Disclaimer: I have not read any literature on the economics of prediction markets, and I know nothing about the mechanics of Polymarket/Kalshi.

I would imagine that in theory, everyone thinks they have the best information at the time, something like:

House: "Odds that X happens? We'll put $1 on both sides to get it started. 50/50."

Someone comes along: "Oh dang, I'm definitely more than 50% confident that X is happening. Let me put $1 in." Now it's 67:33.

Someone else comes along: "Oh I'm more than 67% confident X is happening, let me put $1 in." Now it's 75:25.

And of course, you get people going: "I'm more than 25% confident that X is _not_ happening, let me put $1 in!" And now it's 60:40.

The murky part, I would imagine, comes when the odds and the payout actually act as something that influences the outcome, but in perfect theory-land, if everything goes as planned, this should move the odds to the most informationally-accurate measurement, which should, in theory, benefit observers by making this measurement public.

People with insider information often aren't necessarily aware they even have it. "Superforecasters" are often just "good at predicting" moves within a given vertical, because they have expertise and exposure to the trends of that vertical, and are good at making deductions and extrapolating trends. Those people make money from prediction markets just as often as people with true insider info do.

And the people they're both making money from, are people who think they have enough expertise + exposure to function as superforecasters — and who probably could function as superforecasters, in a market with fewer "sharks" in the pool — but who lose out simply because they were slightly less well-calibrated than whoever they were trading with.

Which is to say: prediction markets can still work and be worthwhile to participate in, even if everyone in them is rational. They don't require suckers.

But, in practice, they certainly do seem to attract them.

> Is this good?

it is good if the losers are voluntarily participating. They are not coerced (stupidity is not coercion) into it, and therefore, it is reasonable that they expected to win the bet.

The only problem i have with polymarket (and others like it) are that insiders can often remain anonymous. It should not, and if an insider earns, but their win requires they remain anonymous or face some social/reputational repercussions, then that should happen.

Therefore, as long as KYC is enforced for these markets, i would have zero issues with their existence.

Yep. It’s basically how Wall Street functioned before regulations showed up to protect the public.

If it's unregulated, how are people getting charged with insider trading?

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It’s not rare nowadays that speculation on some topic will include the Polymarket rates. Google searches: Maybe not. Maybe that’s just gambling for the fun of it.

If you run a records company I assume this might be worth some money

I think they are open about it. John Oliver did a piece on it last month and I recall an interview where the founder of one of these prediction markets shared this as a beneficial effect of the product.

Because these markets aren't all that efficient yet (possibly because other potential market participants are scared off by insider trading charges). You don't have multiple people that all have insider information betting against each other, you have one person with insider information that cleans out everybody else. If this repeats enough, all the people without insider information will get cleaned out and exit the market, all the other people with insider information will enter the market for profit, and prices should converge to true likelihood.

And yes, the whole purpose of prediction markets is to turn insider info into public info.

The odds have shown to be largely correct, thanks to people profitably arbitraging away inaccuracies.