Source: Intensive reading of research reports

1. Perfect prediction

On December 18, 2024, Federal Reserve Chairman Powell announced another 25 basis points interest rate cut. For Polymarket users, this result was a foregone conclusion two weeks ago - on this forecasting platform that uses money to vote, the probability of an interest rate cut has been stable at more than 95% since December 13.

What really made the polymarket out of the circle this year was this year’s US election. While traditional media and authoritative polls were still hesitant, Polymarket gave a clear signal that Trump had won the election, nearly six hours before the Associated Press officially announced it.

A mysterious French trader, dubbed the "Trump Whale" by the media, made an astonishing $85 million in profits by accurately betting on Trump's victory on Polymarket.

From the Federal Reserve’s decision-making to the presidential election, from geopolitical conflicts to corporate mergers and acquisitions, the prediction accuracy on Polymarket continues to refresh people’s understanding of the limits of prediction. A thought-provoking phenomenon emerged: Why is voting with money always more accurate than traditional prediction methods?

2. Why are bets more accurate than polls?

On the eve of the 2024 election, authoritative polls by the New York Times and Siena College showed that the Democratic Party has an advantage in seven key swing states. Harris holds a slim lead over Trump, 48% to 47%, maintaining leads in four states: Nevada, North Carolina, Wisconsin and Georgia. However, the final election result was completely the opposite.

In stark contrast is Polymarket’s forecast. On this platform, Trump’s winning rate has always been far ahead. Why is there such a big contrast? What this reflects is the essential difference in forecasting methods.

1. Limitations of traditional polls

Traditional polls face several fundamental challenges:

The first is "distortion of opinions". In a highly polarized atmosphere, many voters tend to give the "right" answer rather than what they really think.

The second is the issue of "sample representativeness". In the age of smartphones, fewer and fewer people are willing to answer poll calls from strangers, and those who do are often underrepresented.

There is also the problem of "insufficient depth". Telephone polls are often time-limited, making it difficult to gain insight into voters’ true attitudes and possible behavioral changes.

The last is "static deviation". Traditional polling is like taking static photos, and it is difficult to capture the dynamic changes in the electoral situation.

2. The victory of research depth

In contrast, the key to the more accurate predictions on Polymarket lies in the huge research energy invested by the participants.

With "Take the "Trump Whale" team as an example. They sent a field research team to visit swing states, conduct in-depth analysis of historical election data and population changes, and even study detailed factors such as weather and traffic that affect turnout. They established complex prediction models and based on

Continuously updated with new information. In prediction markets like Polymarket, we have seen a revolutionary change in the way of prediction: in-depth research replaces superficial judgments, and systematic analysis replaces intuitive predictions.

As one senior participant said: "This is not the case. Not gambling, but doing the most serious research. When you're preparing to make an important prediction, you'll put more effort into finding the truth than most people imagine. "

3. Why are prediction markets like Polymarket more accurate than traditional gambling?

Polymarket looks like a prediction betting site, but it's essentially an information marketplace. Here, major events happening in the world are translated into simple yes-or-no questions: "Will the Fed cut interest rates this time?" ""Can Trump win the election? "

Users can use virtual currency to purchase "yes" or "no" shares. For example, in election prediction, if you think Trump will win, buy "yes" shares. If special If Trump really wins, these shares will become $1, and vice versa. The real-time price of the shares reflects the current market’s expected probability of this event happening.

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Why is Polymarket more accurate than traditional betting? This stems from three key designs:

The first is the problem design. Each predicted event must have clear criteria. There is no room for ambiguity, such as "Will the Fed cut interest rates by 25 basis points in December?" The answer to this question can only be "yes" or "no", no. There is a third possibility.

The second is the market mechanism. Anyone can buy and sell shares at any time, and the price is determined by supply and demand. New information will be reflected in the price immediately. When someone has important information, they will buy or sell quickly, pushing the price closer to the true probability.

The last and most important thing is the market maker mechanism. Market makers create market depth by continuously providing two-way quotes.

