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.
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.
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.
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.
Though at this point volume is far higher than needed for liquidity. We do not need companies holding stocks for a millisecond in order to squeeze out arbitrage, and we do not need day traders hoping to arbitrage noise.
The stock market would not be noticeably less liquid if people had to hold stocks for 24 hours, but volume would drop like a rock.
>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.
You can bet on assassination. There are polymarket prediction markets for leaders of many countries where you can bet on if they will cease to be the leader by X date, for any reason.
If they get assassinated, those markets will resolve to yes. At least the rules don't specifically exclude that.
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.
>The purpose of the Ukrainian military is to get stuck in a years-long stalemate with Russia.
>These are obviously false.
The purpose of the Ukrainian military is to exhaust the Russian army's materiel and test out our weapons. "Years-long stalemate with Russia? Yes, please." -the US. Seems like an overwhelmingly common Scott Alexander L.
In practice, always. It's similar to the claim that during the cold war, US basically controlled USSR economy, and vice versa, and that US won because USSR economy just couldn't keep up.
On smaller scale, this is the (in)famous "fire and motion"[0], which works in business as much as it does in military tactics. Make a move, forcing competitors to respond to it. If you're better at it than them (and lucky), you can choose your moves to make their responses go to your advantage.
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.
To say the purpose of a market is to reveal insider information is how you say insider trading is a good thing without saying insider trading is a good thing.
There's a ton of scholarly debate about it, and at least most of the early stuff was pretty earnest. But rather than the debate becoming more refined and nuanced over time it seems to have bifurcated along partisan (or partisan adjacent) lines like everything else, similar to the Keynesian/Misesian divide.
The proof that free markets are efficient (even in the narrow sense economists use this word) relies on an assumption of perfect information. This has been known at least since Akerlof.
The Misesian folks are a lost cause, IMHO. They're hardcore rationalists, self-indulging in circular moral arguments from assumptions that don't apply in the real world.
That's what makes the insider trading argument so tantalizing--it's arguing that it helps move the market closer to perfect information. But, of course, the world is complicated and dynamic, and it tacitly depends on all kinds of assumptions and beliefs about the resulting costs and benefits. It would be nice if the debate shifted to pinning down those assumptions, quantifying them as best as possible, and then iteratively tweaking and adjusting regulatory models. But that's true of just about everything and probably too unrealistic an ask, especially at a time when one side is convinced markets are just a mechanism for unjust exploitation, and the other side is convinced regulation is what sustains inequity (to the extent inequity is something even worth caring about).
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.
They're far from facts, but have an important advantage over most other sources: the bettors are motivated to predict truth.
News sources are motivated to get clicks, to appeal to certain audiences, and to retain tribal customers. None of these create incentives for truth. You can seek out smart, well-informed and principled journalists who will prioritize truth-seeking over money-making. There are some. But the fact remains you are relying on character to override incentives. With prediction markets, incentives and truth are naturally aligned. This makes them a powerful and valuable resource imo, even if there is a lot of scumminess that comes along for the ride. The insiders, more than anyone, are contributing to the truth signal.
on the other hand, similar to that one old assassination page, where you bet on the death date of people, it might encourage someone to make an event happen and thus fabricate the insider knowledge if the price is high enough.
So the feedback from prediction market turns around, so you can essentially buy events if you put enough money in.
They are motivated to pick what they believe is most likely to happen. The develope their idea of what is most likely to happen for the news. The reporters use their bets to wrote stories predicting what will happen.
First, you have inside traders. Then, among legitimate bettors, you have smart people using multiple data sources (not just the "news") and doing sophisticated analysis that most journalists cannot do, and are not motivated to do -- again, because their incentives are different.
Smart people cannot predict things by 'research'. "Will the US strike Iran by X date" going from 20% likelihood to 80%+ within hours points simply to insiders.
You can do research to know the US would strike, there's no other point in moving multiple carriers over to somewhere. But exactly WHEN is not researchable. This applies to most other bets. So lets stop pretending there's anything more than 2 cohorts, insiders and degenerate gamblers.
It's an empirical fact that smart people can predict things by doing research. See Tetlock's book Superforecasting.
I've been doing it profitably myself for almost 10 years now. I have zero special inside knowledge, and no access to any other non-public information.
> Will the US strike Iran by X date
Last year I did think the market for a strike on Iran was significantly underpriced given the information and conditions within a specific frame of time.
I don't think every smart person can just pop into prediction markets and print money, but I know many smart people who are long-term winners. I also don't try to knock people as degenerate when they have genuine talent.
You haven't been profitable for 10 years on prediction markets and you being profitable doesn't mean anything in regards to insiders or the rigging of a market.
Totally, that's the entire conjecture of this bot. My point is just that the odds of the underlying events are irrelevant, what matters is if they're matched with the betting price
A persistent bias in prediction markets is pricing very non likely events as slightly more likely than they are. ie; a 1% event priced at 4%, etc, because people like to bet long shots.
Whether there is enough of a predictable bias there to snag enough low return high probability bets to beat the vig and not shift the markets I have not looked into in any way,but it is a known bias with them.
The real money to be made in prediction markets is being the ones with the actual knowledge which is arguably why they are useful and why for some topics, people find them abhorrent.
I think you get less return on investment for the same absolute edge in percentage points. A 1% event priced at 4% gets you a 3/96 = ~3.1% return. A 53% event priced at 50% gets you a 6% return. You nearly double your returns by investing in the latter market even though they're both off by 3 percentage points.
If the market isn't resolving soon, the small return might not be worth it.
It might be a bias in terms of the probability of events, but I'm not so sure this is a market inefficiency in terms of actual trading strategy. If true odds are 1% and the event is priced at 4%, I can sell NO for a 3% edge... but lose 100% once out of a hundred. Doesn't seem worth it!
Even if a cut isn't taken and there aren't other inefficiencies, any money tied up in long-term predictions is earning 0% instead of whatever the current risk-free rate of return is.
IBKR relentlessly advertises on the radio, so I’m aware that on their scheme you earn an interest like incentive coupon for every day you hold open the position.
Happy IBKR customer here. ForecastTrader has absolutely horrific liquidity outside of maybe 30-40 large contracts. The rest is all market makers that only offer 10-100 or so shares at each price point before bumping up a penny or two. No knock on IBKR as a whole, but you can't even effectively buy on most events or outcomes without slippage eating away your entire edge, and forget about real serious positions above a few grand entirely outside of those 30-40 big contracts.
It doesn't seem like it's strictly true that they don't charge trading fees.
From their docs, it looks like they charge fees to bet "takers" (as opposed to makers), but exclude the geopolitical and world-events markets where they don't charge fees.
I have to imagine that may be related to some of the blow-back towards prediction markets about profiting on topics like war & their potential for manipulation.
Given it sounds like the bot bets everywhere other than sports, many of those categories would likely have fees in this case.
Polymarket charges “taker” fees (people removing liquidity by matching listed orders) on most markets. Geopolitics markets are exempt. A portion of the collected fees then get redistributed to “makers” (people who provide liquidity by listing orders for others to match). Presumably the rest of these fees make up polymarket’s revenue.
Which is essentially also providing a platform for making the book for the other platform, on which 'bookie fees' are charged, but Polymarket itself only keeps a certain cut of it, for facilitating but not actually book-making.
If the average no costs less than 73 cents, but the 73% of all polymarkets resolve to No, that would imply that the nothing-ever-happens strategy here is profitable. Are you claiming that it is profitable? Or are one of those premises incorrect?
Edit: conversely, if the average no costs _more_ than 73 cents, but the 73% of all polymarkets resolve to No, that would imply that an everything-always-happens strategy is profitable (neglecting slippage)
> Edit: conversely, if the average no costs _more_ than 73 cents, but the 73% of all polymarkets resolve to No, that would imply that an everything-always-happens strategy is profitable (neglecting slippage)
Or just the bid-ask spread; price no at 73.25 and yes at 27.5 and you have a profitable but theoretical mid-market price.
From what I've seen and tested, it's been profitable, for the reason you said. Variance and other caveats caused me to not pursue it further. https://news.ycombinator.com/item?id=47754918
It doesn't matter if a vast majority of people are not rational economic actors. It only takes 1 rational actor with enough capital to take the other side of all the bad bets, and the market will be priced correctly even if the other 99 people are irrational.
'Enough' [capital] is doing a lot of work in that sentence. In the limit of a one-sided irrational market, the 'rational actor' would need to take the other side of every open transaction.
Well, if the price would be incorrectly set, then bots like this one would make money, which would in sufficient time cause the market to adapt and the average price would change so the bot doesn't work.
That doesn't matter so much when it happens in a place where people can make money from other people's irrationality. Even if there are a bunch of irrational people placing bad bets on uncommon future events, rational people looking to make a buck will take the other side of that bet, until the price is sensible.
The alternative would be that there's a bunch of free money sitting there waiting for someone to decide to pick it up, and nobody is, not even you.
The whole premise of prediction markets is that the few people whose perception do match outcomes make bets to push the money-weighted average perception toward outcomes. If perceptions still don't match outcomes at that point, average return is 0 minus transactions, with high variance.
Yes, but I always found that objection a bit silly. It's like pointing out that real cows are obviously not perfect spheres nor do they live in a vacuum.
> [...] if prices perfectly reflected available information, there is no profit to gathering information, in which case there would be little reason to trade and markets would eventually collapse.[2]
That's a stupid way to formulate this. Markets wouldn't "collapse". They would get slightly less efficient until equilibrium is restored to where arbitragers can make enough money to keep prices at that level of efficiency.
Maybe not "collapse" in a the sense of going to zero but if there was no profit to trading, then the quant trading industry would not exist, trading profits would collapse.
