Betting on Chaos: Professionals in Prediction Markets

I'm drawn in general to chaos. Will aliens invade the US is probably trading at 4%. Will Jesus return to Earth is trading at like 2.5%. Being averse to taking losses is probably the number one mistake that people make. Today's guest is a professional prediction marks better. His name is Domer. He's been in the game since 2007, far before the Halsion days of Polymarket back when we were slumming it on in trade and predicted. Domer initially got into this world through poker, then got sort of bored and confused by financial markets. And for a long time has been betting on stuff like elections and wars and legislation and lots of other fun things that I think are really important and relevant as prediction markets become a new and fascinating vector to understand the world in the future. Domer's such a pleasure to have you on China talk. Thanks for dropping by. Yeah, thanks for having me. I'm excited. All right, so let's do the 101. How do these markets work and how are they different than buying Apple stock or betting on a sports game? Right, so I guess it is a little bit similar to betting on a sports game. The most popular market by far is who's going to win the US presidential election. This comes around every four years. It's not just people in the US that are interested. People around the world like to root or bet on this. And you know, you can think about it in terms of zero to 100. And it assigns odds. So for instance, Hillary versus Trump, you know, all the way back to 2016, I think Trump going into election day was 30% to win. So if you wanted to bet on Trump, you bet, let's say, $3. And if he loses, you would have gone to zero. And if he wins, it goes up to 100. So you'd be able to get $10 back. Right? It's basically a zero to 100 type of situation. You either win zero or you win 100, depending on what you're betting on comes to fruition or not. Gotcha. And it's just for some context. We now have eight figures betting on the outcome of the New York City mayor election. We have $200 million of volume traded on Will Zalenski wear suit before July. So currently, I think it's important to know that these markets are very liquid. You have millions, tens of millions of dollars. I think we got into the billions when it came to the presidential election. But even on very niche topics, like a Romanian mayoral election, there was $6 million of volume, which have been traded in total on that. So this is no longer a niche thing. And I think sort of dismissing these numbers out of hand of like, oh, this isn't-- you're not getting the quote-unquote price discovery that you would for the amount of trading that happens within video or Apple is not necessarily the case. Maybe this is a way to get out this question, Domer, is like, how have you seen as these markets have gotten larger and more popular, like how the relative efficiency change in them over time? Yeah. So they have gone a lot bigger since I started. I mean, when I first started, if you made a $10,000 bet, you were a big whale. Now it's like, OK, you're just a little minnow, minnow in the sea. But as they've gotten a lot bigger, they've also spread further. Whereas when I first started, there were basically two big markets, the one big market, who's going to win the presidential election, and then the second big market, who's going to win the best picture in the Oscars? And now it's kind of this widespread thing that encompasses many countries, tons of races, economic things, like what's the Fed going to do? So it's become far more widespread in terms of the topics that it covers than the interest level and what participants are interested in as well. So I'm very curious for what the professional version of this looks like. How would you describe your process? Let's pick something slightly more as a taric than a presidential election. Like what is-- maybe you want to walk through the Pope example or another kind of market you've been thinking about? What does it take to develop alpha around these topics? I mean, I would say the basic level in terms of what do you need in order to do well at these markets, I would say you need to be number one a curious person and eager to learn about something. And then number two, kind of like an enjoyer of the news, like someone who likes following the day to day, ins and outs of news stories. To get into the Pope example in particular, people's conclave's only happened, like let's say, every 10 years, 15 years. However many years, these are not like in and out. People are not experts in this. You have to go into the archives in order to figure out what happened last time and read these stories from 15 years ago about how this thing kind of played out. So you have to kind of be able to train yourself and kind of be able to look at all the contours of an event. And because if you think about, OK, what happens when one Pope passes away and they're about to select a new Pope, everybody that's interested in betting on this is starting at like the same starting gate. And so you're competing against, let's say, 1,000 other people. Everybody starts at the same starting gate. Right. It's a matter of, can you research it faster, better, more accurately than your competitors? So that's kind of, I guess, the basic contours of my job. Yeah. And I think what's sort of interesting that you've said in past podcasts is like, even with something as, like, as niche as a Romanian or election or Israeli politics, it's not like the betting pool is all Romanians or all Israelis who are all reading news in the local languages or even if there are a handful of them, like the center of gravity of that market is rubber neckers from around the world, who such that, like, there isn't this sort of local edge you necessarily get, isn't quite as pronounced as you might expect it to be. Right. Yeah. I think that's mostly true. The center of the election will be people that aren't necessarily subject matter experts, but it will draw in a minority of people who at least live or impacts, this event will impact them more. So it will attract in that level of interest and new players and stuff like that, which doesn't necessarily mean that they're smarter. Being closer to the event, maybe you're more biased. If you have a personal interest, maybe you're showing up to be able to bet on this guy that you're rooting for, whereas me and American, I've never heard of this guy in my life. So I don't really have a rooting interest. So there are different things that factors they go into play in terms of whether someone that actually is impacted by the event comes and joins the