Why prediction markets are not popular

By Nick Whitaker and J. Zachary Mazlish, this is the best piece on this question so far. In the excerpt, I note that I will not double down:

“Rather than regulation, our explanation for the absence of spread prediction markets is a straightforward demand-side issue: there is little natural demand for market contracts, as we see in our practice. We think you can divide people who trade markets into three groups, each of which is not interested in speculative markets.

• Savers: those who enter the market to build wealth. Prediction markets are not a natural savings device. They do not attract money from pensions, 401(k)s, bank deposits, or brokerage accounts.
• Gamblers: those who enter the market for pleasure. Prediction markets are not a natural gambling device, due to various factors including their long time horizons and topics that are often visualized. They rarely attract sports bettors, day traders, or r/WallStreetBets users.
• Sharps: those who enter the market to benefit from high valuations. Except for savers or gamblers, the sharp ones who might enter the market to profit from higher analysis are not interested in participating. They also do not need prediction markets to cover their other positions. “

[TC again] The main argument is explained further in the link. For example:

“There is one important reason that prediction markets are not used by savers, and probably never will be. Prediction markets, unlike most asset markets, are zero-sum – in fact they are negative sum, if you include the field fees. And if your money is in the prediction market, it cannot be invested in stocks, or earn interest in the bank, too. Every winner in the prediction market needs an equal or opposite loser. Investors with diversified portfolios can expect good returns in the long run, because they give their money to others to create output and wealth. That’s why people are responsible have their pensions in stocks and bonds, rather than having a bunch of sports books. Savings vehicles are much higher than zero, for the simple reason that they will grow your savings over time.”

From the latest and best issue of Works in Progress.