Meanwhile Two Sigma is hiring alpha quants to be AI research scientists at $250k starting salary + bonuses.
Even if we're just talking about the HFT/sell-side, there clearly exist various anomalous inefficiencies that can be exploited.
As I said, if we woke up this morning and prices were magically efficient in an idealised sense, at most a few quants would go home and retire early, and tomorrow we'd be back at the level (in-) efficiency that allows people to be market makers.
How can prices reflect all available information if there's no profit to collecting the information and there are no informed quant traders? Who is collecting the information exactly so that prices can reflect it and what is their incentive for doing so? Efficiency doesn't happen magically or automatically - traders create it. It's like a kaggle contest* to process information, with the incentive being profit.
You don't believe in the existence of residual return orthogonal to priced cross sectional risk factors (alpha)? E.g. Trends, momentum, volatility clustering, etc. many easily demonstrable inefficiencies. VPIN and order flow toxicity are highly predictive features. Most HFT MM especially in crypto involves hybrid alpha in addition to the (visible) bid-ask spread, which it itself an "inefficiency" to compensate market makers like Jane Street and other successful firms that operate on the assumption that weak form EMH is not accurate.
I would have hoped that by now it was obvious that we are talking about a _specific_ weak form of the EMH that takes friction into account?
What is your whole first paragraph about? Who are you trying to convince? Where's the strawman that claimed that the strongest version of EMH that you can imagine is literally true?
There's no single weak form of EMH that could be accurate or inaccurate: there are many versions of the EMH in various strengths and dimensions (that can be accurate or inaccurate).
To be more specific: Jane Street believes (or acts lie they believe) that markets are at least efficient enough that it takes a lot of effort for them to make money. As a very, very weak form: someone doing chart astrology, eh, I mean technical analysis, on S&P 500 stocks won't beat the market. But even much stronger versions than this are defensible.
The real strong forms that say that all information is preciously reflected in profits is a simplifying assumption you can sometimes make to make your life easier. Just like you sometimes neglect friction in physics. But when you want to decide how long your train needs to emergency brake, you kinda need to take friction into account. Similarly, when trying to make money in the market or trying to understand how others like Jane Street make money, the strongest EMH is not a good guide.
Question is about EMH and how you expect efficiency to be achieved absent profit for collecting the information.
There are 3 accepted forms of EMH. I'm talking about weak form - just price history and nothing else. E.g. formulaic alpha have demonstrable predictive value in modeling.
All that to say you believe trading profits are real. Maybe you just need to learn more about what a buy side alpha quant at two sigma does for a living. Trading models can be robust and exploit real inefficiencies. Weak form EMH is demonstrably false on it's face, as you agree.
You're deliberately misunderstanding that you linked an article to EMH as informative and true, and then don't want to defend it. How do markets become efficient and reflect (any) information if nobody can profit by collecting information and trading on it? EMH states it's impossible to beat the market and that all available information is priced in. How, magically?
The way you're speaking about trading in terms of technical analysis implies you have retail trading exposure and have no idea what institutional alpha quants do.
For the uninitiated, I believe the meme comes from Reddit, where there is one criticism subreddit, r/ThatHappened where people accuse other Redditors of making up stories of events that never actually happened, and then a meta-criticism subreddit, r/Nothingeverhapens, where people make fun of r/ThatHappened as conspiracy theorists who think everything posted online is fake. Hard to tell how much of each subreddit is trolling and how much are people earnestly criticizing each other.
Does the existence of that knowledge make a slight bias lowering the odd on no?
I could fork this and with a 1 line change earn dozens of dollars as long as I don't tell anyone what that secret change is.
No, I think the bias is really just a reflection of how propositions are phrased. We could imagine a mirror-world prediction market that offers all the same propositions, but phrased oppositely: e.g. a market in "person X will die by Y date" becomes a market in "person X will survive until Y date". And in that market, we would see a bias towards propositions resolving as Yes.
That's one event containing three markets, each yes/no. And in a way each market is two separate markets, buy/sell yes and buy/sell no, but they mirror each other.
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.
Strategies like this can easily be positive EV until enough people discover it and that actually is the driving force behind efficient pricing.
Here's how the mechanism works: I find that something is statistically worth $0.70 but I am able to buy it for $0.60 and statistically sell it for $0.70 (in the average). I make $0.10 each trade on average. Until you come along, copy my strategy and change $0.60 to $0.61 to frontrun my trades. Then someone else does it for $0.62. Until the market finally reprices to $0.70 where it should be. The guy who tries $0.71 loses money and stops, and then it goes back to $0.70. It's a stable feedback loop.
There are lots of positive EV strategies lying around in these inefficient markets that Citadel hasn't (yet) descended upon. The best advice I can give is if you find one, trade the hell out of it and don't open source it or tell anyone about it, because as soon as more people run it, it will cease to be positive EV and then after that it becomes an infrastructure game.
If it's popular on Github it probably doesn't work.
If you found something that works and is paying your rent, don't put it on Github. My 2 cents.
This all really depends on the efficiency of the market. I think these prediction markets would claim that is their goal, but even Wall Street isn't perfectly efficient. I would also guess that sports betting sites like DraftKings or FanDuel would be even less efficient and less likely to be swayed by a popular GitHub repo. Once again, it goes back to the share of the market that is participating for entertainment purposes. That's a lot more common for sports betting than it is for will the US bomb a certain country.
Yes, you can find positive EV trades on Wall Street as well. I've been diving into this a lot lately, all I can say is it's 10X harder to find strategies that work on Wall Street than prediction markets.
With one exception.
The one easy long-lasting anomaly to exploit on Wall Street which actually does NOT exist on prediction markets: "American stocks go up most of the time". This is actually a massively exploitable structural anomaly (you just buy and hold forever and effectively reap the rewards of a biased coin) and the source of the anomaly is mostly US monetary policy, US foreign policy, and US tech expertise put together. However, it still is an anomaly. The thesis that SPY will continue going up forever is also predicated on these things continuing to work the way they have in the past.
How is it an anomaly? Global stocks go up (or at least have positive total return) over time on average because companies produce value. Ultimately it's true that that money has to come from somewhere, so you can say printing it is monetary policy, but the reason it can be done without runaway inflation is the tangible value produced by the firms.
> I would also guess that sports betting sites like DraftKings or FanDuel would be even less efficient
Your strategy doesn't work on sportbooks to begin with, because bookmakers don't move the odds with the action.
That is, there is no such phenomenon as "the over is exciting therefore overpriced". Bookmakers price purely based on facts and statistics. Their pricing isn't affected by excitement nor by how many people are betting a certain way.
> Bookmakers price purely based on facts and statistics. Their pricing isn't affected by excitement nor by how many people are betting a certain way.
A bookmaker is a market maker, and they ideally want to end up with no net interest in a position. They then take guaranteed profit in the bid-ask spread, which in sportsbooks is the 'vig'. Bookmakers who adjust their odds in real-time don't have to be particularly clever about the fundamentals, just responsive to the competing demands on either side.
A bookmaker who intentionally takes a position on a game is the equivalent of a proprietary trader or hedge fund. It's potentially more profitable, but it's also adversarial against 'sharp' traders.
Bookmakers who set odds at the beginning and don't move with the action must set larger bid-ask spreads to compensate.
>Bookmakers price purely based on facts and statistics. Their pricing isn't affected by excitement nor by how many people are betting a certain way.
If this were true, lines would never move unless there was breaking news, but we see lines move all the time without there being any material change to those "facts and statistics".
I think the distinction is that sports betting companies are basically casinos, need to guard their edge, and although they will tolerate some moving of lines, they will kick out players who consistently eat their edge, and will rig the lines at a place where they can still profit.
Different from a prediction market like Polymarket or Kalshi whose income probably comes mostly from transaction fees rather than house edge. Otherwise these platforms wouldn't welcome bots so much. Bots => efficient pricing + transaction volume => profit for them
The sustainability of prediction markets depends heavily on continuous liquidity provision - without bots and market makers, spreads would widen and user experience would degrade quickly
These are all reasons supporting my point as they would make sports betting platforms less efficient meaning it would be easier to find arbitrage in their prices (at least temporarily, until you're booted for being too successful).
Without there being any material change you can see. If you had access to all the tips and data and insider information that sportbooks operate with, you could be a bookmaker too.
>If you had access to all the tips and data and insider information that sportbooks operate with
Can you give an example of what you're talking about here? Because it sounds like you're accusing these large publicly trade companies of participating in organized crime. There is regulation when it comes to sports betting that doesn't exist with general prediction markets. An athlete can't just feed a sportsbook "insider information" in the way you're suggesting. The only private info that they are supposed to have is better behavior details that you claim doesn't factor into their decisions.
Books like DraftKings and FanDuel get their lines from market makers like Circa. Market makers use a variety of information for setting initial lines (you'll have to go ask them), but one of the main ways they move lines afterwards is professional action. That is, if some person or entity who Circa knows to be a profitable professional better puts down a large bet in a certain direction, Circa will move their line in that direction.
Where did that entity get that information, and how are they right so often? Your guess is as good as mine. I'm not accusing anyone of anything.
>That is, if some person or entity who Circa knows to be a profitable professional better puts down a large bet in a certain direction, Circa will move their line in that direction.
Well that's the source of our confusion then. I agree with this, but it conflicts with what you said a few comments up:
>because bookmakers don't move the odds with the action.
it avoids sports bets because "Who will win game 6 of XYZ" is formatted on the polymarket backend as a Yes/No bet. There's a lot of markets with Yes/No plumbing even though you wouldn't interpret them as such
Fair enough, I assumed the exclusion of sports with a deliberate decision rather than one forced on the project due to the technical details of the platform.
