“market prices reflect capital-weighted beliefs, not equal-weighted probabilities”
Analyzes three structural reasons prediction market prices diverge from true probabilities even with rational participants: favorite-longshot bias from Kelly betting, risk-premium distortion from market correlation, and risk-neutral forward pricing in long-dated contracts. Argues markets still outperform individuals because they weight capital-backed beliefs rather than equal-weighted opinions.
Extensive technical background assumed
Platforms mentioned: Polymarket