Disclaimer: I wrote Sequoia as a placeholder because I wasn't confident in my spelling of Susquehanna, then forgot to change it. My apologies to Sequoia for dragging them into this.
Great post! The prediction markets business model is somewhat based on insider trading, as said person with MNPI can gain a material advantage over other bettors. Prediction markets will also converge with traditional finance - seems like it’s happening already.
Also thank you Bryce for linking my AI inference article in the ‘best of further reading’ section as well!
More point shaving and betting scandals in the NBA and NCAA will doom the prediction market companies, primarily for enabling criminal racketeering. After all, there is not much real world difference between the old illegal numbers runner and bookie rackets and the prediction markets. Look for a RICO trial if this totally gets out of hand ala the NCAA Point Shaving Scandals of the late 1950s and early 1960s. Unlike then, college athletics is a multi billion dollar business and the State Universities, States Atty Generals and big boosters will not put up with anything possibly leading to the “death penalty” for their institution.
This is a fascinating look at self-referential systems. As someone building a business in the digital space, I see parallels everywhere - whether it's social media algorithms that optimize for engagement until they destroy authentic interaction, or travel content that becomes so focused on "Instagram-worthy" spots that it loses the genuine experience. Markets eating themselves through their own feedback loops is a powerful metaphor for what happens when optimization becomes the enemy of value. Your analysis reminds me to stay grounded in creating real worth rather than gaming systems.
Excellent analysis! The poker comparision is perfect because both markets rely on information asymetry sustaining engagement. I saw similar dynamics in early crypto arbitrage, where once institutional players entered with millisecond execution, retail participation collapsed within months. The irony is professionalization kills the liquidity source that made the markets profitable in the first place.
This critique makes sense if prediction markets are treated as entertainment.
But once they start functioning as coordination tools, places where people price outcomes under consequence, the “sharks eat fish” dynamic isn’t a bug, it’s the mechanism.
Media rewards persuasion. Polling rewards expression.
Prediction markets reward correct anticipation under constraint.
They won’t replace sportsbooks but they are replacing parts of how truth gets produced.
When I was in college I did pretty well for a college student (moneymaker and WSOP literally happened around when I was in college). I made 3 or 4x what I could make as a college student, but little compared to what I make today in a corporate job.
I sensed this, and that was back in the "fat" days when the shark to fish ratio was a lot more favorable. Hence I got a real job.
I'm not convinced that what I do today is drastically different than what I did playing poker. It is I think a bit more moral because occasionally you get a chance to do the right thing, which you don't get often in poker. But there are a lot of red queen race and immoral elements too.
Vice is Vice. We were a better society when we could recognize and ban it.
Sharp analogy with online poker's sharks-and-fish dynamic. The adverse selection problem is especially brutal here because unlike stock orderflow where retail dumb money at least has some persistent liquidity value, prediction markets literally resolve to binary outcomes. Once sophisticated flow overwhelms the fish, there's no equilibrium left to sustain, just a spiral toward sportsbook infrastructure with a few novelty bets attatched.
They for sure rely on information asymmetry and being lightly regulated, which will change.
Ultimately, this is gambling, which is a social scourge, but it is now being glorified like something cool and fun.
The worst are VCs who are touting these platforms, because there are now a lot of people gambling, so valuations have skyrocketed. It’s a moral collapse.
When the uninformed participants realise there are more informed participants they withdraw and there is no one to provide the rewards to those informed participants.
This reads like a selection problem. If the product is ‘truth’, then information advantage is everything, which makes the market hostile to retail. The only durable niche is entertainment markets where nobody has an edge, or where stakes are kept small enough that it stays fun.
Disclaimer: I wrote Sequoia as a placeholder because I wasn't confident in my spelling of Susquehanna, then forgot to change it. My apologies to Sequoia for dragging them into this.
Great post!
Ｗｈａｔｓａｐｐ➕𝟭↡𝟱𝟭𝟴↡𝟱𝟭𝟮↡𝟭𝟱𝟴𝟬
Great post! The prediction markets business model is somewhat based on insider trading, as said person with MNPI can gain a material advantage over other bettors. Prediction markets will also converge with traditional finance - seems like it’s happening already.
Also thank you Bryce for linking my AI inference article in the ‘best of further reading’ section as well!