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.
I've backtested this kind of strategy, and it had a good return (like 100% APR), but then I realized it was cheating by knowing when things are going to resolve. Often times it's not clear. Your return depends a lot on how quickly you can get your money out. I never got around to trying a strat that doesn't know the resolution time, which actually has to be manual cause it takes some judgement to pick things that you expect to resolve soon.
Also requires a lot of volume to be "predictable" obviously, since 1 loss sets you back 10-20 wins. It's surprisingly hard to find reasonable-liquidity markets after all your filtering. Many have huge spreads or thin books. Scare quotes around "predictable" because you never know if others will use this strat or a lot of unlikely events will happen due to insiders.
Another thing, just like the author, I was excluding sports in all the above. Yes Polymarket is famous for letting people bet on world events etc, but turns out it's still more about sports. Betting on the overdog in sports markets seems more appealing because there are plenty of those events with large volume, they're kinda homogenous, you know exactly when they resolve, and they're harder to rig. I simply never got around to putting real time or money into the overdog strat.
I drew the same analogy. You put up $0.95, a YES gambler only puts $0.05 (ignoring spread); you're providing "insurance" in case of a YES. In theory, even if the market prices reflected the true probability of the event happening, the more expensive side should be netting some "insurance premium" on average, right? Not sure, and idk how to observe if that's happening.
Polymarket is also holding onto the money in the meantime. Idk what they do with it, but it's not like some other platforms where they at least work with a bank to earn you some tiny interest on it.
The time horizon is unknown sometimes. One example event, "what will happen before GTA VI?" with markets like "China invades Taiwan" and "Jesus Christ returns." The NO for the second one is only 52c rn. Maybe that resolves if GTA VI is permanently canceled?
Yeah, those sorts of bets seem clearly bad unless there is an explicit time limit on them. Factoring in how long your capital is locked up in the bet and the opportunity cost of it being locked up has to be accounted for in determining your expected gains.
Forgot to add, I wet-ran the non-sports strat once with $100 and lost like $5 net across the month. Not enough diversification like I said, so yeah maybe I'd make $6 the next month. I could only find like 10 things that met all the criteria: ≥90c price, low spread, thick enough ask ($5?), not sports, not related to certain topics that I thought were rigged (eg Mr Beast, Trump saying keywords in speech), likely resolving within a week. Some of them also weirdly took longer to resolve than the title suggested.
I'm pretty into prediction markets and have some strategies that make me small, but consistent returns.
I think timing is the missing piece of this. Just randomly betting no on everything likely isn't going to give good results, but if you tied in a news API and just bet no on anything related to a major story right after the news starts picking it up, I would expect you could make a solid return.
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.
My general observation is that people tend to underestimate the likelihood of black swan events (covid, financial crisis) even as it's pretty obvious they're happening. And then when they do accept it, they react too far the other way and assume it's never going to end.
I've had success playing the markets in these specific cases. I did fritter away a lot of my gains from the financial crisis thinking I was a genius market timer. But I learned my lesson and didn't waver once I jumped back in after covid.
In both cases I got out before a bulk of the crash and timed the bottom almost to the day. Lucky I know, but I had reasons for both. For the financial crisis it was when Bill Fleckenstein closed his bear fund and put it all in MSFT. For covid it was when it looked like the lockdown was working and NYC hospitals weren't going to completely fall over like Northern Italy or Wuhan.
For any non black-swan scenarios, I assume I'll never get one up on the masters of the universe and just leave everything in blended age-appropriate funds.
I'm very concerned about an AI crash and the future of white collar work in general. But it feels more like a slow death to me than a black swan. So I'm just hedging with bonds and cash and stocks that hopefully don't crash as hard in a recession.
They underestimate the likelihood of black swan because it is very hard for adults to concretely imagine things that have not happened before and then even temporarily fully believe ~"dreams will come true."
One of my go-tos on this is the Fukushima nuclear accident. IIUC there were plenty of folks in Japan who knew of the high risk. Perhaps many interested in nuclear energy outside of Japan, too.
But the average adult if asked about the prospect of a major nuclear incident occurring say, "tomorrow," would narrow their eyes in skepticism. There's almost an instinctual level seeding of doubt.
This can be a good thing. LK-99 was an excellent test of the dissonance from dramatic changes in reality and costs of inaccuracy.
The greatest VCs I have known are exceptional at suspending disbelief to test their ability to basically shape world building.
Yeah, I can't say for sure it's going to happen, but I can clearly see a path where AI ends the middle class in developed countries, which has really only existed in its current form since WWII. Most people can't imagine that.
I would also not want to take even a fair bet against black swan because the day that "S&P500 falls to lowest level since 2016 as Labubus collapse" is the headline is the exact day I least want to lose a big pile of money gambling. If it's the shareholder's money though.... I'm probably getting laid off in that scenario anyways...
This makes sense to me, but isn't there a risk of increasing the potential payoff high enough that someone is motivated to go out and make the yes side happen?
Consider this bot running on us military outcomes or something.
By design it's a game where people with inside knowledge or enough power to bend reality can steal money from people with gambling addiction. Automating your addiction might not be the best move.
This is what markets like Polymarket boil down to. Normies can't win. Some will, of course, but that's just chance and there's no way if ensuring it's you.
It's really no different than a casino: if you ever find yourself with more money than you walked in with, cash out and leave.
Best strategy for most people though is to simply not participate and you'll break even.
I fully agree with not participating and would go even further: it's far worse than a casino, which was already bad. It's not regulated. It has a stronger impact on the outside world. With bets you can put a target on people job or head.
Except, the thing is, a decent portion of the population enjoys throwing money away in casinos. If they feel a similar level of enjoyment/entertainment from this type of market, then it's no different and they're playing for a non-financial purpose that your calculus isn't pricing in. Maybe a stretch but theoretically, if they enjoy it enough, it can serve as a much cheaper alternative to a casino and thus could actually have a positive net return to one's personal finances even while losing.
And, I'm not even contemplating gambling addiction. There's a huge market of people that just go to Vegas once or twice a year and come home thousands of dollars poorer. But they don't need it, they may not gamble outside of Vegas, or nothing that would signal an addiction.
> I don't have a gambling addiction, I just enjoy throwing money away in casinos. I come home thousands of dollars poorer. It's a net return to my finances. Totally healthy.
It's all hypothetical of course but I know Vegas has some high table/game minimums and these markets can be pretty cheap if you just want a piece of action. Also, eliminates the cost of actually traveling.
Again, no idea if anyone sees this as a true substitute or not. My guess is not as Polymarket bets don't feel entertaining at all (IMO). So it's not filling that void for anyone, but it hypothetically could.
You're thinking like an engineer and making the laughable assumption that "prediction markets" are markets. It's totally unregulated with all sorts of grifts and cheats. One of the platforms was promoting a high-return bet against Rory at the Masters yesterday.
You can make money off of all sorts of stuff. You can "sell" the bets, so there's lots of live pump and dump.
We've gone full circle. The bookie with no neck that smelled like onions was more honest than these platforms.
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.
If there's a consistent, sufficiently strong bias towards "yes" and you have enough capital, it doesn't matter as long as you size your bets right and you're able to survive a few train collisions.
Did you read the link? A NO bet on Joe Dart is a YES bet on Cory Wong + Others.
It is trivial. Saying NO to a candidate means you're saying YES to ALL other candidates with varying probabilities that would sum to the neg risk of that NO bet.
Ah I see, I missed the + Others part in my initial reading, i see it gives the same payout. The shared link just asserts the same thing you’ve asserted with additional technical language that I don’t understand, so reading it didn’t help me much.
Perhaps this is pedantic, but this equivalence is ignoring fees, spread, and slippage, right?
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.
All strategies get priced in eventually. This is basically the thesis of index funds. It's fine to make money in the interim, but that isn't everyone's goal.
What happens if you flood the market with a bunch of implausible bets like "sun won't rise tomorrow"? Sure, you might try to filter that out with some sort of "seasoning" period (ie. don't buy new markets), but then that means more time for arbitrageurs to correctly price the market, depriving you of any price advantage you might have had.
This locks up your money in the meantime, right? If so, considering the fed funds rate is 3.64% (and you can probably get higher rates on stablecoins), a huge chunk of those "winnings" is going to be eaten up by the opportunity cost of the money.
You forget that Polymarket is just a casino, and the house always wins.
For example, recent events show that any bet can be selectively disputed by arbitrary reason ("we found insiders", "we found this immoral/illegal", etc.).
Except that the mere existence of the market with the question posed for people to consider, probably activates the availability heuristic[1], causing people to overestimate the likelihood.
That logic doesn't work because not every bet have even payouts. If there's a market for whether a dice rolls 1 or not, the odds might resolve to "no" 83% of the time, but if it only pays you $1.1 per dollar wagered on "no", you're still losing money.
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.
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).
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.
This or any other statistical play is only 'in front of a steamroller' if you do it with leverage, especially if notionally uncorollated bets suddenly move together. Bets on Polymarket have limited downside by design, and bets in different categories are obviously unrelated to each other.
Without having looked into this in detail, however, I suspect the problem would be limited capacity; markets that are both deep and so trivially irrational are probably fairly infrequent. You might pick up pennies but only pennies.
That's just the binary nature of the bet. You address that in a real trading strategy with (fractional) Kelly position sizes. Anyone doing this for actual money would also be well served by implementing continuous monitoring and active risk management over top, in order to limit maximum drawdowns if the trend evaporates.
Whether it's pennies in front of a steamroller will depend on the entry price, EV, time left to resolution and many other variables.
