The Robots Make the Predictions

I wrote last week that, in investing, “There’s no magic, no dark matter, no other source of gains. Everyone’s gains come from (1) economic growth and (2) other people’s losses.” In the aggregate, everyone gets the market return, which comes from allocating capital to economic growth. Some people get more and others get less, but they necessarily cancel each other out. People invest anyway, though, because allocating capital to economic growth is a good long-term proposition.

Prediction markets don’t have that. People put $1 into a prediction market event contract, and at resolution it pays out $1 to the winner. There is no investment in economic growth, no source of long-term returns; everyone’s winnings come from someone else’s losses.