Imagine if gambling and fraud had a child.
Polymarket is much more complicated than you expect, because you can make money while making the “wrong” bet. The best way to understand it is to try it out with your friends. Have one person watch the murder mystery, and then create a stack of a few “bets” for each suspect, worth $10, $30, $50, $75, $100. Each of these shares pays the same at the end of the game, say $120, if the suspect is revealed to be the murderer. Give each of your friend $150 in Monopoly money. Players can buy a share at any time from the bank or from each other at any point for any price. The person with the most money at the end wins!
As you play, you’ll notice you can make money by trading bets. Right now, it looks like the butler did it, so if you’re heavily invested in the butler you can sell those shares while they’re high, and buy the tennis coach. Next time the narrative of the movie shifts, you can sell the tennis coach and buy the spouse. You can even win the game without ever successfully guessing whodunnit.
Polymarket is like this. There are propositions, and you can buy shares based on a current price. Based on the price of the shares relative to each other, you can mathematically work out the probability the market believes something has of happening. It’s like gambling, but more complicated, so you’re much less likely to actually make any money off it unless you’re really steeped in economics and markets. Notably, Polymarket arose out of work by economists who proposed it as an alternative to voting that would allow richer people to vote more, and poorer people to vote less.
Interesting. Is this blockchain based? Sounds kind of like that, although the scale would be way too big, no?
There are bad bids to put in that can also pay out higher than you expect. One “feature” is counting cancelled things as a draw, so the pot is split 5050 between the sides. So, a bad bet if the game is played is a good bet if the game is likely to be cancelled.
Not sure if this is still true.
Man this is an excellent description.
I do want to add, there’s no telling that one of your friends hasn’t seen this movie previously and is acting with inside information.
I think what’s particularly pernicious is the ability to monetarily reward people who understand the shape of the narrative without being close enough to decision makers to understand the intended outcomes.
so you’re much less likely to actually make any money off it unless you’re really steeped in economics and markets
You’re also competing against people with insider knowledge (depending on what you are betting on) which currently isn’t illegal AFAICT.
Not only is it not illegal, it’s a feature of the system, since it allows the market to reveal insider information without breaking confidence. The folks who advocate in favor of prediction markets identify this ability to use the market to reveal insider information as a benefit of the system, and argue that allowing “super predictors” (insiders and rich people, by and large) to profit as a result is the cost we pay for getting the insider information as a signal from the price.
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Gamble everything. Will it rain tomorrow? Bet for it and gain crypto if you win.
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Some guy thought gambling everything would give important information for… Something. (It’s a lie, it’s just for the money).
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This 5 year old is learning many new words
You remember those bets you’d make with your idiot high school friends?
Well, now you can actually put real money on those bets. You can lose your entire life savings betting on Taylor Swift’s color scheme at her wedding, or if a celebrity has a meltdown within the next 6 months.
Yes, it’s quite a society we’ve built.
If you’re five? Hmm.
You know money? Well, almost everybody has very little of it because it’s being horded. This means people want ways to get more of it. One way people get money is to make bets.
Bets are an agreement to pay a given amount of money if a certain event takes place, like your big brother winning his sports game. You could bet me a cookie that he’ll win, and I could bet he’d lose. If he wins, I give you a cookie. If he loses, you give me a cookie.
Now, because your big brother is so cool, I might think it’s really unlikely he’d lose, so to make it fairer, I might want you to give me ten cookies if he loses, while I still only give you one if he wins. With such a cool big brother who’s so good at sports, you might still think it’s worth the small risk to get a cookie.
Now, because someone can get lucky and make lots of money from a small bet by guessing the unlikely thing is going to happen, a lot of people REALLY like betting.
However, people around the betting people also see many of those people betting and losing everything, which is really bad for that person and usually bad for everyone around them too. To try to prevent this, people create rules that say ‘no betting.’