Though I agree it's bad math, even if 70% resolve to no, there's a high variance among all of them, and to know whether it's a good bet or not... you have to do your DD on that particular market. Even if you follow the Kelly criterion, randomly choosing bets will probably tank your bankroll sooner or later.
> Whether it's pennies in front of a steamroller will depend on […] many other variables.
No, all these variables cancel out.
If you were picking and choosing, yes. But this approach is basically betting no on all the markets.
The textbook explanation of this is the central limit theorem, proving this mathematically is a bit more involved for power-law systems like this but it’s empirically valid.
The math here isn't what you assume it is. It isn't "most markets resolve to no"; it's "markets consistently value 'yes' too highly", and there is some evidence for the latter.
I have no idea if the bias is strong enough to profitably trade on it (or whether it even exists).
But your statement seems stronger, i.e. that such a strategy is somehow fundamentally and inherently impossible, so I think it's on you to explain why that is supposedly the case.
For example, assuming a hypothetical consistent "yes" bias of 10%, would you still say it's impossible? Why? Basically, are you saying it's impossible because of the actual observed "yes" bias being too weak or for some other reason?
No, data situation is bad, at least for market making - you need to scrape the orderbook yourself to be able to do any realistic backtesting. And even then, it's hard to know whether other bids at the same price are ahead of you or behind you in the queue.
"A comprehensive dataset of 1.9 billion trading records from Polymarket, processed into multiple analysis-ready formats. Features cleaned data, unified token perspectives, and user-level transformations — ready for market research, behavioral studies, and quantitative analysis."
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.
In your scenario you're assuming the dice rolls are all independent. If polymarket bets were all pure dice rolls the 60% odds you quoted would be true.
But they aren't independent there are a lot of correlations. Global geopolitics for example.
The way the math works out, 73% of markets resolve to No, If you buy No at 0.73 each time you would break even.
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.)
Polymarket has been live in the US since the beginning of the year. There is a queue but it’s absolutely live. And before that you could still use it so long as you did not use a VPN.
> Restricted Jurisdictions. You acknowledge and agree that you are not permitted to access, use or trade with the Contracts on the Platform if you are residing in, a citizen of, organized in or located in the following jurisdictions (collectively, the “Restricted Jurisdictions”): Australia, Belgium, France, Germany, Italy, the Netherlands, Ontario, Poland, Quebec, Russia, Singapore, Taiwan, Thailand, the United Kingdom, the United States; or a jurisdiction or territory that is the subject of comprehensive country-wide, territory-wide, or regional economic sanctions by the United States, including but not limited to Iran, Syria, Cuba, North Korea, and the Crimea, Dontesk and Luhansk regions of Ukraine.
https://x.com/sterlingcrispin/status/2043723823678382254
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
Yes exactly.
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
It doesn't matter if 99% resolve no, if they're priced appropriately betting no on every single one won't make you money.
If they're appropriately priced, you can't win money at all, unless you have insider knowledge.
The purpose of prediction markets is to communicate insider knowledge.
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.
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.
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.
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.
Though at this point volume is far higher than needed for liquidity. We do not need companies holding stocks for a millisecond in order to squeeze out arbitrage, and we do not need day traders hoping to arbitrage noise.
The stock market would not be noticeably less liquid if people had to hold stocks for 24 hours, but volume would drop like a rock.
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>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.
I would say corruption and not theft
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.
You can bet on assassination. There are polymarket prediction markets for leaders of many countries where you can bet on if they will cease to be the leader by X date, for any reason.
If they get assassinated, those markets will resolve to yes. At least the rules don't specifically exclude that.
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.
https://en.wikipedia.org/wiki/The_purpose_of_a_system_is_wha...
Compare and contrast https://www.astralcodexten.com/p/come-on-obviously-the-purpo...
Why does the page have a non-removable blue filter? Feels like a popup shadow that doesn't go away...
>The purpose of the Ukrainian military is to get stuck in a years-long stalemate with Russia.
>These are obviously false.
The purpose of the Ukrainian military is to exhaust the Russian army's materiel and test out our weapons. "Years-long stalemate with Russia? Yes, please." -the US. Seems like an overwhelmingly common Scott Alexander L.
Scott Alexander often seems surprisingly unaware of his priors, especially when speaking about things beyond the American shores.
> The purpose of the Ukrainian military is to exhaust the Russian army's materiel and test out our weapons.
Since when does country A decide what the purpose of country B's military is?
In practice, always. It's similar to the claim that during the cold war, US basically controlled USSR economy, and vice versa, and that US won because USSR economy just couldn't keep up.
On smaller scale, this is the (in)famous "fire and motion"[0], which works in business as much as it does in military tactics. Make a move, forcing competitors to respond to it. If you're better at it than them (and lucky), you can choose your moves to make their responses go to your advantage.
--
[0] - https://www.joelonsoftware.com/2002/01/06/fire-and-motion/
Since country A pays for country B's military.
So the EU is deciding?
It's not even applicable here.
Is the purpose of replying to Wikipedia with random substack drivel to get downvoted? Or is it a byproduct of the system?
Well, that's not what the system does. So it can't be its purpose, I guess.
In any case, the blog is well regarded in these circles.
I was shocked at how shallow that take is. I expected more.
The purpose of modern prediction markets is to transfer money from gamblers to the market broker.
Communicating insider knowledge is how the brokers legally/morally justify that business model.
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.
That isn’t how they were pitched to the FTC but it does appear to be their ultimate use case.
and facilitate insider trading, like how do people miss that part
To say the purpose of a market is to reveal insider information is how you say insider trading is a good thing without saying insider trading is a good thing.
There's a ton of scholarly debate about it, and at least most of the early stuff was pretty earnest. But rather than the debate becoming more refined and nuanced over time it seems to have bifurcated along partisan (or partisan adjacent) lines like everything else, similar to the Keynesian/Misesian divide.
The proof that free markets are efficient (even in the narrow sense economists use this word) relies on an assumption of perfect information. This has been known at least since Akerlof.
The Misesian folks are a lost cause, IMHO. They're hardcore rationalists, self-indulging in circular moral arguments from assumptions that don't apply in the real world.
That's what makes the insider trading argument so tantalizing--it's arguing that it helps move the market closer to perfect information. But, of course, the world is complicated and dynamic, and it tacitly depends on all kinds of assumptions and beliefs about the resulting costs and benefits. It would be nice if the debate shifted to pinning down those assumptions, quantifying them as best as possible, and then iteratively tweaking and adjusting regulatory models. But that's true of just about everything and probably too unrealistic an ask, especially at a time when one side is convinced markets are just a mechanism for unjust exploitation, and the other side is convinced regulation is what sustains inequity (to the extent inequity is something even worth caring about).
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.
I hate that many people or even the news and scientists have already started to see the odds of prediction market as fact.
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.
They're far from facts, but have an important advantage over most other sources: the bettors are motivated to predict truth.
News sources are motivated to get clicks, to appeal to certain audiences, and to retain tribal customers. None of these create incentives for truth. You can seek out smart, well-informed and principled journalists who will prioritize truth-seeking over money-making. There are some. But the fact remains you are relying on character to override incentives. With prediction markets, incentives and truth are naturally aligned. This makes them a powerful and valuable resource imo, even if there is a lot of scumminess that comes along for the ride. The insiders, more than anyone, are contributing to the truth signal.
on the other hand, similar to that one old assassination page, where you bet on the death date of people, it might encourage someone to make an event happen and thus fabricate the insider knowledge if the price is high enough.
So the feedback from prediction market turns around, so you can essentially buy events if you put enough money in.
> the bettors are motivated to predict truth.
But also motivated to bend the truth to their bet as the journalist in Israel found.
They are motivated to pick what they believe is most likely to happen. The develope their idea of what is most likely to happen for the news. The reporters use their bets to wrote stories predicting what will happen.
See the loop?
Reporters have an entirely different incentive -- they're less interested in what will happen than whether or not they get eyeballs on their story.
What gets clicks is telling people their bets are going to pay out.
That's not how it works.
First, you have inside traders. Then, among legitimate bettors, you have smart people using multiple data sources (not just the "news") and doing sophisticated analysis that most journalists cannot do, and are not motivated to do -- again, because their incentives are different.
Smart people cannot predict things by 'research'. "Will the US strike Iran by X date" going from 20% likelihood to 80%+ within hours points simply to insiders.
You can do research to know the US would strike, there's no other point in moving multiple carriers over to somewhere. But exactly WHEN is not researchable. This applies to most other bets. So lets stop pretending there's anything more than 2 cohorts, insiders and degenerate gamblers.
It's an empirical fact that smart people can predict things by doing research. See Tetlock's book Superforecasting.
I've been doing it profitably myself for almost 10 years now. I have zero special inside knowledge, and no access to any other non-public information.
> Will the US strike Iran by X date
Last year I did think the market for a strike on Iran was significantly underpriced given the information and conditions within a specific frame of time.
I don't think every smart person can just pop into prediction markets and print money, but I know many smart people who are long-term winners. I also don't try to knock people as degenerate when they have genuine talent.
You haven't been profitable for 10 years on prediction markets and you being profitable doesn't mean anything in regards to insiders or the rigging of a market.
[dead]
No? Where's the loop?
See also: https://mason.gmu.edu/~rhanson/futarchy.html
That's a massive "if".
Totally, that's the entire conjecture of this bot. My point is just that the odds of the underlying events are irrelevant, what matters is if they're matched with the betting price
[flagged]
You are either reading way too much into what I am saying or statistically illiterate.
Of course, they were just explaining the basics of statistics.
> 73% of all polymarkets do resolve to No though.