What is market depth? Imagine a pool. The deeper the pool, the smaller the splash caused by putting a stone in it. In the market, depth means. The ability to withstand large transactions without causing violent price fluctuations

Why is market depth so important? Imagine the situation without market makers: 1.Through in-depth analysis, a researcher found that market expectations deviate from actual probability. But when he wants to open a large position, he may find that there are few counterparties and he has to pay higher and higher prices to buy enough shares. In this case, even if the judgment is accurate, it will be difficult to make a profit, and the enthusiasm for doing research will be dampened.

With market makers, the situation is different. Market makers stand ready to buy at a price slightly below the market price and to sell at a price slightly above the market price. Researchers can quickly establish large positions without significantly affecting market prices. Such a mechanism allows forecasters who invest considerable resources and conduct in-depth research to take full advantage of their information.

Take the "Trump whale" as an example. According to insiders, his team includes election data experts, polling analysts, social media researchers, and even weather forecasting experts. Because they know that in U.S. elections, rainy days often affect voters’ enthusiasm to vote. It's the ample market depth that makes such in-depth research worthwhile.

This forms a virtuous cycle: market makers provide depth, depth makes research valuable, more people are willing to invest in research, forecasts become more accurate, and the market attracts more participants , market makers can provide better depth. This kind of system design turns complex predictions into simple buying and selling behaviors, but it promotes the most rigorous research behind the buying and selling. Participants are not gambling, but using professional knowledge and systematic analysis to find the truth.

Essentially, Polymarket is more accurate than traditional gambling because it creates an ecosystem that perfectly unifies "pursuit of truth" and "pursuit of profit":

This is consistent with There are fundamental differences between traditional gambling. In traditional betting, the bookmaker earns the difference by setting the odds, and players are essentially betting against the bookmaker. In Polymarket, market makers only earn a very small bid-ask spread, and the real profits come from accurate predictions of the future. This makes the entire market have the same goal: to find the truth.

It is this mechanism design that makes Polymarket an information market that can continuously produce accurate predictions, not just a gambling platform.

4. The philosophical foundation of prediction markets - Hayek and Robin Hanson

The design of prediction markets is not accidental. It is deeply rooted in the theoretical insights of two thinkers: Hayek's "knowledge dispersion theory" " and Robin Hanson's "Prediction Market Theory."

Hayek made a key point in his famous work "The Use of Knowledge in Society": In a complex society, knowledge is always dispersed among everyone in hand. No individual or institution has complete information. For example, if you want to predict the outcome of an election, no matter how good a single analyst is, it is impossible to fully understand everything.The specific situation of the constituency, the voting tendency of each community, the impact of weather on voting, etc.

So, how to integrate these scattered knowledge? Hayek believed that the price mechanism was the most effective way. In the market, everyone trades based on the partial information they have, and the price will automatically integrate these scattered information to form a comprehensive signal.

Robin Hanson further developed this idea. He proposed that we could create a dedicated market for any predictable event. In this market, price represents the probability of an event occurring. This is the theoretical basis of prediction markets.

Hanson particularly emphasized the importance of "real money". When people trade with real money, they are forced to take their judgment seriously. You may express your opinions casually online, but when it comes to betting real money, you'll be more cautious. This is why prediction markets are more accurate than polls or expert predictions - because they let people "put money where your mouth is."

Deeply speaking, prediction markets solve an old epistemological problem: How to get as close to the truth as possible without a "God's perspective"? The answer is: through the market mechanism, scattered knowledge, different opinions, and various information sources are woven into a huge cognitive network. Every trade is a signal, and price is the ultimate synthesis of these signals.

This method neither relies on the authority of a single expert nor the consensus of the majority, but relies on a market mechanism that can continuously correct itself. When new information emerges, those who have access to it first or are best at analyzing it will act quickly to move prices in a more accurate direction.

From this perspective, the prediction market is not only a trading platform, but also a cognitive tool and a social technological innovation. It demonstrates a brand new way of obtaining the truth: not through authoritative judgment, but through the wisdom of the market; not through centralized calculation, but through distributed collaboration.

This is why prediction markets are considered revolutionary. Not only could it predict election results, it could also change the way we understand the world.

5. The arrival of the "fifth right" and "information finance" era

If traditional media is "The fourth right", then the prediction market is becoming a new social force - the "fifth right". It does not influence society through words, but delivers truth through price signals. This power is not only reshaping the way we obtain and verify informationIt also brings unprecedented information equality.

