The purpose of any price-based system is to communicate knowledge, not necessarily insider knowledge.
There are actually two theories on insider knowledge. One states that allowing insider trading is beneficial, as it allows prices to better match the underlying reality, the other states that this discourages non-insider trading, which actually makes the prices worse. Stock markets lean heavily towards the second theory, while prediction markets seem to be leaning towards the first.
Why would encouraging non-insider training be desirable in the first place, other than to create a more high-status form of gambling, with higher spouse acceptance factor than smoke-filled room poker games? People with no inside knowledge[0] are just trading on vibes, how is that useful for the economy?
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[0] - Or external knowledge, but actual knowledge - thinking of hedge funds stalking CEOs as they fly in private jets, or counting cars in parking lots from satellite photos, to get some probability estimates on factors actually relevant to the performance of a business and possible future events.
The stock market wasn't designed to be gambling. You're buying a piece of a company. They want people to come so they can raise money for expanding businesses. If insider trading benefits some at the expense of others, people won't come.
Obviously it has come a long way from that, and the markets have become more like gambling. You could probably allow insider trading at this point and the system would continue just fine.
Hmm yeah it depends on your definition of insider. If you assume all raw information is public-ish, a market can reward those who can synthesize/operate on that knowledge to predict better. (The cars in the lot, etc. there is friction to this discovery; the knowledge can be communicated to others through the market after discovery to profit off the initial cost of discovery). There is symmetric competition to some degree. If you have true non public knowledge (I’m going to say something to tank the stock on this date) then you are purely extracting value from others because you will always win; they will never have that info and the incentive for anyone else to participate in price discovery would go away.
Stocks are a financing mechanism. They're useful for the economy independent of the price discovery aspect in the much the same ways that lending is, except that instead of receiving an obligation of future payment you're compensated on vibes.
Non-insider trading is liquidity. That’s why people pay for retail trading volume (payment for order flow). Not because of nefarious reasons. Just because it represents liquidity. With no liquidity it’s impossible to enter or exit trades efficiently.
>the other states that this discourages non-insider trading, which actually makes the prices worse
This theory is fundamentally not credible, the other side of any trade you make on the stock market is essentially always going to be vastly more sophisticated than you. Insider trading makes zero difference to the end-user.
The credible argument against insider trading is that it's a form of theft. You are making trades based on information which does not belong to you, and which you have an obvious duty to protect. You are essentially stealing from the people you work for.
Stock markets also want to keep executives honest. When the insider can affect the outcome, it creates bad motives. They don't want the CEO selling a bunch of puts, then deliberately tanking the stock. Not for the other bettors, but because the institution is about business.
Prediction markets are doing a bit of that. Some won't take bets on an assassination.
In the hypothetical Anarcho-Capitalist finance world, the remedy for a breach of fiduciary duty (corporate graft / insider tips) looks more like Jim Bell than Chuck Rhoades.
People say this but I don't believe that it is true.
The original theoretical purpose was to incentivize the creation of new knowledge, not reward insider knowledge that already exists. For example, to fund research that helps answer some unanswered question.
Today, the purpose is obviously gambling. We can see that clearly from the marketing.
Not just insider knowledge. Being more willing to put in hard work than anyone else, being better at synthesizing public knowledge, or maintaining a more clear and unemotional outlook all can also lead you to superior outcomes.
Yes. And indeed, when aggregated and averaged across all betters, nobody makes any money.
The question isn't what percentage of bets resolve to no, but whether there is a consistent bias in the prices away from the fair price, which has an expected value of 0, and what direction that bias is in.
So it's not a useful trading strategy. Good to know.
It might have worked out that the human tendency towards optimism biased the Yes side, but Polymarket is watched closely enough by traders that the pricing is apparently realistic.
Now if you could bet against minor crypto coins, which almost always go down... But if you could, there would be traders pricing them realistically. Everybody has analytics now, and mispriced markets are detected and exploited quickly.
It must be true that more markets resolve to no than yes because many markets are linked and only have one winner. (ie. if there are 10 people in the race for who will be the next president, 9 will resolve to no)
It's interesting that this is explicitly for non-sports markets because I see no reason why this would be less applicable there. Sports betters have long talked about that the winning strategy is usually to bet the under (i.e. the no) on most bets. The over (i.e. the yes) is generally a more exciting and fun outcome which causes it to attract more betters which in turns makes that side overpriced.
Like with this bot, I have no idea if that will still lead to actual positive returns. This might just be a remnant from a time when these betting lines were set less intelligently. But all things being equal, it seems logical that "boring" bets would have a better return in the long run than "exciting" bets as long as some betters are at least partially motivated by entertainment.