I bet the average price for a no bet across these markets is 73 cents.
A persistent bias in prediction markets is pricing very non likely events as slightly more likely than they are. ie; a 1% event priced at 4%, etc, because people like to bet long shots.
Whether there is enough of a predictable bias there to snag enough low return high probability bets to beat the vig and not shift the markets I have not looked into in any way,but it is a known bias with them.
The real money to be made in prediction markets is being the ones with the actual knowledge which is arguably why they are useful and why for some topics, people find them abhorrent.
I think you get less return on investment for the same absolute edge in percentage points. A 1% event priced at 4% gets you a 3/96 = ~3.1% return. A 53% event priced at 50% gets you a 6% return. You nearly double your returns by investing in the latter market even though they're both off by 3 percentage points.
If the market isn't resolving soon, the small return might not be worth it.
It might be a bias in terms of the probability of events, but I'm not so sure this is a market inefficiency in terms of actual trading strategy. If true odds are 1% and the event is priced at 4%, I can sell NO for a 3% edge... but lose 100% once out of a hundred. Doesn't seem worth it!
71 cents*, the bookie gets a cut either way it goes.
This is the truth of the matter, ultimately nobody wins except the bookie, who profits either way.
Hedging can itself be a useful service, even if the customer doesn't make money on average. Have you heard of insurance?
On Polymarket you can be the bookie and put up a yes at $0.72 and no at $0.74 if you’re confident in that 73% estimate.
In fact, Polymarket will subsidize you to do this:
https://docs.polymarket.com/market-makers/overview
https://docs.polymarket.com/market-makers/maker-rebates
Even if a cut isn't taken and there aren't other inefficiencies, any money tied up in long-term predictions is earning 0% instead of whatever the current risk-free rate of return is.
Assuming that the prediction market is perfectly priced right? How accurate is that assumption, or are you counting that as an “inefficiency”?
Earning less than the risk free rate is a 'cut being taken'.
IBKR relentlessly advertises on the radio, so I’m aware that on their scheme you earn an interest like incentive coupon for every day you hold open the position.
Happy IBKR customer here. ForecastTrader has absolutely horrific liquidity outside of maybe 30-40 large contracts. The rest is all market makers that only offer 10-100 or so shares at each price point before bumping up a penny or two. No knock on IBKR as a whole, but you can't even effectively buy on most events or outcomes without slippage eating away your entire edge, and forget about real serious positions above a few grand entirely outside of those 30-40 big contracts.
Untrue for polymarket. True for kalshi. No bookie fees on polymarket
Wow that's news to me. How does polymarket make money if not from fees?
It doesn't seem like it's strictly true that they don't charge trading fees.
From their docs, it looks like they charge fees to bet "takers" (as opposed to makers), but exclude the geopolitical and world-events markets where they don't charge fees.
I have to imagine that may be related to some of the blow-back towards prediction markets about profiting on topics like war & their potential for manipulation.
Given it sounds like the bot bets everywhere other than sports, many of those categories would likely have fees in this case.
Polymarket charges “taker” fees (people removing liquidity by matching listed orders) on most markets. Geopolitics markets are exempt. A portion of the collected fees then get redistributed to “makers” (people who provide liquidity by listing orders for others to match). Presumably the rest of these fees make up polymarket’s revenue.
Which is essentially also providing a platform for making the book for the other platform, on which 'bookie fees' are charged, but Polymarket itself only keeps a certain cut of it, for facilitating but not actually book-making.
They emit new (crypto) tokens which they can sell
trying to become bloomberg by selling to institutions
Wouldn't it be 75 cents then? (The cut would come out of higher pricing, since the payout is always a dollar).
Well, 75 cents for you buying the bet, 71 cent for you selling the bet.
Or something like that.
It's not. But also a lot of those stats thrown around are misleading.
If the average no costs less than 73 cents, but the 73% of all polymarkets resolve to No, that would imply that the nothing-ever-happens strategy here is profitable. Are you claiming that it is profitable? Or are one of those premises incorrect?
Edit: conversely, if the average no costs _more_ than 73 cents, but the 73% of all polymarkets resolve to No, that would imply that an everything-always-happens strategy is profitable (neglecting slippage)
> Edit: conversely, if the average no costs _more_ than 73 cents, but the 73% of all polymarkets resolve to No, that would imply that an everything-always-happens strategy is profitable (neglecting slippage)
Or just the bid-ask spread; price no at 73.25 and yes at 27.5 and you have a profitable but theoretical mid-market price.
From what I've seen and tested, it's been profitable, for the reason you said. Variance and other caveats caused me to not pursue it further. https://news.ycombinator.com/item?id=47754918
Are you willing to pay $.27 for that perspective? Sounds like we have a market!
> I bet the average price for a no bet across these markets is 73 cents.
Behavioral economics has already answered the question of whether humans are, on average, perfectly rational economic actors. They are not.
To the contrary, there is substantial evidence indicating a meaningful number of humans will mis-estimate the likelihood of uncommon future events.
It doesn't matter if a vast majority of people are not rational economic actors. It only takes 1 rational actor with enough capital to take the other side of all the bad bets, and the market will be priced correctly even if the other 99 people are irrational.
'Enough' [capital] is doing a lot of work in that sentence. In the limit of a one-sided irrational market, the 'rational actor' would need to take the other side of every open transaction.
Yeah, but in the limit of a one-sided irrational market, the rational actor is going to be given as much capital as he can take.
In the long run. In the short run, our rational actor will be constrained by the Kelly criterion, well and whatever outside funding she can raise.
Well, if the price would be incorrectly set, then bots like this one would make money, which would in sufficient time cause the market to adapt and the average price would change so the bot doesn't work.
That doesn't matter so much when it happens in a place where people can make money from other people's irrationality. Even if there are a bunch of irrational people placing bad bets on uncommon future events, rational people looking to make a buck will take the other side of that bet, until the price is sensible.
The alternative would be that there's a bunch of free money sitting there waiting for someone to decide to pick it up, and nobody is, not even you.
Actually, having a bunch of noise traders around is a great attraction for the ration people to show up.
I’ll take the “no” side of that bet ;)
Why would outcomes match perceptions?
The whole premise of gambling is that they don't
The whole premise of prediction markets is that the few people whose perception do match outcomes make bets to push the money-weighted average perception toward outcomes. If perceptions still don't match outcomes at that point, average return is 0 minus transactions, with high variance.
huh? that sounds like ideology and not empirical observation.
That's just how limit order books work with mark-to-market pricing
Could you point me towards some resource that would help me understand what you wrote? Genuinely curious about how this stuff works
https://en.wikipedia.org/wiki/Efficient-market_hypothesis might be a good start.
That's pure ideology and not empirical. There's you know, even a large section there in that article pointing that out
The index fund industry would like to have a word with you.
Step 2: https://en.wikipedia.org/wiki/Grossman%E2%80%93Stiglitz_para...
Yes, but I always found that objection a bit silly. It's like pointing out that real cows are obviously not perfect spheres nor do they live in a vacuum.
> [...] if prices perfectly reflected available information, there is no profit to gathering information, in which case there would be little reason to trade and markets would eventually collapse.[2]
That's a stupid way to formulate this. Markets wouldn't "collapse". They would get slightly less efficient until equilibrium is restored to where arbitragers can make enough money to keep prices at that level of efficiency.
Maybe not "collapse" in a the sense of going to zero but if there was no profit to trading, then the quant trading industry would not exist, trading profits would collapse.
Meanwhile Two Sigma is hiring alpha quants to be AI research scientists at $250k starting salary + bonuses.
Even if we're just talking about the HFT/sell-side, there clearly exist various anomalous inefficiencies that can be exploited.
Fama's guy doesn't agree either [1]
https://www.ft.com/content/813b3d76-6ef1-427d-a2e0-76540f58a...
As I said, if we woke up this morning and prices were magically efficient in an idealised sense, at most a few quants would go home and retire early, and tomorrow we'd be back at the level (in-) efficiency that allows people to be market makers.
How can prices reflect all available information if there's no profit to collecting the information and there are no informed quant traders? Who is collecting the information exactly so that prices can reflect it and what is their incentive for doing so? Efficiency doesn't happen magically or automatically - traders create it. It's like a kaggle contest* to process information, with the incentive being profit.
You don't believe in the existence of residual return orthogonal to priced cross sectional risk factors (alpha)? E.g. Trends, momentum, volatility clustering, etc. many easily demonstrable inefficiencies. VPIN and order flow toxicity are highly predictive features. Most HFT MM especially in crypto involves hybrid alpha in addition to the (visible) bid-ask spread, which it itself an "inefficiency" to compensate market makers like Jane Street and other successful firms that operate on the assumption that weak form EMH is not accurate.
* https://www.kaggle.com/competitions/jane-street-real-time-ma...
I don't know what your question is about?
I would have hoped that by now it was obvious that we are talking about a _specific_ weak form of the EMH that takes friction into account?
What is your whole first paragraph about? Who are you trying to convince? Where's the strawman that claimed that the strongest version of EMH that you can imagine is literally true?
There's no single weak form of EMH that could be accurate or inaccurate: there are many versions of the EMH in various strengths and dimensions (that can be accurate or inaccurate).
To be more specific: Jane Street believes (or acts lie they believe) that markets are at least efficient enough that it takes a lot of effort for them to make money. As a very, very weak form: someone doing chart astrology, eh, I mean technical analysis, on S&P 500 stocks won't beat the market. But even much stronger versions than this are defensible.