In traditional financial markets, institutional investors usually have access to more and faster information than retail investors. But in a prediction market like Polymarket, everyone can see the same probability numbers in real time, and can immediately perceive the market’s expectations for the future. This transparency makes prediction markets a unique source of information.

More and more traders and research institutions are paying attention to Polymarket, not for betting profits, but as an important source of information. When they need to evaluate the possibility of a major event, the price in the prediction market is often the most intuitive and reliable reference. This phenomenon confirms that the prediction market is evolving from a simple trading platform to a core information infrastructure.

Imagine this scenario: When a big news comes out, people will not only pay attention to the media reports, but also immediately check the prices in the prediction market. For example, during the Russo-Ukrainian War, when news of fierce fighting broke out in a certain city, the price changes in the relevant prediction markets often reflected the truth of the situation faster and more accurately than news reports.

This kind of information equality has had a profound impact. Traditionally, forecasting and analysis are often monopolized by a small number of elites: analysis needs to rely on think tank reports, economic forecasts rely on investment bank research, and election situations need to be announced by polling agencies. But now, anyone can directly "see" future probabilities through prediction markets.

This change is reshaping the entire information ecosystem. For example, mainstream financial media such as Bloomberg and Reuters began to regularly quote Polymarket’s forecast data. Some hedge funds incorporate forecasting market price movements into their risk assessment models. Some researchers even suggest that when formulating important policies, one should also refer to prediction market signals.

What is even more interesting is that the prediction market is forming a new "collective intelligence display". When experts in a specific field discover new information, they often express their judgment through trading in prediction markets. These professional insights are delivered to all market participants in a timely and accurate manner through the price mechanism. This is like a "truth conference" that never rests, constantly gathering and updating mankind's best understanding of the future.

More importantly, prediction markets are giving rise to a new field: "information finance". In this field, information is no longer just for reading and disseminating, but an asset that can be priced, traded and invested. Accurate predictions can bring profits, and wrong judgments can lead to losses. This creates an unprecedented information ecosystem:

First, it changes the incentive mechanism for information production. Traditional media rely on clicks to make money, which often leads to "clickbait" and emotional reporting. But in prediction markets, only accurate information can bring profits. Individuals or teams who are good at collecting and analyzing information canto earn rewards through predictions.

Secondly, it provides a new information verification mechanism. In the age of social media, false information is rampant, but it’s difficult to quickly determine whether it’s true or false. In prediction markets, the value of each piece of information is immediately reflected in the price. If someone spreads false news, insiders will immediately correct the price through trading and profit from it.

Third, it is forming a new professional group: information traders. Just like some people make a living by trading stock futures, there may be more and more people specializing in information prediction and trading in the future. They will establish a professional research team and use advanced analytical tools to manage various forecast positions like an investment portfolio.

Looking to the future, prediction markets may penetrate into all areas of society. Companies may use it to predict product sales, they may use it to evaluate effectiveness, and scientific research institutions may use it to predict research breakthroughs. Every important social issue may have a corresponding prediction market, and prices will reflect changes in collective cognition in real time.

This development also brings new challenges. How to prevent market manipulation? How to balance the efficiency of information transactions and social fairness? How to deal with the moral hazard that prediction markets may bring? These are questions that require careful consideration.

In this world full of uncertainty, the prediction market is becoming a "public display" of real probabilities. It allows each of us to have equal access to information about the future, no longer subject to the limitations of traditional information channels. This democratization of information not only improves society’s predictive capabilities but also makes decision-making more transparent and rational.

In the future, when we look back on this era, we may find that the real revolutionary nature of the prediction market is not how accurately it can predict the future, but that it allows everyone to equally participate in the discovery of the truth. Come in the process. This is the most profound meaning of the "fifth right".

This is the era of "information finance": a new world where prices are used to discover the truth and the market is used to achieve equality. In this world, the most valuable wealth is not money, but accurate cognition; the most important ability is not to predict the future, but to constantly revise one's judgment; the most precious progress is not technological innovation, but the democratization of information. Those who can capture the truth in the ocean of information will be the winners of this era.

References: This article refers to the content of an issue of the podcast "Literature and Science" on Little Universe, "Polymarket and Prediction Markets: Let Data Bet, Let the Truth Speak" and other news content

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