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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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