The real strong forms that say that all information is preciously reflected in profits is a simplifying assumption you can sometimes make to make your life easier. Just like you sometimes neglect friction in physics. But when you want to decide how long your train needs to emergency brake, you kinda need to take friction into account. Similarly, when trying to make money in the market or trying to understand how others like Jane Street make money, the strongest EMH is not a good guide.
Question is about EMH and how you expect efficiency to be achieved absent profit for collecting the information.
There are 3 accepted forms of EMH. I'm talking about weak form - just price history and nothing else. E.g. formulaic alpha have demonstrable predictive value in modeling.
All that to say you believe trading profits are real. Maybe you just need to learn more about what a buy side alpha quant at two sigma does for a living. Trading models can be robust and exploit real inefficiencies. Weak form EMH is demonstrably false on it's face, as you agree.
> Question is about EMH and how you expect efficiency to be achieved absent profit for collecting the information.
Huh, no?
You're deliberately misunderstanding that you linked an article to EMH as informative and true, and then don't want to defend it. How do markets become efficient and reflect (any) information if nobody can profit by collecting information and trading on it? EMH states it's impossible to beat the market and that all available information is priced in. How, magically?
The way you're speaking about trading in terms of technical analysis implies you have retail trading exposure and have no idea what institutional alpha quants do.
This explainer might help you understand: https://youtu.be/RpCzaEn4rnc?t=257
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But in aggregate they might.
its funny, tells you it barely works, and its a good meme.
Successful project imo.
In addition, it serves as a good template for writing your own polymarket bot with whatever logic you want.
For the uninitiated, I believe the meme comes from Reddit, where there is one criticism subreddit, r/ThatHappened where people accuse other Redditors of making up stories of events that never actually happened, and then a meta-criticism subreddit, r/Nothingeverhapens, where people make fun of r/ThatHappened as conspiracy theorists who think everything posted online is fake. Hard to tell how much of each subreddit is trolling and how much are people earnestly criticizing each other.
It comes from 4chan, like all decent memes
https://knowyourmeme.com/memes/nothing-ever-happens
Does the existence of that knowledge make a slight bias lowering the odd on no? I could fork this and with a 1 line change earn dozens of dollars as long as I don't tell anyone what that secret change is.
No, I think the bias is really just a reflection of how propositions are phrased. We could imagine a mirror-world prediction market that offers all the same propositions, but phrased oppositely: e.g. a market in "person X will die by Y date" becomes a market in "person X will survive until Y date". And in that market, we would see a bias towards propositions resolving as Yes.
> 73% of all polymarkets do resolve to No though.
I wonder what it means exactly. Typical Polymarket looks like this:
X happens before May. [Yes][No]
X happens before June. [Yes][No]
X happens before July. [Yes][No]
...
So even if X ended up happens in December, it's still 12.5% Yes and 87.5% No?
That's one event containing three markets, each yes/no. And in a way each market is two separate markets, buy/sell yes and buy/sell no, but they mirror each other.
I understand that. That's not my question tho. I am asking for the exact meaning of the 73% number.
And how do you report it in May?
reminds me of that one story when someone won a poker bot competition by always going all in
> 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'm not sure the Yes side is usually the optimistic side?
"just funny meme backed code"
I laughed. That's inspired. Quite the nerd-snipe as well, based on the rapidly accumulating threads on effectiveness, probabilities and markets.
When people do find an edge they tend not to share it ;)
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)
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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.
Strategies like this can easily be positive EV until enough people discover it and that actually is the driving force behind efficient pricing.
Here's how the mechanism works: I find that something is statistically worth $0.70 but I am able to buy it for $0.60 and statistically sell it for $0.70 (in the average). I make $0.10 each trade on average. Until you come along, copy my strategy and change $0.60 to $0.61 to frontrun my trades. Then someone else does it for $0.62. Until the market finally reprices to $0.70 where it should be. The guy who tries $0.71 loses money and stops, and then it goes back to $0.70. It's a stable feedback loop.
There are lots of positive EV strategies lying around in these inefficient markets that Citadel hasn't (yet) descended upon. The best advice I can give is if you find one, trade the hell out of it and don't open source it or tell anyone about it, because as soon as more people run it, it will cease to be positive EV and then after that it becomes an infrastructure game.
If it's popular on Github it probably doesn't work.
If you found something that works and is paying your rent, don't put it on Github. My 2 cents.
This all really depends on the efficiency of the market. I think these prediction markets would claim that is their goal, but even Wall Street isn't perfectly efficient. I would also guess that sports betting sites like DraftKings or FanDuel would be even less efficient and less likely to be swayed by a popular GitHub repo. Once again, it goes back to the share of the market that is participating for entertainment purposes. That's a lot more common for sports betting than it is for will the US bomb a certain country.
> but even Wall Street isn't perfectly efficient.
Yes, you can find positive EV trades on Wall Street as well. I've been diving into this a lot lately, all I can say is it's 10X harder to find strategies that work on Wall Street than prediction markets.
With one exception.
The one easy long-lasting anomaly to exploit on Wall Street which actually does NOT exist on prediction markets: "American stocks go up most of the time". This is actually a massively exploitable structural anomaly (you just buy and hold forever and effectively reap the rewards of a biased coin) and the source of the anomaly is mostly US monetary policy, US foreign policy, and US tech expertise put together. However, it still is an anomaly. The thesis that SPY will continue going up forever is also predicated on these things continuing to work the way they have in the past.
How is it an anomaly? Global stocks go up (or at least have positive total return) over time on average because companies produce value. Ultimately it's true that that money has to come from somewhere, so you can say printing it is monetary policy, but the reason it can be done without runaway inflation is the tangible value produced by the firms.
> I would also guess that sports betting sites like DraftKings or FanDuel would be even less efficient
Your strategy doesn't work on sportbooks to begin with, because bookmakers don't move the odds with the action.
That is, there is no such phenomenon as "the over is exciting therefore overpriced". Bookmakers price purely based on facts and statistics. Their pricing isn't affected by excitement nor by how many people are betting a certain way.
> Bookmakers price purely based on facts and statistics. Their pricing isn't affected by excitement nor by how many people are betting a certain way.
A bookmaker is a market maker, and they ideally want to end up with no net interest in a position. They then take guaranteed profit in the bid-ask spread, which in sportsbooks is the 'vig'. Bookmakers who adjust their odds in real-time don't have to be particularly clever about the fundamentals, just responsive to the competing demands on either side.
A bookmaker who intentionally takes a position on a game is the equivalent of a proprietary trader or hedge fund. It's potentially more profitable, but it's also adversarial against 'sharp' traders.
Bookmakers who set odds at the beginning and don't move with the action must set larger bid-ask spreads to compensate.
>Bookmakers price purely based on facts and statistics. Their pricing isn't affected by excitement nor by how many people are betting a certain way.
If this were true, lines would never move unless there was breaking news, but we see lines move all the time without there being any material change to those "facts and statistics".
I think the distinction is that sports betting companies are basically casinos, need to guard their edge, and although they will tolerate some moving of lines, they will kick out players who consistently eat their edge, and will rig the lines at a place where they can still profit.
Different from a prediction market like Polymarket or Kalshi whose income probably comes mostly from transaction fees rather than house edge. Otherwise these platforms wouldn't welcome bots so much. Bots => efficient pricing + transaction volume => profit for them
The sustainability of prediction markets depends heavily on continuous liquidity provision - without bots and market makers, spreads would widen and user experience would degrade quickly
These are all reasons supporting my point as they would make sports betting platforms less efficient meaning it would be easier to find arbitrage in their prices (at least temporarily, until you're booted for being too successful).
> without there being any material change
Without there being any material change you can see. If you had access to all the tips and data and insider information that sportbooks operate with, you could be a bookmaker too.
>If you had access to all the tips and data and insider information that sportbooks operate with
Can you give an example of what you're talking about here? Because it sounds like you're accusing these large publicly trade companies of participating in organized crime. There is regulation when it comes to sports betting that doesn't exist with general prediction markets. An athlete can't just feed a sportsbook "insider information" in the way you're suggesting. The only private info that they are supposed to have is better behavior details that you claim doesn't factor into their decisions.
Books like DraftKings and FanDuel get their lines from market makers like Circa. Market makers use a variety of information for setting initial lines (you'll have to go ask them), but one of the main ways they move lines afterwards is professional action. That is, if some person or entity who Circa knows to be a profitable professional better puts down a large bet in a certain direction, Circa will move their line in that direction.
Where did that entity get that information, and how are they right so often? Your guess is as good as mine. I'm not accusing anyone of anything.
>That is, if some person or entity who Circa knows to be a profitable professional better puts down a large bet in a certain direction, Circa will move their line in that direction.
Well that's the source of our confusion then. I agree with this, but it conflicts with what you said a few comments up:
>because bookmakers don't move the odds with the action.
it avoids sports bets because "Who will win game 6 of XYZ" is formatted on the polymarket backend as a Yes/No bet. There's a lot of markets with Yes/No plumbing even though you wouldn't interpret them as such
Fair enough, I assumed the exclusion of sports with a deliberate decision rather than one forced on the project due to the technical details of the platform.
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.
I've backtested this kind of strategy, and it had a good return (like 100% APR), but then I realized it was cheating by knowing when things are going to resolve. Often times it's not clear. Your return depends a lot on how quickly you can get your money out. I never got around to trying a strat that doesn't know the resolution time, which actually has to be manual cause it takes some judgement to pick things that you expect to resolve soon.
Also requires a lot of volume to be "predictable" obviously, since 1 loss sets you back 10-20 wins. It's surprisingly hard to find reasonable-liquidity markets after all your filtering. Many have huge spreads or thin books. Scare quotes around "predictable" because you never know if others will use this strat or a lot of unlikely events will happen due to insiders.