party. Let's talk a little bit about the argument of social utility that these markets bring. I mean, having accurate betting lines on the nicks and whether they're going to win on any given Tuesday night and sort of having a price discovery function for that does not seem to me to be particularly like net positive for the world. But it's very different where you're talking about, you know, our wars going to start, our wars going to end sort of elections and whatnot. As prediction markets have grown in salience and sophistication, how is your thinking evolved about what sort of broader utility these markets have? Yeah, I think that's a great question, because if you think about a world where prediction markets don't exist at all, right? And you're trying to figure out whether there's going to be, for instance, a recession this year, who you're going to be relying on in order to inform that decision are usually going to be pundits, right? And the world of punditry, it doesn't reward you if you're right, it doesn't really punish you if you're wrong. It's just kind of revolves around entertainment, you know, is this pendant is he convincing is the entertaining is he saying interesting things that that's kind of the world of punditry, it's not necessarily punishing you if you're wrong or rewarding you if you're right. So prediction markets are kind of just like the next level of punditry, which is not that they're like a solution, like if polymarkets says that the chance of a recession is 25%, that doesn't mean that we have the answer, right? It's not like nobody came down from heaven and said, Oh, it's 25%, we have no idea. But it's kind of like a more advanced punditry and you are punished if you're wrong and you're rewarded if you're right. So I mean, it's kind of like punditry with skin in the game. So I guess that's how I would kind of view it and obviously prediction markets encompass more important topics than necessarily like, for instance, sports games or whatever, which is not to say that betting on sports isn't fun or important or maybe people are interested in it, it's just a different a different facet of being able to predict things. You know, as you start to see kind of news stories that talk about the prediction markets and the politicians sort of being able to feed off of the news stories, like I think a particular mom Donnie over the past few months, like as that number was creeping up from 1% to 5% to 10% like this was a very kind of tangible way for him to tell his story of his momentum. You know, are you seeing more of these kind of feedback loops of like the prediction markets like manifesting in reality, which then end up manifesting in prediction markets? It's a very interesting question because it's kind of like is the tail gonna start wagging the dog in terms of like because If it does then it could become a little bit of a self-fulfilling prophecy where someone with deep pockets Can go onto one of these markets and bet themselves personally up and then it's like oh, I have momentum Oh, here's proof. Oh somebody's betting on me my price is going up, right? So it can kind of be a little bit of a feedback loop and in fact there there's this Back in 2012. I'm not sure if this story interests you at all, but back in 2012 There was the GOP nomination was kind of like a clown car, right? There were a bunch of people going up and down Hermann Cain, Mitt Romney who ended up getting the nomination Scott Rick Perry all these people go up and down and every week it was like a new front runner new king rich and interestingly in the summer somebody on Intrad was buying boatloads of Donald Trump like Ridiculous amounts of Donald Trump way above where the market could be and I was thinking to myself like this might literally just be Donald Trump or one of his minions because back then the market was and I was a liquid Maybe the person spending like $50,000 doing that which is a lot, but it's not like you know, it's like a commercial so it's like Is this guy gonna be running and is he trying to like boost himself? So I thought that was an interesting aside, but yeah, so go back going back to your question is the tail You know does the tail wag the dog. Yeah, I I think there are interesting feedback loops and the other part of it is like You know how liquid these markets are is like sometimes the markets have more liquidity than The event seems to be important, you know like for instance Zelensky wearing a suit which we can get into but well, it's interesting because this sort of like I Remember there was this whole story in the 2024 election around the front, you know Who's this whale who's buying up Trump who basically bought it up like I don't know five or six points or something and it only crossed this person 25 million dollars which in the in the context of a Presidential election is like as you said a handful of ads which like maybe might win you a few votes as opposed to Creating an entire sort of new cycle of like wow someone knows something they don't and voters like to vote for a winner and You know that that dynamic it seems like a very affordable thing especially if you're talking about a New York City Democratic primary where all it would have cost would would be yeah Thousand a hundred thousand books to get Brad Landers name on the map or something as having a little As having a little bump so I'm surprised it isn't happening yet. I guess well We'll get to that world sooner or later and maybe these these markets just need to be liquid enough for someone to make enough money on the other side to buy it back down Yeah, I mean one interesting thing you know you mentioned the French whale Yeah, I was kind of the one that helped break that story But one of the really interesting things is people would like DM either guesses and the number one guess by far when the story was like first breaking is like This is probably Elon Musk because he has started a super pack. He has tons of money It's like this is a drop in the bucket to him So it's like it made total sense that one of the benefactors would be the one doing this not necessarily this true believer who had been Investigating and doing polling and stuff Yeah, but it's interesting because some of the You know the sort of like narrative reinforcement cycle of this stuff It seems to be most relevant for elections But there's you know There are ones where it's basically one person making a decision right like is Trump gonna bomb Iran is Netanyahu gonna bomb Iran is Hamas and Israel gonna make a peace deal like Will Zelensky wear a suit and This sort of momentum getting behind these things is unlikely to like