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NBA Superstar Giannis Antetokounmpo announces that he is now a shareholder in prediction market Kalshi. Looks like prediction markets are finally breaking into the mainstream. Let's see what the normies think of this:
Some of these comments are also in response to the Kalshi CEO's now infamous quote that, "the long-term vision is to financialize everything and create a tradable asset out of any difference in opinion."
Turns out people hate this. Scott posted a partial mea culpa last month when he realized that the most common use of prediction markets is negative-sum sports gambling. I don't think the rationalist community has fully internalized how bad this makes us look. Not that we should be overwhelmingly concerned with optics, there are a lot of good things that are very unpopular, but I do wish that when the theory of prediction markets was being hashed out we had gotten more objections like, "theory implies that this machine will systematically extract money from stupid people. Are we prepared to deal with the social consequenses of that?"
I still think prediction markets are good but how about this, you can only gamble with money from special government accounts that you allocate like an IRA. You can spend the money in the accounts anywhere including on gambling sites but you can't spend any money not in one of these accounts on gambling/prediction markets. Cap the Amount you can put into one of these accounts at some percentage of taxable income, say 5-10%. This limits the damage they can do while actually probably accelerating the rate at which the dumb money loses the ability to influence signal possibly improving the usefulness of the results.
Don't you need the dumb money in order to get the liquidity for the smart money to buy in? Especially if the smart money requires costly knowledge discovery.
Not necessarily. Zero sum markets can still be mutually beneficial, especially as a hedge mechanism. Hedge funds aren't primarily founded on extracting money from retail traders even if they also do that.
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This is the Grossman-Stiglitz paradox if people want more detail.
This is saying something different I think, one of those as you approach absolute zero things get wonky kind of theoretical effects. A perfectly efficient rational stock market won't come to exist because it would imply knowledge is worthless, but this wouldn't really be a problem for markets for goods or equity which would still clear. I agree that if everyone who participated in prediction markets were omnipotent then the prediction markets wouldn't make any sense, but then we'd be able to get the information we want out of them by just asking the omnipotent people what the probability is. And in any case even very good super predictors are not actually omniscient.
I agree that subsidizing the market will buy you more information, and dumb money can act as a subsidy, but other things can act as a subsidy as well. If I really want to know the answer to some question a prediction market in effect gives me the option to pay for an answer by offering a bunch of 50/50 liquidity. There is also a lot of subsidy available in people rationally buying shares to hedge outside of market positions. If I do a lot of international trading maybe I can buy shares betting Trump will impose tariffs to hedge against that risk.
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I don't think sports gambling is negative sum. Fools should be parted from their money. Increases in criminality due to poverty are bad, but thinking stupid people making stupid purchases somehow "contributes" to the economy is the broken window fallacy. In the end, the same total amount of productive and destructive forces remain in the economy, they're just re-allocated to people better positioned to use them (i.e., smarter people likely to invest). The only money truly lost is the unrecoverable costs of maintaining the gambling platform (e.g., paying for energy to run servers), and that's a small enough fraction of the overalll transaction I'd feel pretty comfortable saying ir's far outweighed by the fun gamblers are having.
Sports betting should be fine long term, particularly compared to regular "gaming" as it is called out here. There are now about as many "gaming" shops as coffee shops near the place I work. Which is crazy. People, who are typically on welfare of some kind, come in, sit down, burn $500 and get one nasty well drink at noon. That is totally unsustainable.
At least with the sports betting, the companies are large enough now that I think it will be reasonable to have know your customer rules, and people with CC debt will not be able to open new accounts nor use the CC to place new bets. And the thing where a teenager steals dad's/mom/etc identity WILL be solved, or they will be nuked from orbit by plantiffs attorneys.
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I used to work at a large betting exchange before the whole prediction markets thing entered vogue.
Generally even sharp accounts don't have particularly long lifespans until either the person's edge runs out, they hit an unrecoverable cold streak or whatever combination of the two factors that is the case in each individual case of sharp expiration. The longrun equilibrium tends to be that you've got roughly 3 categories of participant
Also with recreationals I don't think the entertainment value of betting is necessarily scaling with the amount that somebody on the chase is going to bet into a sportsbook, and in the longrun if a particular fool becomes a gambling addict there are externalities in the form of both their impact on their direct social network and frankly that in the longrun your taxes will likely have to pay for the upkeep of the worst losers.