Another thing, just like the author, I was excluding sports in all the above. Yes Polymarket is famous for letting people bet on world events etc, but turns out it's still more about sports. Betting on the overdog in sports markets seems more appealing because there are plenty of those events with large volume, they're kinda homogenous, you know exactly when they resolve, and they're harder to rig. I simply never got around to putting real time or money into the overdog strat.
> One loss sets you back 10-20 wins.
didn't look at the numbers, but this one sentence reminds me of selling options for 'passive income' (don't do that)
I drew the same analogy. You put up $0.95, a YES gambler only puts $0.05 (ignoring spread); you're providing "insurance" in case of a YES. In theory, even if the market prices reflected the true probability of the event happening, the more expensive side should be netting some "insurance premium" on average, right? Not sure, and idk how to observe if that's happening.
Polymarket is also holding onto the money in the meantime. Idk what they do with it, but it's not like some other platforms where they at least work with a bank to earn you some tiny interest on it.
They probably make interest off it themselves, so to give you any interest would cut into their margins.
Quintessential hustler logic: inability to compare the gains from wins to inevitable losses.
LTCM doing that was an early example of "too big to fail". In the late 90s.
I assume all the 'no' bets have to have an explicit end date, otherwise the 'no' bet could never win? The time horizon is never unknown on these bets.
The time horizon is unknown sometimes. One example event, "what will happen before GTA VI?" with markets like "China invades Taiwan" and "Jesus Christ returns." The NO for the second one is only 52c rn. Maybe that resolves if GTA VI is permanently canceled?
Yeah, those sorts of bets seem clearly bad unless there is an explicit time limit on them. Factoring in how long your capital is locked up in the bet and the opportunity cost of it being locked up has to be accounted for in determining your expected gains.
Right, my backtest expressed everything as % APR, not just P&L
Forgot to add, I wet-ran the non-sports strat once with $100 and lost like $5 net across the month. Not enough diversification like I said, so yeah maybe I'd make $6 the next month. I could only find like 10 things that met all the criteria: ≥90c price, low spread, thick enough ask ($5?), not sports, not related to certain topics that I thought were rigged (eg Mr Beast, Trump saying keywords in speech), likely resolving within a week. Some of them also weirdly took longer to resolve than the title suggested.
> 1 loss sets you back 10-20 wins
Good old eat like a bird, poop like an elephant.
I'm pretty into prediction markets and have some strategies that make me small, but consistent returns.
I think timing is the missing piece of this. Just randomly betting no on everything likely isn't going to give good results, but if you tied in a news API and just bet no on anything related to a major story right after the news starts picking it up, I would expect you could make a solid return.
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.
My general observation is that people tend to underestimate the likelihood of black swan events (covid, financial crisis) even as it's pretty obvious they're happening. And then when they do accept it, they react too far the other way and assume it's never going to end.
I've had success playing the markets in these specific cases. I did fritter away a lot of my gains from the financial crisis thinking I was a genius market timer. But I learned my lesson and didn't waver once I jumped back in after covid.
In both cases I got out before a bulk of the crash and timed the bottom almost to the day. Lucky I know, but I had reasons for both. For the financial crisis it was when Bill Fleckenstein closed his bear fund and put it all in MSFT. For covid it was when it looked like the lockdown was working and NYC hospitals weren't going to completely fall over like Northern Italy or Wuhan.
For any non black-swan scenarios, I assume I'll never get one up on the masters of the universe and just leave everything in blended age-appropriate funds.
I'm very concerned about an AI crash and the future of white collar work in general. But it feels more like a slow death to me than a black swan. So I'm just hedging with bonds and cash and stocks that hopefully don't crash as hard in a recession.
They underestimate the likelihood of black swan because it is very hard for adults to concretely imagine things that have not happened before and then even temporarily fully believe ~"dreams will come true."
One of my go-tos on this is the Fukushima nuclear accident. IIUC there were plenty of folks in Japan who knew of the high risk. Perhaps many interested in nuclear energy outside of Japan, too.
But the average adult if asked about the prospect of a major nuclear incident occurring say, "tomorrow," would narrow their eyes in skepticism. There's almost an instinctual level seeding of doubt.
This can be a good thing. LK-99 was an excellent test of the dissonance from dramatic changes in reality and costs of inaccuracy.
The greatest VCs I have known are exceptional at suspending disbelief to test their ability to basically shape world building.
Yeah, I can't say for sure it's going to happen, but I can clearly see a path where AI ends the middle class in developed countries, which has really only existed in its current form since WWII. Most people can't imagine that.
I can imagine that, but I struggle to imagine that happening tomorrow, which is part of the GP’s point.
I suspect it has already happened. People just don’t realize it yet.
I would also not want to take even a fair bet against black swan because the day that "S&P500 falls to lowest level since 2016 as Labubus collapse" is the headline is the exact day I least want to lose a big pile of money gambling. If it's the shareholder's money though.... I'm probably getting laid off in that scenario anyways...
I make similar bets. The SAAS "apocalypse" looks like a buying opportunity to me.
This makes sense to me, but isn't there a risk of increasing the potential payoff high enough that someone is motivated to go out and make the yes side happen?
Consider this bot running on us military outcomes or something.
By design it's a game where people with inside knowledge or enough power to bend reality can steal money from people with gambling addiction. Automating your addiction might not be the best move.
This is what markets like Polymarket boil down to. Normies can't win. Some will, of course, but that's just chance and there's no way if ensuring it's you.
It's really no different than a casino: if you ever find yourself with more money than you walked in with, cash out and leave.
Best strategy for most people though is to simply not participate and you'll break even.
I fully agree with not participating and would go even further: it's far worse than a casino, which was already bad. It's not regulated. It has a stronger impact on the outside world. With bets you can put a target on people job or head.
You say that like it's bad thing, but really it's great!
It gives us normies a way to see what the powerful are thinking.
normies that don't enter the game, because the ones that do just loose their money
Except, the thing is, a decent portion of the population enjoys throwing money away in casinos. If they feel a similar level of enjoyment/entertainment from this type of market, then it's no different and they're playing for a non-financial purpose that your calculus isn't pricing in. Maybe a stretch but theoretically, if they enjoy it enough, it can serve as a much cheaper alternative to a casino and thus could actually have a positive net return to one's personal finances even while losing.
And, I'm not even contemplating gambling addiction. There's a huge market of people that just go to Vegas once or twice a year and come home thousands of dollars poorer. But they don't need it, they may not gamble outside of Vegas, or nothing that would signal an addiction.
> If they feel a similar level of enjoyment/entertainment from this type of market, then it's no different
If Polymarket were regulated like a casino, I’d actually have no problem with it.
> I don't have a gambling addiction, I just enjoy throwing money away in casinos. I come home thousands of dollars poorer. It's a net return to my finances. Totally healthy.
Weird way to validate polymarket.
how can it be cheaper? people will spend the same amount or even more considering that is more easy to spend more since it's digital
It's all hypothetical of course but I know Vegas has some high table/game minimums and these markets can be pretty cheap if you just want a piece of action. Also, eliminates the cost of actually traveling.
Again, no idea if anyone sees this as a true substitute or not. My guess is not as Polymarket bets don't feel entertaining at all (IMO). So it's not filling that void for anyone, but it hypothetically could.
You're thinking like an engineer and making the laughable assumption that "prediction markets" are markets. It's totally unregulated with all sorts of grifts and cheats. One of the platforms was promoting a high-return bet against Rory at the Masters yesterday.
You can make money off of all sorts of stuff. You can "sell" the bets, so there's lots of live pump and dump.
We've gone full circle. The bookie with no neck that smelled like onions was more honest than these platforms.
Wouldn't a high-return bet against Rory make sense? He was very likely to win.
Sure.
But isn’t weird the betting platform is sending an app notification saying “hey bet on this dude to win $X”?
Well, that's why things aren't priced uniformly, isn't it?
The problem with that thesis is that this doesn't seem to actually work as a strategy
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.
Wet streets cause rain? You don’t show that the Polymarket signal lead Nasdaq.
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.
I don't think the author is trying to pretend this is some sophisticated strategy you should actually use (note the chudjak in the image on github)
If you bet it all on one event yes, otherwise long tail just loses your bet. Downside risk is limited to your bet.
If there's a consistent, sufficiently strong bias towards "yes" and you have enough capital, it doesn't matter as long as you size your bets right and you're able to survive a few train collisions.
Related: https://www.jbecker.dev/research/prediction-market-microstru... (previous discussion: https://news.ycombinator.com/item?id=46680515)
Betting "no" on an outcome, is bettering "yes" on ALL other possible outcomes. There is even an operation for it: https://docs.polymarket.com/advanced/neg-risk
Am I misunderstanding? I think that’s trivially not true. Consider:
Joe Dart elected president Y/N
Cory Wong elected president Y/N
A no bet on Joe Dart is not a yes bet on Cory Wong.
Dart/Wong for America ‘28 - Give America Back Its Groove.
Did you read the link? A NO bet on Joe Dart is a YES bet on Cory Wong + Others.
It is trivial. Saying NO to a candidate means you're saying YES to ALL other candidates with varying probabilities that would sum to the neg risk of that NO bet.
Ah I see, I missed the + Others part in my initial reading, i see it gives the same payout. The shared link just asserts the same thing you’ve asserted with additional technical language that I don’t understand, so reading it didn’t help me much.
Perhaps this is pedantic, but this equivalence is ignoring fees, spread, and slippage, right?
That's not true. The different outcomes don't have any relation to each other.
If you had only bothered to open the link and understand what it even being said.
If you don't think it's true, then go ahead and arb polymarket for all the incorrect pricing.
