Are prediction markets the "poor man's investing"?

[Odogwu-Blockchain]

There are a few people I know who buy and sell on prediction markets.
They all think they have some sort of edge and that is the reason they trade on these prediction markets.
I think prediction markets are a haven for insider trading so I stay away from them personally.

Yes, I could remember a friend of mine buying predictions on some particular game on bc.game. He often said insider sells out the code to buyers. Those who bought will time the prediction, if they play at the exact time according to instructions, they win. If they missed out to catch the time, the code gets expired.

Insider sells those tips.

[Yamifoud]

Investing is gambling, and it is just the same as betting on the market prediction. The same approach is used, but the outcomes are different. However, I don't see it as a poor man's investing, because even rich people use this kind of approach.

Of course, traditional investing still dominates the market. Most people, whether rich or poor, choose this as if it were a secure investment.

[Alphakilo]

It should be clear to all that the predictions market can be used as a tool to protect wealth mostly in times like this where we are experiencing economic inflation due to the Iran -israel/U.S war and as the IRGC has already made threats against tech based industries in the Gulf region, the predictions market is most efficient and more flexible because they capture some events that normal traditional stocks can't capture and you make profit from it.
The mathematical schematics of the predictions market is way different from the stock market and from gambling in a huge way hence the kind of license they have and that's the point, and I see it in no way, a poor man's investing because only those who actually have funds to spare and can take risk, can get in, make profit and still have some advantages, unlike sportsbetting or casino games where a gambler can have a long losing streak.
 

[famososMuertos]

Hey, OP;  d5000

Well… first of all, this is kind of a “damn…” moment (let’s break it down.) I mean, it had never crossed my mind to see prediction markets as a form of investment… although that already goes against my basic betting principles.

I don’t want to mix things up, but think about poker for a second. In tournaments, you start with a stack of chips, and your goal is to keep growing that stack because, over time, the “investments” (your bets) increase in value. The dynamic forces you to take risks, because players who don’t (those playing a tight style, only premium hands) eventually get pushed out.

If you’re not playing based on probabilities, your chip EV suffers. That’s why sometimes you go all-in with 25–30% equity. Of course, there are other elements to consider, like ICM*. Once you reach the money stages, this becomes crucial for evaluating risk versus reward.

What I’m getting at is that, in a poker tournament (not cash games), buying a buy-in can feel like an investment—even though it technically isn’t. But at least you can influence the odds to some extent to reach your goal.

Now, back to your point (and maybe you’re thinking, “where the hell is this going?”) in prediction markets, your idea works as a kind of justification for calling it an investment. On the surface, it makes sense. But in reality, they’re very different concepts. (imho)

An investment is usually a long-term process, shaped by multiple factors; many of them implicit (and that word matters here), not just pure, direct probabilities like in a bet.

I guess the simplest way to put it is: one is about owning something, and the other is about pricing a probability.

I don’t know… I had never really thought about it this way before. But in a way, your idea is a valid perspective.
edit:
^{* (Independent Chip Model)}

[AmoreJaz]

I had thought a bit about the role of prediction markets as a competitor to traditional investment strategies in assets like stocks or gold.
A simple example: If you are investing in stock X with your goal being price Y (e.g. your buy price + 20%), you could be tempted to instead place a bet on a prediction market site that stock X would reach price Y.

First I'd like you to understand the fact that investing on its own is actually a form of using strategy to make predictions. Honestly speaking from experience one of the most experience demanding investments is actually stocks. It's far from gambling but people like to bring them close because both involve risks.

The average poor dude doesn't wanna buy stocks instead he wants to save that cash in a bank with 1% interest which in the end accounting for inflation puts him in a loss.

I won't consider investing when you bet in prediction markets. This is another form of gambling also, and you have no assurance that you can really hit it right, just any luck-based game. So if you don't want to jeopardize your savings, better not to have the mindset that you are investing when you are placing bets in the prediction markets.

[tread93]

Prediction markets do make interesting investments. I think the real innovation is making it more fun. Investing in stocks has always been gambling to some degree. At least with prediction markets it is much more clear to the average person what it is exactly that they are betting on.