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My brother and friend, I was making these exact objections back then: when money is on the table, prediction markets will be warped towards "how can I profit off this?" and not "how can we best arrive at Truth?"
I never believed in them as a tool for setting policy or the wisdom of crowds or whatever other pipe dreams were out there. That kind of market might work so long as it was small-scale, for very maths-oriented, nerdy people who liked deep-diving into questions. But put money in, and try to make it mass-market because you believe in your innocent little heart that this will be the bestest way of finding solutions to social, economic, and policy problems, and it'll blow up in your face.
I don't think Kalshi are any more evil than anywhere else, I just think the whole idea of prediction markets suffered from - pardon me here - being promulgated by the eggheads with little to no experience of what happens with ordinary people and the likes of the stock market and gambling. "We need to get people involved, so we need to provide rewards and incentives to participate, so money is a good way of doing that". Yeah, and the love of money is the root of all evil: the money becomes the end in itself, not whatever goal you had with regards to widescale adoption of prediction markets.
EDIT:
Some people are sufficiently tough-minded to go "yeah, and so what?" about things like legalising drugs, gambling and so on. Their idea is that there should be few to no restrictions on what an adult can do with their own life, and if someone becomes a drug addict or loses all their money betting, that's on them. Society is not responsible for idiots being too stupid to take care of themselves. Your lack of ability should not restrict my freedom.
I've seen some of that around rationalism, so I think there are indeed a sub-set who considered that, and put it aside as "not our problem if 90 IQ low value human capital get themselves into trouble, the benefits for the rest of us far outweigh any downsides".
This current wave of prediction markets is essentially promulgated upon the age-old question of 'actual sports betting is legal in only roughly half of the States but we can take bets from Californians and Texans if we slap this new coat of paint on it'. That's essentially the real commercial product here.
Sort of suspected it, but the very early promoters online were so earnest about how high-minded it all was, I felt like I was breaking butterflies on the wheel to come out and be all wet-blanket on them.
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And they can get bets from Nevadans and other people in places where betting is legal while not having to comply with a huge chunk of Nevada's gaming laws
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Prediction markets are really an idea from 15 years ago, smack dab in the middle of the conjunction of 'software will save the world' tech optimism and 'profit incentives are the best way to solve an optimisation problem' liberal economics.
Kalshi didn't propose mass-market betting because they were too naive to realise that
but because they believed the literal exact opposite, for better or for worse.
The love of evil is the root of all money? 😁
I see I will have to be more careful with my words in future. It’s like dealing with a puckish, Irish genie :P
We get so hot and heavy in the comments on here, a little levity is refreshing (I hope!)
Of course! That was meant to be levity back :)
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I mean... it's hard to argue that you would be wrong with such a statement. :(
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How is that a harm of prediction markets, as opposed to just normal gambling? People have been gambling for thousands of years, they're not going to stop now. This is an innate part of the human condition. How much wealth has been squandered by 'people buying crap they don't need' syndrome? A good chunk of world GDP is wasted from that angle, people go bankrupt and suffer tremendously because of this. But we don't shut down capitalism because people lack self-control.
Even accounting for these statistics being fudged to draw headlines, that's still pretty high. Consider storage too, that's apparently a $40 billion market in the US, storing crap that they probably don't need and can't even fit in their houses! People need to learn to accept a reasonable level of responsibility for their actions.
The solution to sports gambling being bad is to just ban it, ban Ladbrokes and whatever else that it's being done with. That will reduce the problem. But we shouldn't pretend that this is in any way new or a problem with prediction markets. The issue is with stupid and weakwilled people being stupid and weak-willed. They'll find some other way to be stupid and weakwilled, abuse different financial products or mobile games. Also, there is an issue with unclear and inconsistent gambling regulation.
This is key. The stats are based on a survey from a company called Clever Real Estate, whose thing is a discounted commission. They appear to have literally called it "Reckless Spending Habits 2024". The range of reliability for these numbers is "entirely made up" to "bogus".
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The criticism of prediction markets is mostly valid but also largely applies to existing derivatives markets. The platform held bets about whether Israel would bomb Gaza? Commodities traders make those bets every day in far larger and more liquid markets.
Ban prediction markets from sports-related contracts (and ban fanduel and sports betting apps too) because making it too easy for working class men to gamble away their income and savings is probably bad for society and call it a day.
Society has to protect most people from taking extreme risks at least some of the time. Unlike, say, limiting all credit for poor people by capping rates, making gambling harder has few downsides.
