Prediction markets like Kalshi and Polymarket have become such a big thing that by now, many pundits quote the forecasts from these sources, rather than the conventional consensus forecasts from Bloomberg and the like.
This shouldn’t come as a surprise at all. The outperformance of Polymarket over the Bloomberg consensus boils down to two simple truths:
1. Skin in the Game: On Polymarket, forecasts are backed by capital. You get paid for being right, not for being liked. Incentives drive accuracy.
2. The Compliance Filter: In the traditional industry, every forecast is inherently biased. Take any major bank or broker: what are the odds of a "Recession" call or a "Sell Equities" note actually passing compliance before publishing? We both know how that game works, don’t we, Joachim?
When one side is playing for profit and the other is playing for "career safety," it’s obvious who wins.
In a couple of weeks I will have another post showing that the incentives don’t work. The problem is that the people who have the most money or the highest conviction are not the best forecasters. And this makes Polymarket worse, particularly in illiquid markets or markets with relatively few people making forecasts.
as the trust has been systematically eroded in unbiased and (process) transparent sources, there is a desperation for where at least some of the influence is spread out (in this case, via punters).
Also, the participation of in the know folks out to make a buck is present in these numbers. Illegal, but present so that closes down the error as well.
This shouldn’t come as a surprise at all. The outperformance of Polymarket over the Bloomberg consensus boils down to two simple truths:
1. Skin in the Game: On Polymarket, forecasts are backed by capital. You get paid for being right, not for being liked. Incentives drive accuracy.
2. The Compliance Filter: In the traditional industry, every forecast is inherently biased. Take any major bank or broker: what are the odds of a "Recession" call or a "Sell Equities" note actually passing compliance before publishing? We both know how that game works, don’t we, Joachim?
When one side is playing for profit and the other is playing for "career safety," it’s obvious who wins.
In a couple of weeks I will have another post showing that the incentives don’t work. The problem is that the people who have the most money or the highest conviction are not the best forecasters. And this makes Polymarket worse, particularly in illiquid markets or markets with relatively few people making forecasts.
as the trust has been systematically eroded in unbiased and (process) transparent sources, there is a desperation for where at least some of the influence is spread out (in this case, via punters).
Also, the participation of in the know folks out to make a buck is present in these numbers. Illegal, but present so that closes down the error as well.
not just in the know...they bet and control the outcome.