I like them because it helps to give you a general consensous of the popular opinion of a certain topic of discussion. Like the weather perhaps or who is going to win the futbol game on saturday night or who will become the next president of the US. These markets have become a very popular way to bet on circumstantial things that otherwise we wouldnt' really have any idea what most people thought unless we had something like this. I mean we would have an idea but this sure makes it much more clear. And to answer the question in the thread I don't think these are the poor man's betting I think this is more of an entertaining way to bet and a little unorthodox gambling. We could call it Modern Gambling.

[d5000]

Anyway, there is a huge difference between prediction market and traditional investing, which is capital vs wagering. If the bet is lost the entire wager amount is gone like 100% pf the capital to relate with investment but it is unlikely to happen in traditional investment, it can go down 20%, 50% or even 99% but 100% doesn't happen everyday.

Yep, I've covered this topic in this post. You could compare a lost bet also to a bankruptcy.

I've re-thought a bit about calling it "investment" and now I think it's indeed closer to a complex trading strategy. If you wanted to use it as a long term investment, you would need to cut losses and re-balance all the time.

Originally I opened this thread because I considered prediction markets an easy way to bet on scenarios which aren't covered by a traditional investment. If the amount of bets related to your scenario (e.g. AI progress, political shifts, even certain develpment in sports) is high enough you can diversify your "investment" into several bets placing small amounts on sub-items with some of them having a higher probability to succeed and others less.

I don’t want to mix things up, but think about poker for a second. In tournaments, you start with a stack of chips, and your goal is to keep growing that stack because, over time, the “investments” (your bets) increase in value. The dynamic forces you to take risks, because players who don’t (those playing a tight style, only premium hands) eventually get pushed out.

I think this can definitely also be applied to prediction markets. If we assume the bettors are relatively good in pricing the probability, the profit expectation you have is usually only better than the fees if you also take some risks and bet against the mainstream.

Now I'll apply this to the concept on "creating an investment strategy using prediction markets". As I wrote in my answer to Findingnemo above in this post, the idea is to bet on a (economic, political, etc.) scenarios that could materialize in less than a year. So you'll have to rebalance the bets regularly. You can however bet on related events / developments. For example, if your idea is to bet on "AI progress", you can bet on different companies' announcements related to AI progress.

Of course if you have to always take into account that you have to take more risks than the "average bettor" to really be able to profit, you should know your matter either very well (which is borderline insider trading) or bet against the mainstream in several cases. On average this makes this kind of "investment strategy" quite risky and you will face several total losses. The idea is then to find bets that could complement each other a bit, for example in the AI scenario bet both on OpenAI, Google and Anthropic announcements if you feel that if one of these companies has an edge it could lead to less success of the other ones' announcements.

But on the other hand, if you want to bet on such general scenarios like AI progress, prediction markets are one of the simplest ways to do that. The alternative would be to search for stocks related to your scenario, but this is less "precise" because companies can switch their business model or focus on different products if their own "bets" don't succeed (think of examples like Bitcoin mining companies getting into AI, or Strategy with its software-to-Bitcoin evolution).

An investment is usually a long-term process, shaped by multiple factors; many of them implicit (and that word matters here), not just pure, direct probabilities like in a bet. [...] I guess the simplest way to put it is: one is about owning something, and the other is about pricing a probability.

The interesting thing is just that these multiple factors could be condensed into different bets. The "implicit" factors can also be present in the probabilities assigned to bets, and at a first glance I don't think it's more complex to "decipher" then in prediction markets than in the stock market. If you think differently here let me know an example

[Mia Chloe]

I won't consider investing when you bet in prediction markets. This is another form of gambling also, and you have no assurance that you can really hit it right, just any luck-based game. So if you don't want to jeopardize your savings, better not to have the mindset that you are investing when you are placing bets in the prediction markets.

Your claims are actually valid just on the basis that you a placing bets in a casino based off what you think a company would do in saying a couple days. Like saying I'm gonna be betting apple will not release the iPhone 18 series till after December of course this concerns their stock prices indirectly.

However in my opinion you are not practically gambling if you observe the apple stocks to go bullish steeply in just a couple months and take advantage of your finds by buying some stocks. I do invest in stocks but for now I've not started that of foreign stocks yet.

[nimogsm]

The stock market, for example, isn't as flexible as the prediction market. With stocks, everything takes a long time, and sometimes it takes years with constant reinvestment to see a profit. With the prediction market, everything is much simpler: a minimal entry threshold and a huge selection of events with almost instant results. Consequently, those with less capital tend to turn to the prediction market.