What you said and what the link said were interesecting but not equal.
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.
Well, it's not making money, for one.
All strategies get priced in eventually. This is basically the thesis of index funds. It's fine to make money in the interim, but that isn't everyone's goal.
Because they are doing it for fun?
for the lulz obviously
you wouldn't get it
Already priced in.
The author also noted:
> yes this has to buy below 0.73 long term, the bot has a configurable ceiling set at 0.65 and checks for new markets buying closer to .5
https://x.com/sterlingcrispin/status/2043685362812461436
For this question I'm working on https://polygains.com
What other question would you like to be backtested? This one is fairly easy
For every bucket of probability, what is the chance it resolves correctly?
For example, for markets that are between 60 and 70, is it the case that around 65% of them resolve to yes?
I guess you want to take a certain time before out finishes, so focus on sports.
What happens if you flood the market with a bunch of implausible bets like "sun won't rise tomorrow"? Sure, you might try to filter that out with some sort of "seasoning" period (ie. don't buy new markets), but then that means more time for arbitrageurs to correctly price the market, depriving you of any price advantage you might have had.
There are quite a few of those, my favourite: https://polymarket.com/event/will-jesus-christ-return-before...
If you put all your money on no, you get 4% if you win, and if Jesus comes back and you lose, money won't matter.
>you get 4% if you win,
This locks up your money in the meantime, right? If so, considering the fed funds rate is 3.64% (and you can probably get higher rates on stablecoins), a huge chunk of those "winnings" is going to be eaten up by the opportunity cost of the money.
You forget that Polymarket is just a casino, and the house always wins.
For example, recent events show that any bet can be selectively disputed by arbitrary reason ("we found insiders", "we found this immoral/illegal", etc.).
And for perpetual events - there is not a single week without a hack (https://www.web3isgoinggreat.com/)
jane street is always hiring!
> What happens if you flood the market with a bunch of implausible bets like "sun won't rise tomorrow"?
Who does "you" refer to in this sentence? Polymarket itself?
I'm pretty sure if Polymarket itself decides it wants to screw you, you're gonna lose no natter what your strategy is.
That presumes that there are people selling into new markets at 0.5 without thinking about the actual odds.
Of course, once you add a condition like that, the probabilities change....
Except that the mere existence of the market with the question posed for people to consider, probably activates the availability heuristic[1], causing people to overestimate the likelihood.
[1] https://philopedia.org/topics/availability-heuristic/
"Nothing ever happens"
Benjamin, huh?
Basically, realized vol is lower than implied vol over time. Yes.
also people overpay for skew protection and you can make consistent money selling skews (until that one time it blows up on you)
any stats on your returns so far?
Turkey reported high winrate until Thanksgiving
Falling victim to the classic fallacy. So sad
We call it a "black turkey event", nobody saw it coming.
Not my project, but author said on X:
> Why predict the future when 73.4% of all Polymarkets resolve as No?
https://x.com/sterlingcrispin/status/2043398710013595857
That logic doesn't work because not every bet have even payouts. If there's a market for whether a dice rolls 1 or not, the odds might resolve to "no" 83% of the time, but if it only pays you $1.1 per dollar wagered on "no", you're still losing money.
Someone needs to make a market on whether or not this is profitable
What happens when the bot places a huge bet on "No" in this market?
Too bad we can't run this bot in the nineties. There seems to be quite a bit happening these days.
The stopped clock is right twice a day, but it reads noon and we're at half past three
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.
Someone has (had?) a bot on Manifold that does the same thing, and it is profitable: https://manifold.markets/dcxStep
(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)
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).
GitHub is down yet again. Guess they forgot to tell their AI “make no mistakes” while vibecoding.
I was about to say “first Microsoft service to reach zero 9s of uptime”, but then I realized, it’s Microsoft… GitHub is definitely not the first
Back up
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.
Don’t be gullible enough to fall for this bad math.
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?
Fall for it? I think it's pretty clear the author is not trying to convince any one of anything. It's mostly a joke.
> picking up pennies in front of a steamroller.
This or any other statistical play is only 'in front of a steamroller' if you do it with leverage, especially if notionally uncorollated bets suddenly move together. Bets on Polymarket have limited downside by design, and bets in different categories are obviously unrelated to each other.
Without having looked into this in detail, however, I suspect the problem would be limited capacity; markets that are both deep and so trivially irrational are probably fairly infrequent. You might pick up pennies but only pennies.
Leverage is not the steamroller here.
It’s the 90% chance of making 1$ vs 10% chance of losing 100$.
The exact numbers vary, the expectations even out with high volume stocks but prediction markets do not because of rounding that favors the house.
That's just the binary nature of the bet. You address that in a real trading strategy with (fractional) Kelly position sizes. Anyone doing this for actual money would also be well served by implementing continuous monitoring and active risk management over top, in order to limit maximum drawdowns if the trend evaporates.
Whether it's pennies in front of a steamroller will depend on the entry price, EV, time left to resolution and many other variables.
Though I agree it's bad math, even if 70% resolve to no, there's a high variance among all of them, and to know whether it's a good bet or not... you have to do your DD on that particular market. Even if you follow the Kelly criterion, randomly choosing bets will probably tank your bankroll sooner or later.
> Whether it's pennies in front of a steamroller will depend on […] many other variables.
No, all these variables cancel out.
If you were picking and choosing, yes. But this approach is basically betting no on all the markets.
The textbook explanation of this is the central limit theorem, proving this mathematically is a bit more involved for power-law systems like this but it’s empirically valid.
The math here isn't what you assume it is. It isn't "most markets resolve to no"; it's "markets consistently value 'yes' too highly", and there is some evidence for the latter.
Go on, give it a try for a few days.
My point is equally valid for "markets consistently value 'yes' too highly".
The occasional 'no' will wipe you out on average.
I have no idea if the bias is strong enough to profitably trade on it (or whether it even exists).
But your statement seems stronger, i.e. that such a strategy is somehow fundamentally and inherently impossible, so I think it's on you to explain why that is supposedly the case.
For example, assuming a hypothetical consistent "yes" bias of 10%, would you still say it's impossible? Why? Basically, are you saying it's impossible because of the actual observed "yes" bias being too weak or for some other reason?
Polymarket already has "Nothing Ever Happens" markets where you can bet on a set of events all not happening together. Because why not.
"Nothing ever happens" ETF
I think these would qualify https://etfdb.com/etfdb-category/inverse-volatility/
Very cool. The opposite of the black swan or turkey corollary. Every day the turkey gets fed and is happy until Thanksgiving rolls around.
> Heroku Workflow The shell helpers use either an explicit app name argument or HEROKU_APP_NAME.
nice to see heroku still alive...
I love heroku, death to vercel
Considering moving my team to Vercel. Why?
Has anyone opened a "Will the Bot buy "no" on this?" market yet?
What's the data situation like if you wanted to backtest a model like this? Is it easily accessible?
No, data situation is bad, at least for market making - you need to scrape the orderbook yourself to be able to do any realistic backtesting. And even then, it's hard to know whether other bids at the same price are ahead of you or behind you in the queue.
this is a good dataset
https://huggingface.co/datasets/SII-WANGZJ/Polymarket_data
"A comprehensive dataset of 1.9 billion trading records from Polymarket, processed into multiple analysis-ready formats. Features cleaned data, unified token perspectives, and user-level transformations — ready for market research, behavioral studies, and quantitative analysis."
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.
In your scenario you're assuming the dice rolls are all independent. If polymarket bets were all pure dice rolls the 60% odds you quoted would be true.
But they aren't independent there are a lot of correlations. Global geopolitics for example.
The way the math works out, 73% of markets resolve to No, If you buy No at 0.73 each time you would break even.
Not financial advice of course
Some things always happen too. You need to avoid certain terms.
When you win you win small but when you lose you lose big? :)
null hypothesis bot
I saw the Twitter meme and knew instantly he was going to be a good follow. Was not disappointed!
The Jeraptha would find it boring. Just saying.
Betteridge's Bet
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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.)
Cryptocurrency. Even if it is a traceable crypto like usdt, it doesn't seem to be enforced.
Thanks to crypto, you can deposit and withdraw with full and complete disregard to local laws.
> Polymarket doesn't allow US use/users. How are folks in the US participating on Polymarket?
Same way Binance did [1]. Assuming they wouldn’t get charged.
[1] https://www.binance.com/en/square/post/362592428897
Polymarket has been live in the US since the beginning of the year. There is a queue but it’s absolutely live. And before that you could still use it so long as you did not use a VPN.
Strange. The current terms state:
> Restricted Jurisdictions. You acknowledge and agree that you are not permitted to access, use or trade with the Contracts on the Platform if you are residing in, a citizen of, organized in or located in the following jurisdictions (collectively, the “Restricted Jurisdictions”): Australia, Belgium, France, Germany, Italy, the Netherlands, Ontario, Poland, Quebec, Russia, Singapore, Taiwan, Thailand, the United Kingdom, the United States; or a jurisdiction or territory that is the subject of comprehensive country-wide, territory-wide, or regional economic sanctions by the United States, including but not limited to Iran, Syria, Cuba, North Korea, and the Crimea, Dontesk and Luhansk regions of Ukraine.
Maybe I'm supposed to ignore that?
Maybe you’re not using the US entry path.
https://polymarket.com/usa
But also it’s not illegal for a US citizen even before it was simply not legal for them to do business with US citizens because of lack of kyc
Idk if there is new KYC I dont know about, but you just needed a VPN.
The idea was kind of amusing until I went to the GitHub page and was greeted with a Chudjak [1].
[1] https://en.wikipedia.org/wiki/Patrick_Crusius#In_popular_cul...