notable examples of the market completely failing. Take the Mayweather vs McGregor fight where the best boxer in the world for a decade only had a −400 edge against someone who had never had a professional boxing match (the line started at a much more reasonable −2500). If I had more money back in 2017 I would have bet that line heavily. Just because you are betting on a usually subpar market doesn’t mean there aren’t still good deals to be had on occasion.
My argument doesn’t require the EMH to be true in any strong sense, just true enough that you can’t beat a big, liquid market by a large margin via easy analysis of very public information. Predictit’s price is similar to Betfair’s—in fact Betfair is currently slightly less favourable to Biden—and presumably won’t diverge too far in either direction due to arbitrage. Betfair has matched about $180 million on its ‘next US President’ market. Of course a lot of its users are wild gamblers, but it is big enough to attract serious professionals (and smart opportunists with plenty of capital) too.