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Comment by coldtea | Hacker News Reader

>Prediction markets have been called "truth machines" because anyone who has information missing from the market can profit.

That sounds like "insider trading" machines, or "scam" machines, rather than truth machines.

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yes, they allow you to pay people who have information about the future for that information, in a distributed manner. this is great if, like many people, you want information about the future.

Information about the future without power to do anything about it (except bet on it), like is the case for most information and most people, is useless.

surely this criticism applies as well to... any information.

That sounds cool and fancy in theory, but how do you find that information among the noise?

like if 50 ppl vote A, 45 people vote B and 1 person who actually knows their shit votes B?

How do you find it? By amount?

Apart from minor effects, the price is the probability. If you 'know your shit', you have more confidence and thus bid up or down until there are no more counterparties willing to accept your price, and thus the price settles at approximately the expert/insider probability.

Because the people who are consistently right will consistently win money and will make bigger bets which move the price more, in the limit case making the price converge on the true probability of the outcome.

This is the theoretical underpinning of prediction markets.

Equating being "consistently right" with having a sufficiently large stash of capital is ludicrous.

"right" people will wisely take most their winnings out of a high-variance market. "wrong" people with deep pockets (or lots of wrong people with shallow pockets) will continue to distort the market.

Well, the more often you're right, the more capital you will be able to accrue to bet with next time.

> will continue to distort the market.

they can only do so as long as they have enough capital to lose. Because every time they try to move the betting markets against the truth, they will simply lose that money when the event happens (and turns out they were wrong).

So any distortion will merely be temporary. Unless they have access to unlimited capital of course - which is not true yet for anyone (but the US gov't).

That only makes sense in a hermetically sealed system, which this is very much not.

Yes, but is this a problem? Haven't most betting markets turned out to offer accurate predictions?

Not particularly so. But even if it were, would that justify the social cost of this kind of gambling?

what do you think you're asking?

like any signal, you reflect on it, integrate it into your belief, think through the consequences, etc.

we all want mr. delphi to tell us exactly what will happen. but without such a friend, we reason under uncertainty. markets are one tool we've found to coordinate such signals.

would you ask the same of hiring a private investigator, or paying for the new york times? there is no authority with your interests but yourself; you must choose who to trust.

It's not voting, it's a market

The prediction market itself is a ouija board. You're given a number. You don't know who's moving the needle or why. You don't know what you're paying for. Maybe you're paying for information from people who are breaking someone's trust by giving it to you? Or maybe you're paying them to make it happen?

Although, sometimes a market provides incentive to publish information that's associated with the market being influenced. For example, someone can do an investigation, short the stock, then publish it.

you dont need to pay to access the odds - it's public info.

There are people who pay to make bets on it (if they think the odds are wrong). But you don't have to be a betting participant to access the betting odds. You simply use the betting odds as a prediction of a future outcome, and you take your action/planning accordingly.

Sure, but I meant it in the sense that someone needs to lose money or there's no point in smarter or more well-informed people playing. Their profits have to come from somewhere.

These could be (a) people who aren't as smart as they think they are (b) people who subsidize the market in order to get good predictions (c) people who are hedging (essentially, buying insurance). Perhaps other possibilities.

> the sense that someone needs to lose money

yep, and that's fine because they did so voluntarily.

If there were no stakes on the line, the information in the odds will also not have any real meaning.

It’s good that it’s voluntary, but that’s not really what I’m getting at. People voluntarily spend money in Vegas and buy meme coins too.

This doesn’t tell us all that much about whether a price signal is a valuable source of information. Often, people have varied interpretations of what a price movement means. The price doesn’t tell you how to interpret it. The obvious interpretation can be wrong.

But usually when prediction markets have shown interesting predictions, it's by odds taking large swings then collapsing to the correct outcome relatively shortly before the event right?

I assume because even if you know the future perfectly, putting up large lump sums early could cap your upside if people take your large sum as a signal (like OP is doing)

As a viewer you can take your own short-term "actions" (gambles) outside the market using the brief advanced notice I guess, but I'm not sure planning works like that.

In other words, what happens to the accuracy of prediction markets if we're including the discrete odds that occured along the way to the final odds? It's not better than random chance or public sentiment for large events is it?

but like, here in the real world, farmers use weather derivatives. so the technology works, has a use case, is proven.

if your point is that one should not treat the market's number as some oracular probability, then... of course i agree! there is no such thing. the market provides a signal, like any other.

Not a farmer, but I believe they use weather derivatives to hedge and weather forecasts for predictions? Going through markets for weather forecasts is adding a level of indirection that generates a noisier signal.

The idea when hedging isn't to win on expected value. It's to reduce risk. You're paying the market to provide insurance.

As a side effect, insurance does sometimes generate interesting data. The insurance industry generates good data about life expectancy. But it doesn't tell you when you're going to die.

Good points, but commodity futures and stock prices take into account all sorts of information. They go haywire sometimes but given how hard it is to beat the market, they seem to do a pretty good job of aggregating it all.

As we learn from reading Matt Levine, they might also be taking into account signals that are irrelevant to you for technical reasons, or just nonsense. Often it works well but sometimes you get meme stocks.

Which is why I said "they go haywire sometimes." But in most cases, they work well enough that very few professional investors are able to consistently beat the judgement of the market.

just to be clear about what you're saying, you would predict that the implied probabilities from weather derivative prices are often very different than what is forecasted, and, when those differences occur, it is the forecast that is more likely to be right?

...would you like to make a bet to this effect?

They also allow people to convince those who trust that prediction markets are accurate barometers of likeliness that certain events will be likely with a meager amount of money.

The amount of money depends on how big the markets are.

Historical records, notably by Herodotus, confirm that the Persian Empire used gold to bribe Greek Oracles, turning "divine prophecy" into a psychological warfare tool.

This mirrors a core flaw in Polymarket: profit maximization is not truth-seeking. Just as Persian bribes manipulated ancient morale, modern "whales" can distort market odds to manufacture narratives or hedge external interests. In both cases, the prediction is a commodity sold to the highest bidder rather than an objective forecast of reality.

and newspapers are owned by fatcats. but we are still interested in what they have to say.

This comparison is flawed because accountability creates a structural divide. A newspaper has a visible masthead and named editors, creating a reputational stake where consistent bias leads to institutional ruin.

In contrast, Polymarket relies on pseudonymous liquidity. A "whale" can use a "Persian bribe" to distort odds and then vanish without consequence. While a newspaper offers a testable argument, Polymarket provides a "math-washed" price signal that allows financial manipulation to masquerade as objective probability.

> objective probability.

i don't believe such a concept exists. if you do, then you have greater epistemic problems that should be resolved first, before reading either the newspaper, or the prediction market.

Dismissing "objective probability" is a convenient philosophical retreat that strips Polymarket of its only legitimate function. If the market isn’t an attempt to aggregate information toward a binary, external "ground truth," then it isn't a forecasting tool—it’s a "Keynesian Beauty Contest" where people bet on what they think others believe rather than what will actually happen.

Without an objective anchor to measure against, concepts like "mispricing" or "alpha" become logically impossible; you cannot have a "wrong" price if you don't believe a "right" probability exists. If we accept that the market signal is just a reflection of whale liquidity and "Persian bribes" rather than a calculated proximity to reality, then the platform is merely a math-washed gambling hall. Ultimately, a prediction market that abandons the pursuit of objective truth loses its epistemic utility and its entire reason to exist.

prediction markets are a useful tool for aggregating information about uncertain events.

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