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Avraham Eisenberg's avatar

>Assuming people know about the assistant, the market will give at least an 80% probability of reinstatement to everything, regardless of how bad it is. (You are guaranteed to make money over time by blindly taking any bet with odds lower than 80%. So people will always bid the odds up to 80% or higher.)

Ironically, this is wrong for the same reason as the point you're making. There's adverse selection. Let's say traders happen to have a close to perfect Scott oracle, so they will be willing to sell you shares of the ones (they think) that Scott would reinstate only at 99%, but will be willing to sell ones (they think) he won't at 50%.

The assistant is calibrated but doesn't have that good of an oracle. Out of every 5 cases he sents Scott, 4 were priced at 99% and get accepted, and the last was priced at 50% and gets rejected. You lose all of your money with a 0% hit rate.

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Rohit Krishnan's avatar

There are more than enough confounding variables, or causal vectors, to break down pure correlations in the real world, which is inconveniently complicated. Which is a problem with prediction markets, esp those which aren't very liquid (ie almost all of them). We also don't know a benchmark of noise for most markets (equity included) which makes relying on % probabilities hard - eg the CEO firing market which is just silly.

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