There's probably a lot of knowledge like this that sports betters have built up over decades that could apply to these new forms of non-sports gambling.
The contrarian bet is fun but I wonder how it actually holds up. Prediction markets do tend to overprice dramatic outcomes, so "always bet no" isn't as dumb as it sounds. Would love to see real P&L over a few months, not just the thesis.
Basically arbitraging human imagination. People love coming up with fantastical concepts because they get attention, but the more exciting a market is, the less likely it is to actually happen. Reality is usually boring.
Disclaimer: I contribute work as a political advisor and don't participate in betting markets as a market participant.
Nevertheless, Polymarket is a very interesting marketplace of sentiments and information, and it can be a very strong leading indicator of huge price movements in "real" markets like the NYSE, in part because it directly measures one factor of sentiment, i.e. whatever the prediction is about. Market sentiment determines market prices on very large and deep markets, too.
In the run-up to the election, when Trump was running against Biden, a betting market was a leading predictor of NASDAQ (a very deep, very liquid index of stocks). I wrote up the findings here: https://medium.com/@rviragh/does-the-stock-market-react-posi...
This indicator was the best one anyone has ever shown for NASDAQ for any signal, period. The signal was so strong it trumped all other signals and variances of any kind. Traders trading with just this signal and no other signal of any kind could have made practically an unlimited amount of money as long as the signal was intact. (Basically, until Biden dropped out.)
I myself didn't place any bet due to my role as a political advisor at the time, but the size of the correlation is still the biggest and most surprising one I've ever seen.
Isn't this just picking up pennies on an active railroad track? You'll win small bets and then get run over once a long tail event completely wipes you out.
Honest question: Why in all hell would you open source this?
I have been making money with a bot off a statistical anomaly in prediction markets lately. There is no way in hell I will open source it or tell you what that anomaly is because I have capacity back-tested it and there are so many players in the market; if all of HN and Github start downloading and use my code it WILL cease to work.
Put another way, your orders are helping move the market and price the market more efficiently; that's the market compensating you for pricing things better. If a thousand people run your strategy, prices will get moved to exactly the point where your strategy stops working. You effectively split that pie with a thousand people.
I think we've collectively DDoSed it. I'm getting a 504 timeout.
The author [page](https://github.com/sterlingcrispin) is there on github, but I can't even find his full list of his repos to confirm it's still there (I also get a 504 on that).
The fact that the strategy makes zero returns suggests that Polymarket is unbiased — this is moderately interesting.
Has anybody looked into the repo in more detail? I imagine it's useful for infrastructure inspiration to build your own bot pursuing more differentiated trading strategies.
There's usually more edge baked into the No side in all prediction markets, because a little too much money usually gets poured in to yes, for obvious reasons. Its been this way in sports markets for decades, there's no fun in betting no so lots of dumb money ends up on Yes.
If this seems interesting for you remember that if you are putting $100 in a 99 to 1 bet you need to win 100 times to get $100 but only need to loose 1 time to loose $100.
And the chance of losing at least once in a 99% sure bet after 100 rounds is around 60%. Even if you reduce to 30 rounds it still is around 30%.
This may seem smart at first glance, but the math doesn't really checks out.
Very confusing. Polymarket doesn't allow US use/users. How are folks in the US participating on Polymarket? (VPNs and the like reportedly don't help either due to KYC policies.)
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They admit no returns.
But it does seem like a fun project and nowhere does it say anything about returns or profits so not scammy imo just funny meme backed code
The bot has zero risk management and I have a strong disclaimer on the github it is essentially a meme.
73% of all polymarkets do resolve to No though.
There's a good dataset on huggingface if you wanted to do some data science
https://huggingface.co/datasets/SII-WANGZJ/Polymarket_data
There are actually two theories on insider knowledge. One states that allowing insider trading is beneficial, as it allows prices to better match the underlying reality, the other states that this discourages non-insider trading, which actually makes the prices worse. Stock markets lean heavily towards the second theory, while prediction markets seem to be leaning towards the first.
--
[0] - Or external knowledge, but actual knowledge - thinking of hedge funds stalking CEOs as they fly in private jets, or counting cars in parking lots from satellite photos, to get some probability estimates on factors actually relevant to the performance of a business and possible future events.
Obviously it has come a long way from that, and the markets have become more like gambling. You could probably allow insider trading at this point and the system would continue just fine.
