Back in the Brexit days, we and a lot of others speculated about how useful it might be to move trillion-dollar FX and sovereign debt markets by betting mere thousands on thin, illiquid Brexit prediction markets. OK, it was less speculation than it was outright and well-founded suspicion that this is precisely what some Mayfair macro funds were up to as we approached the referendum. If other traders were establishing positions and hedging on the basis of these prediction markets – even in small part, even subconsciously – then burning a few bucks on Betfair to give the only data moving around at all a push in a helpful direction had a near-infinite ROI.
Were people really taking and hedging positions based on the fluctuations of prediction markets? Almost certainly, although most would never admit it. For all their illiquidity, ca. 2016 prediction markets were the only games in town that weren’t just another poll. There are no fundamentals in a referendum. There is no forward guidance from management. There’s no proprietary cash flow model. There’s how people vote, how they say they’re going to vote, and the growing sense that how people say they’re going to vote to a pollster who calls them on the phone like some sort of 20th century barbarian is worth a bucket of warm spit. The introduction of betting markets on political outcomes gave a data-starved audience a new, 24-hour, instant source of information that carried with it the very real benefit of representing real money that people were putting on the outcome they expected. More importantly, it created the Common Knowledge that prediction markets reflected earnest, properly incentivized, real people putting real money behind their opinions. Just like campaign rally photoshop and AI shenanigans, prediction markets became a way to change how the crowd saw the crowd.
In 2016, there wasn’t a ton of money swimming around in these markets yet, and not a lot of people waiting in the wings to exploit it when a whale broke pricing. Up until the day of the vote, figure about £75 million in the most prominent such market. That means that the amount you’d have to stake to change the “probability” of Brexit or Bremain to a degree that bled over into the public consciousness was trivial. The amount you’d have to stake to have some impact on the actual real-life British Pound was non-trivial, but only until you compared it to the money you could make by earning 20% of some portion of the billion dollars of other people’s money you were levering up 8 times betting on that impact.
It’s a little different these days.
First, there’s a lot more money at play. There are also a lot more participants looking to be liquidity providers to overeager newcomers. There are more platforms for taking bets, some of which try to control for whales and foreign interference and some of which do not. The amount of money required to move these prediction markets is no longer trivial. And unlike Brexit, the next most important political referendum in the world – the election of the President of the United States – doesn’t have such a direct transmission mechanism to a small set of deep, tradeable markets. That is, despite the protestations of your friends and family on Facebook, it is rarely obvious how US election outcomes will be discounted and priced by market participants. Could you move Polymarket the amount it moved in the last few days with $10-20 million and a plan? Sure. Could you make enough money from doing so with enough certainty that it would actually go your way that you didn’t care about losing the $10-20 million bet? Probably not. Even if you could predict what markets would be affected by one candidate winning, it isn’t abundantly clear that leading polls or prediction markets by a lot a month ahead of a turnout election is always a desirable way to produce the outcome you wanted.
But what if you cared about something else? What if changing common knowledge itself was enough? What if you had a platform that could sustain a Narrative at whatever limit arbitrage conditions and frictional costs created between different prediction markets?
It would be interesting Ben to see what these number have looked like on Polymarkets throughout the cycle. I imagine after the curtain pull known as the first debate that it swung fairly heavy to Trump. Then even more after assassination attempt.
I imagine since then it has been a slow climb since Harris was named candidate. Not sure if it got above 50% , but wouldn’t be surprised if it did around DNC/Walz.
The curious thing to me would be to see early last week and what that looked like. Was there a momentum shift in this before rally, etc. I am not smart enough to put together all the thoughts running through my head, but I feel like there is a tie to Elon doing this, one of my favorite of your articles showing Jamie Dimon kneeling and capitoned (not pictured…opening a bank in underserved populations) and the story by one of our top philosophers of modern times in the Sneetches and Dr. Seuss.
Yes funny how Kalshi and Betfair still have Harris ahead. Probably nothing. The difference will become arbitrageable soon so this is probably the limits of how far you could push polymarket without touching Kalshi and Betfair.
“In an ever-changing, incomprehensible world the masses had reached the point where they would, at the same time, believe everything and nothing, think that everything was possible and that nothing was true. … Mass propaganda discovered that its audience was ready at all times to believe the worst, no matter how absurd, and did not particularly object to being deceived because it held every statement to be a lie anyhow. The totalitarian mass leaders based their propaganda on the correct psychological assumption that, under such conditions, one could make people believe the most fantastic statements one day, and trust that if the next day they were given irrefutable proof of their falsehood, they would take refuge in cynicism; instead of deserting the leaders who had lied to them, they would protest that they had known all along that the statement was a lie and would admire the leaders for their superior tactical cleverness.” Hannah Arendt
In the interview Musk did with Tucker Carlson, Musk opined that a Harris win would be the last election. The reasoning was tortuous, tying it to illegal immigrants and their potential votes in future years IF they become citizens. But, as Rusty keeps reminding us, the headline alone is enough. Musk seems to be heading down the path Ben discussed in OH as the necessary missionary rallying behind Trump’s “heads I win, tails you lose” reaction to the vote.
I’m genuinely confused. Are you saying Musk is manufacturing consensus (like the headline asserts), reflecting consensus, or amplifying consensus? Is it a factual consensus or a non-factual consensus that Harris is an empty suit? If all consensus is manufactured, nothing is real.
"the man with the biggest PA system in the world seeking to manufacture consensus by shouting into the void that this is real "
I am so sad to be seeing this.
Jim
Brent,
Hannah Arendt’s writing ‘nails it’. Totalitarian rulers turning common people into doing their evil. ‘I was just doing my job…’
New cabinet position, Secretary of Efficiency. Secretary of News.
Month to go to the election.
Jim
In this election democracy is apparently on the line - both sides say using various hyperbole that sounds opposite, but isn’t. Is this the first election about democracy? Were prior elections just simulations? Seemed like a real exercise of exercising my right to select a representative government, but maybe not?
Of all the things I hate about this cycle—and they are numerous—this decision by both sides to go all in on the Last Election Ever
line of attack is the most egregious and despicable. The amount of irresponsible behavior is worse than I’ve ever seen and it cannot possibly have a happy ending.
Yeah my instinct from just a cursory sense of the domicile / fee issues is that we’re probably close to the limit that you could do before it becomes worth it to try to arb it. Even so, liquidity is so thin at some of the other markets that I’m not sure you could at any scale.
And Arendt is always appropriate, but very appropriate here. Thanks for that.
I think that’s right.
Not arguing anything quite so grand. I am only suggesting that Elon is attempting to manufacture consensus that Trump is pulling away and that Harris is being seen by the crowd as less attractive by pushing multiple common knowledge levers at once.
Yep. The more that we say that something is existential, the more that it becomes existential. Incredibly irresponsible behavior.
Polymarket is the leading trending topic highlighted for me on Twitter/X. All of the related commentary is Trump is leaving Harris in the dust. The MSM has picked it up and is running with it.