Now, as you probably have experienced, a rule against something doesn’t mean people don’t want to do it. You don’t suddenly NOT want to play games because the rules say you have to go to class. The people who want to make bets, still want to make bets.
So, a group of people built a website where you can enter ‘contracts,’ where, based on an event in the world, people can agree to have paid each other. You could offer a contract that says you’ll put 50 pennies into a bag, and anyone who wants to can put another 50 pennies into the bag, and then you both will seal the bag and whoever correctly predicted the result gets to take the bag home. If you think no one would want to take that contract, you can also offer to put in more and let the other person put in less so you and they feel like it’s fair.
Now, the people who made the website made this process easier and faster by making the bags and pennies digital. This means you can set up 100 bags or 1000 or even more without having to carry all those coins. They also help you find people who want to take the other side of the contract, tell you what amounts of pennies people are putting into similar bags for their contracts, and act as a mostly neutral outsider to hold the bag until the contract is done. This is technically work, even if the works is mostly done by their computers, so they take a handful of pennies from each bag before handing it to the person who made the correct prediction. Those people are polymarket/kalshi/etc.
Now, you might be thinking, ‘That just sounds like betting.’ The important distinction is that it’s not called betting. Because ‘entering contracts’ is not against the rules, people are free to risk their money in a very similar way to betting without technically breaking the rules because the rules say ‘no betting.’
By the time they’re done reading this, they’re 6.
I read it at the pace/cadence at how this would be said by a 1st grade teacher. Works well.
Gambling. People say I bet €X something will happen, others will take the opposite position or relates positions.
Polymarket is just the platform people use for it.
AFAIK, the concept first appeared in the dystopian sci-fi novel The Shockwave Rider written by John Brunner back in the 70’s. It was called a Delphi Pool in that. Great book, btw. Though unfortunately another example of tech-bros old dystopian novels as a model to build a business.
The description of it from the book:
It works, approximately, like this.
First you corner a large - if possible, a very large - number of people who, while they’ve never formally studied the subject you’re going to ask them about and hence are unlikely to recall the correct answer, are nonetheless plugged into the culture to which the question relates.
Then you ask them, as it might be, to estimate how many people died in the great influenza epidemic which followed World War I…
Curiously, when you consolidate their replies they tend to cluster around the actual figure as recorded in almanacs, yearbooks and statical returns.
It’s rather as though this paradox has proved true: that while nobody knows what’s going on around here, everybody knows what’s going on around here.
Well, if it works for the past, why can’t it work for the future? Three hundred million people with access to the integrated North American data-net is a nice big number of potential consultees.
And here’s how the concept was used in the real world (before polymarket), according to this source:
Perhaps the most striking attempt to make use of this kind of idea was the Policy Analysis Market (PAM), a proposed futures exchange developed by our friends at the Defense Advanced Research Projects Agency (DARPA). PAM was intended to be a kind of “futures market” for the Middle East; investors could trade futures based on political outcomes in the region.
The idea is that the monetary value of a particular “future” (a stated outcome in Middle East politics) would tend to increase as the outcome became more likely. That is, the value of a futures issue would tend to reflect the relative likelihood of that future actually occurring.
Unfortunately, it turned out that PAM would allow trading in such events as coup d’etats and assassinations; the resulting uproar caused the cancellation of PAM.
The Delphi method was used in the late 1940’s at the RAND Corporation. In their implementation, a panel of experts was regularly polled by a facilitator to predict future outcomes of events related to the Cold War. Brunner probably derives his Delphi pool idea from this work.
The name “Delphi pool” is derived from the pythia, or priestesses, of Delphi in ancient Greece. The pythia would take questions and make predictions (which modern-day geologists attribute to hydrocarbon gasses like ethylene, which bubbled up from the faults in the region).
Humans grew from fish thousands upon thousands of years ago. Now we can walk and talk, but we remain with the same primeval intelligence which results in stupid games little men play because we still can’t tell right from wrong.
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