All the criticism does apply to derivatives markets but in the case of futures two key differences exists:
It’s hard to get access to them. Not impossible. And there are “funded prop trading” firms that give you a version of futures. Mostly a scam product. Still way less access.
Real hedging demand exists. So sharps can make money working with those who get real economic benefit from the product who can be the net losers. Mortgage companies really do want to make money on mortgage spreads/production and not interests rate bets.
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Prediction markets probably have no good things. The author of The Laws of Trading wrote about why prediction markets can't deliver what they promise. A bit technical on the trading side but should be navigable by laypersons.
This would seem to dovetail nicely with my observation that prediction markets aren't really "markets" in the "market economy" sense of the word so much as Casinos cosplaying as markets.
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The fact that prediction markets got tethered to sports betting is terribly unfortunate. It's like if Kalshi took its crypto elements as an opportunity to "diversify" into crystal meth. There's a lot of value in being able to see the odds of elections or political events at-a-glance. I hope the entire ship doesn't go down as a consequence of stupid people doing stupid things, and then society blaming the platform while holding the stupid people as helpless victims.
I mean in terms of available inventory for them to stock sports are the perfect combination of frequent, easily-graded events that already have a fairly robust pricing mechanism and associated emotional draws. It might be kinda stupid but there's a reason why sports are just going to be slot in as the easiest product to offer.
Sure, I understand why they did it, I just wish they didn't.
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Why is it unfortunate?
If we are going to allow people to bet on the outcome of an election or a war, why should it be treated any differently from betting on the Super Bowl?
Oh don't get me wrong, they should be allowed to from a default libertarian point of view. If dumb people want to make dumb decisions, they should be allowed to within reasonable bounds as long as they're not harming anyone else.
The problem is, as I said in my post, the political ramifications. People love to blame the platform that allows stupid people to make stupid decisions rather than the stupid people themselves, and this jeopardizes the good thing (political bets).
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One difference is that people can act on predictions of real-world events like elections. The information that the prediction market reveals has value. There's not really anything you can do with knowing which football team will win the Super Bowl.
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I've said it before but Reddit has become so bad I just can't log in anymore. It used to be longer takes, with more reasonableness than Twitter. But now it's like 90% one liner, gut reation posts.
No amount of explaining does the trick either. They just downvote and ignore. I once tried to defend Palantir as being not the source of pure evil it's purported to be. Literally nobody even knows what it does. But literally nobody cares either. They've classified it as evil and that's the end of the story.
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Redditors aren't normies. They're barely even people. Prediction market rationalists did entirely fail to realize that the most compelling consumer use case was circumventing restrictions on ultra-degenerate gambling, but, eh, there are a lot more people gambling on Kalshi than there are seething on "r/nba".
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Specifically, he said "Degenerate gambling is bad", citing this article from a different person.
In turn, that person cites and rejects a pro-betting counterargument from a third person.
I've seen people's happiness and welfare increasing in correlation with them going out to concerts. Never as a result of buying new iPhones on multi-year credit plans or taking up sports betting.
I have little patience for highbrowed arguments that actually betting is just another form of consumption. Degenerate gambling, quite evidently, is bad.
I spend probably about 50 bucks on sports betting annually. It’s consumption for me (kind of a fun “try to beat the house” sorts thing). For me it’s consumption.
I do recognize it only exists because others can’t control themselves.
Yeah most users are essentially rounding errors. When I was in industry the sort of hypothetical 'bets $50 twice a year on the Super Bowl and NBA championship' customer was a common consumer profile but was likely actually a loser to even have on the books considering the cost of marketing during peak seasons.
You want the person draining their last $100 on random ass table tennis essentially
Notably, the people who spend $100 annually on sportsbetting are statistically likely to not use betting apps, they have a fantasy league with their friends where a commissioner divides up cash, they participate in their workplace march madness bracket, etc. They're probably not a moneymaker for the apps because if you start charging them money they just go back to doing that.
It's been a few years but I remember loosely that at a small operator the rate of registrations who never deposited at all was like 45%, only bet <5 times a year was like 30%, 5-20 like 18% and those keeping the lights on were a pretty small slice.
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Yeah. That is basically my profile for betting. 80%+ of the bets I make have no rake, like you said.
For the last 20% it used to be the Kentucky Derby Superfecta every year, but then the local track shut down. Now I sometimes bet against Novak Djokavic if he makes a major final.
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