>the other states that this discourages non-insider trading, which actually makes the prices worse
This theory is fundamentally not credible, the other side of any trade you make on the stock market is essentially always going to be vastly more sophisticated than you. Insider trading makes zero difference to the end-user.
The credible argument against insider trading is that it's a form of theft. You are making trades based on information which does not belong to you, and which you have an obvious duty to protect. You are essentially stealing from the people you work for.
Prediction markets are doing a bit of that. Some won't take bets on an assassination.
Communicating insider knowledge is how the brokers legally/morally justify that business model.
The original theoretical purpose was to incentivize the creation of new knowledge, not reward insider knowledge that already exists. For example, to fund research that helps answer some unanswered question.
Today, the purpose is obviously gambling. We can see that clearly from the marketing.
The question isn't what percentage of bets resolve to no, but whether there is a consistent bias in the prices away from the fair price, which has an expected value of 0, and what direction that bias is in.
I'm sure in the near future, policy decisions or war strategies will be decided by prediction markets' odds, if they are not already being used.
> 73% of all polymarkets do resolve to No though.
I bet the average price for a no bet across these markets is 73 cents.
> They admit no returns.
So it's not a useful trading strategy. Good to know.
It might have worked out that the human tendency towards optimism biased the Yes side, but Polymarket is watched closely enough by traders that the pricing is apparently realistic.
Now if you could bet against minor crypto coins, which almost always go down... But if you could, there would be traders pricing them realistically. Everybody has analytics now, and mispriced markets are detected and exploited quickly.
I laughed. That's inspired. Quite the nerd-snipe as well, based on the rapidly accumulating threads on effectiveness, probabilities and markets.
Like with this bot, I have no idea if that will still lead to actual positive returns. This might just be a remnant from a time when these betting lines were set less intelligently. But all things being equal, it seems logical that "boring" bets would have a better return in the long run than "exciting" bets as long as some betters are at least partially motivated by entertainment.
There's probably a lot of knowledge like this that sports betters have built up over decades that could apply to these new forms of non-sports gambling.
Nevertheless, Polymarket is a very interesting marketplace of sentiments and information, and it can be a very strong leading indicator of huge price movements in "real" markets like the NYSE, in part because it directly measures one factor of sentiment, i.e. whatever the prediction is about. Market sentiment determines market prices on very large and deep markets, too.
In the run-up to the election, when Trump was running against Biden, a betting market was a leading predictor of NASDAQ (a very deep, very liquid index of stocks). I wrote up the findings here: https://medium.com/@rviragh/does-the-stock-market-react-posi...
This indicator was the best one anyone has ever shown for NASDAQ for any signal, period. The signal was so strong it trumped all other signals and variances of any kind. Traders trading with just this signal and no other signal of any kind could have made practically an unlimited amount of money as long as the signal was intact. (Basically, until Biden dropped out.)
I myself didn't place any bet due to my role as a political advisor at the time, but the size of the correlation is still the biggest and most surprising one I've ever seen.
I have been making money with a bot off a statistical anomaly in prediction markets lately. There is no way in hell I will open source it or tell you what that anomaly is because I have capacity back-tested it and there are so many players in the market; if all of HN and Github start downloading and use my code it WILL cease to work.
Put another way, your orders are helping move the market and price the market more efficiently; that's the market compensating you for pricing things better. If a thousand people run your strategy, prices will get moved to exactly the point where your strategy stops working. You effectively split that pie with a thousand people.
The stopped clock is right twice a day, but it reads noon and we're at half past three
(Manifold doesn't use real money, so there's more "free money" lying around waiting to be picked up than on most real-money markets)
The author [page](https://github.com/sterlingcrispin) is there on github, but I can't even find his full list of his repos to confirm it's still there (I also get a 504 on that).
Has anybody looked into the repo in more detail? I imagine it's useful for infrastructure inspiration to build your own bot pursuing more differentiated trading strategies.
Say 70% of the time it resolves to ‘no’, you still don’t make money by blindly choosing ‘no’.
Guess why?
Hint: This strategy is also described with the macabre analogy: picking up pennies in front of a steamroller.
Do you want to pick up pennies in front of a steamroller?
> Heroku Workflow The shell helpers use either an explicit app name argument or HEROKU_APP_NAME.
nice to see heroku still alive...
And the chance of losing at least once in a 99% sure bet after 100 rounds is around 60%. Even if you reduce to 30 rounds it still is around 30%.
This may seem smart at first glance, but the math doesn't really checks out.
[1] https://en.wikipedia.org/wiki/Patrick_Crusius#In_popular_cul...