[blomen]

The stock market, for example, isn't as flexible as the prediction market. With stocks, everything takes a long time, and sometimes it takes years with constant reinvestment to see a profit. With the prediction market, everything is much simpler: a minimal entry threshold and a huge selection of events with almost instant results. Consequently, those with less capital tend to turn to the prediction market.

prediction markets are essentially like an accelerated and more widespread stock market, based on the assessments you make. they resemble a stock market where some trades are settled in minutes while others can take months, and in this way, they offer users a more flexible environment.

it is certainly not a place where only people who cannot access real stocks are found.

[aoluain]

I had thought a bit about the role of prediction markets as a competitor to traditional investment strategies in assets like stocks or gold.

A simple example: If you are investing in stock X with your goal being price Y (e.g. your buy price + 20%), you could be tempted to instead place a bet on a prediction market site that stock X would reach price Y.

This of course only applies to prediction markets with some relation to traditional markets. Of course it would also work with Bitcoin price bets.

The advantages on a first glance are that you are often much more flexible: you can place almost any amount, so even "poor people" can invest a few dollars instead of having to buy entire shares. Thus it becomes a bit like micro-investing.

In contrast to micro-investing, you can also place bets on more exotic events. If stock X for example is an aerospace company, you could bet on the event of that company announcing a new aircraft model, not only invest in their stock.

But both micro-investing and prediction markets, on the other hand, have a disadvantage: the fees in general are higher and the odds are a bit biased against the common bettors (see also this article (with anti prediction market bias)).

What do you think? Are prediction markets a more flexible and less costly "competitor" of investing? Or are the costs such a high disadvantage that we can't talk about them really being an alternative?

(Myself I have a quite nuanced opinion on that, but I will wait for some answers first.)

I'm not sure about the idea that "poor people" would use this investing strategy purely because
of the idea that poor people potentially lack proper or sufficient financial education and are more
likely to be concerned with trying to survive from day to day.

But I do like the concept outlined, it seems a somewhat simpler way to make mini investments or
trades on a particular event, commodity or asset. It goes without saying that as with any trade i
degree of research has to be carried out.

[SamReomo]

What do you think? Are prediction markets a more flexible and less costly "competitor" of investing? Or are the costs such a high disadvantage that we can't talk about them really being an alternative?

I've never tried prediction markets but after reading about them I find them more as a gambling rather than investing. I've some information about such markets like Poly market but I've not yet tried those. However, from reading some good stuff about it, and I believe it's a good option for the ones who take some risks.

[AVE5]

Prediction markets do make interesting investments. I think the real innovation is making it more fun. Investing in stocks has always been gambling to some degree. At least with prediction markets it is much more clear to the average person what it is exactly that they are betting on.

I think not only to some degree but completely as gambling or equal to gambling we can say for sure about prediction or investment in markets. I think every option out there seem designed to be used against poor people and designed by the rich, take casinos for instance as poor people look at them as some way of saving themselves from the bad economy though most of the time they like that saying goes "they make a poor man poorer and a rich man richer" as the rich, the owners make a lot of money compared to poor ones.

Yeah I think were it looks like the prediction market is s trap for the poor is based on the expectations of the inside marketers who over takes risks they can't bear. So it's believed that the rich has enough to risk while the poor owns less to face the risk.
It's also agreeable that one only tends to send out in the game when you've the funds to stay in the long term.
And perhaps if you're not lucky to reach your profitable goal, at least feel the sense of the entertainment by risking what you can afford.

[Smartvirus]

I won't consider investing when you bet in prediction markets. This is another form of gambling also, and you have no assurance that you can really hit it right, just any luck-based game. So if you don't want to jeopardize your savings, better not to have the mindset that you are investing when you are placing bets in the prediction markets.

That’s the thing about prediction market that doesn’t make sense to me. Most times, you come to hear some of them make claims of certain games being fixed and how they have a long history of a match fixing syndicate but still, their predictions still carry a lot of probability about them. You eventually find yourself gambling in plants with one of it being the prediction market while the other is with the bookies. When you loose, you loss in both ways which makes it better to have gone with your prediction and get better at it.