More point shaving and betting scandals in the NBA and NCAA will doom the prediction market companies, primarily for enabling criminal racketeering. After all, there is not much real world difference between the old illegal numbers runner and bookie rackets and the prediction markets. Look for a RICO trial if this totally gets out of hand ala the NCAA Point Shaving Scandals of the late 1950s and early 1960s. Unlike then, college athletics is a multi billion dollar business and the State Universities, States Atty Generals and big boosters will not put up with anything possibly leading to the “death penalty” for their institution.
Ｗｈａｔｓａｐｐ➕𝟭↡𝟱𝟭𝟴↡𝟱𝟭𝟮↡𝟭𝟱𝟴𝟬
This is a fascinating look at self-referential systems. As someone building a business in the digital space, I see parallels everywhere - whether it's social media algorithms that optimize for engagement until they destroy authentic interaction, or travel content that becomes so focused on "Instagram-worthy" spots that it loses the genuine experience. Markets eating themselves through their own feedback loops is a powerful metaphor for what happens when optimization becomes the enemy of value. Your analysis reminds me to stay grounded in creating real worth rather than gaming systems.
Excellent analysis! The poker comparision is perfect because both markets rely on information asymetry sustaining engagement. I saw similar dynamics in early crypto arbitrage, where once institutional players entered with millisecond execution, retail participation collapsed within months. The irony is professionalization kills the liquidity source that made the markets profitable in the first place.
the poker comparison is interesting, but prediction has more breadth and theory more appeal.
Ｗｈａｔｓａｐｐ➕𝟭↡𝟱𝟭𝟴↡𝟱𝟭𝟮↡𝟭𝟱𝟴𝟬
https://open.substack.com/pub/hiddeneagle11/p/why-most-people-should-not-actively?r=6ab8kx&utm_campaign=post&utm_medium=web&showWelcomeOnShare=true
This critique makes sense if prediction markets are treated as entertainment.
But once they start functioning as coordination tools, places where people price outcomes under consequence, the “sharks eat fish” dynamic isn’t a bug, it’s the mechanism.
Media rewards persuasion. Polling rewards expression.
Prediction markets reward correct anticipation under constraint.
They won’t replace sportsbooks but they are replacing parts of how truth gets produced.
When I was in college I did pretty well for a college student (moneymaker and WSOP literally happened around when I was in college). I made 3 or 4x what I could make as a college student, but little compared to what I make today in a corporate job.
I sensed this, and that was back in the "fat" days when the shark to fish ratio was a lot more favorable. Hence I got a real job.
I'm not convinced that what I do today is drastically different than what I did playing poker. It is I think a bit more moral because occasionally you get a chance to do the right thing, which you don't get often in poker. But there are a lot of red queen race and immoral elements too.
Vice is Vice. We were a better society when we could recognize and ban it.
Ｗｈａｔｓａｐｐ➕𝟭↡𝟱𝟭𝟴↡𝟱𝟭𝟮↡𝟭𝟱𝟴𝟬
Sharp analogy with online poker's sharks-and-fish dynamic. The adverse selection problem is especially brutal here because unlike stock orderflow where retail dumb money at least has some persistent liquidity value, prediction markets literally resolve to binary outcomes. Once sophisticated flow overwhelms the fish, there's no equilibrium left to sustain, just a spiral toward sportsbook infrastructure with a few novelty bets attatched.
They for sure rely on information asymmetry and being lightly regulated, which will change.
Ultimately, this is gambling, which is a social scourge, but it is now being glorified like something cool and fun.
The worst are VCs who are touting these platforms, because there are now a lot of people gambling, so valuations have skyrocketed. It’s a moral collapse.
Nice post!
When the uninformed participants realise there are more informed participants they withdraw and there is no one to provide the rewards to those informed participants.
This reads like a selection problem. If the product is ‘truth’, then information advantage is everything, which makes the market hostile to retail. The only durable niche is entertainment markets where nobody has an edge, or where stakes are kept small enough that it stays fun.
Re prediction markets this post from @polemicpaine is very good
https://open.substack.com/pub/polemicpaine/p/how-to-manipulate-prediction-markets?r=16dij&utm_campaign=post&utm_medium=web
“Derivatives in the commodity of truth” . Really enjoyed this line. Thanks for the read.