Although, sometimes a market provides incentive to publish information that's associated with the market being influenced. For example, someone can do an investigation, short the stock, then publish it.
if your point is that one should not treat the market's number as some oracular probability, then... of course i agree! there is no such thing. the market provides a signal, like any other.
The idea when hedging isn't to win on expected value. It's to reduce risk. You're paying the market to provide insurance.
As a side effect, insurance does sometimes generate interesting data. The insurance industry generates good data about life expectancy. But it doesn't tell you when you're going to die.
There are people who pay to make bets on it (if they think the odds are wrong). But you don't have to be a betting participant to access the betting odds. You simply use the betting odds as a prediction of a future outcome, and you take your action/planning accordingly.
These could be (a) people who aren't as smart as they think they are (b) people who subsidize the market in order to get good predictions (c) people who are hedging (essentially, buying insurance). Perhaps other possibilities.
yep, and that's fine because they did so voluntarily.
If there were no stakes on the line, the information in the odds will also not have any real meaning.
This doesn’t tell us all that much about whether a price signal is a valuable source of information. Often, people have varied interpretations of what a price movement means. The price doesn’t tell you how to interpret it. The obvious interpretation can be wrong.
I assume because even if you know the future perfectly, putting up large lump sums early could cap your upside if people take your large sum as a signal (like OP is doing)
As a viewer you can take your own short-term "actions" (gambles) outside the market using the brief advanced notice I guess, but I'm not sure planning works like that.
In other words, what happens to the accuracy of prediction markets if we're including the discrete odds that occured along the way to the final odds? It's not better than random chance or public sentiment for large events is it?
like if 50 ppl vote A, 45 people vote B and 1 person who actually knows their shit votes B?
How do you find it? By amount?
like any signal, you reflect on it, integrate it into your belief, think through the consequences, etc.
we all want mr. delphi to tell us exactly what will happen. but without such a friend, we reason under uncertainty. markets are one tool we've found to coordinate such signals.
would you ask the same of hiring a private investigator, or paying for the new york times? there is no authority with your interests but yourself; you must choose who to trust.
This is the theoretical underpinning of prediction markets.
"right" people will wisely take most their winnings out of a high-variance market. "wrong" people with deep pockets (or lots of wrong people with shallow pockets) will continue to distort the market.
they can only do so as long as they have enough capital to lose. Because every time they try to move the betting markets against the truth, they will simply lose that money when the event happens (and turns out they were wrong).
So any distortion will merely be temporary. Unless they have access to unlimited capital of course - which is not true yet for anyone (but the US gov't).