influence or maybe it does. I don't know Maybe we'll get to the point where these numbers are so salient that like a president will feel like they're letting people down or Something if they don't do the thing that the markets expect them to do which then might kind of be self-reinforcing and play into their calculus I think this is a very interesting and relevant question and I'm not sure that I have a good answer for it But it is something that I grapple with like whether the markets could theoretically get quote unquote like too big for the actual events that they're trying to predict Well, and the other thing is there's no SEC right right like inside there's no insider trading and like there are plenty of people who know If a lot of these things are going like no one knows who's gonna win a presidential election right but like there are many of these markets where there are point Decisions where I don't know if I'm some random person in Iran working in the IRGC and I have you know This is my one opportunity to make $10 million because I know if we're gonna, you know, attack America back or not like Why not I mean how do you think about the sort of insider trading dynamic and has it manifested at all? I mean the interesting thing is that I've been doing this for such a long time and From the inception people think that big swings like their first reaction is oh some insider is betting on this market and 99.9% of the time it is has nothing to do with an insider It's a true believer or somebody who clicked the button by accident or what what have you? But I feel like lately with the markets getting so big You know, you're kind of becoming more suspicious and there was what there were a few markets recently where it was like what will Israel do and these Accounts that are like newly created and they're funded with like you know $100,000 or whatever come in They only bet on this one market Israel's gonna do xyz. It happens and then they withdraw it. It's like I Don't know like this seems this seems like something like exactly the behavior that an insider would do So you know as the markets become bigger my my initial 99.9% of the time it's never an insider starts to become You know, I'm not sure that that holds up given given how much money's involved Yeah, it's interesting because specifically on the international relation stuff like you know There are DOJ Enditments about like how much you know when they catch people spying like how much money they make and it's like if you're really good Spying you're really good at selling secrets like you probably make a few million dollars like once these markets are big enough Where like you can make 10 million dollars in an afternoon and it's crypto and no one knows about it Or you can convince yourself that you're not gonna get caught. I mean there's a This is like I think I think a new dynamic that a not not a ton of sort of national security establishments or intelligence agencies have really processed is You know why sell my secrets to the Chinese when I can just like you know Quote unquote like tell the world 24 hours or even like three hours before something happens By making a bet on it and then you know retiring six months later and moving to Bermuda Yeah, I mean you're exactly right and it's untraceable and etc So but I you know I do think the arc of these markets is towards regulation so I'm not sure You know it's gonna be this is a 20 year problem, but it might be a problem over the next few years as we try and figure out the regulations on this stuff So what is the I don't know do we have like you know you're gonna have to trade with a with a driver's license I mean like what that would probably solve some of those right it could I mean That this is a fraud issue with not only crypto, but you know trading in general as far as like the depth to which you Examined your customers and their funds, but yeah, I mean if you're gonna put up markets that are sensitive for national security You know and you're gonna try and be trading in a country where those national security things are very important Then it does seem like the arc of this of these markets is going to be towards Disclosure and not Obfuscating what's actually happening on these markets I've been on the hunt for years for the perfect reader app that puts AI audio at the center of its design And over the past few months the 11 reader app has made it onto my iPhone front page and is easily getting three minutes of use today I plow through articles using 11 readers beautiful voices and love having Richard's fine men read me AI news stories as well as You know Matilda everyone's in a while too. I'm also a power user of its bookmark feature Which the 11 reader team just added in after I asked for it on Twitter China talks newsletter content also comes preloaded into the feed Check out the 11 reader app if you're looking for the best mobile reader on the market Oh, and by the way if you ever need to transcribe things 11 readers scribe model has transformed our workflow to get transcripts out to you all on the newsletter It's cross the thresholds of where these models used to be to just being you know 95% good to you know 99.5% wow, this is amazing saving our production team hours every week So check it out the next time you need something transcribed So Delma what's your take on this sort of like broader ethics and where you would draw the line? I mean we already have markets which are pretty close to death markets of like one-wheel-liter lose power And I mean it's not I think it's like not phrased literally that way for for very smart legal purposes, but um I don't know. Where would you draw the line on like what's not acceptable to trade on? You know, it's it's a hard question because like Like if you just think about a straight war market like will Russia and Ukraine like get into a war and you've Rewind like four years like this is a really really important question. People should know the answer to this. We should be trying to figure out what the answer to this is and prediction markets are really, really good at figuring this stuff out. It's like, yeah, I see both sides of the argument because it does feel a little distasteful because obviously it's not just economic impacts, it's not just world impacts, but people on an individual level are going to be hugely impacted by this in possibly negative ways. So it's in that aspect, it feels unseemly. But to me, I think the importance of the event kind of overtakes the inseamliness of it because it's just like we're answering questions that kind of need to be, we need to assign a probability to some of this stuff to an extent. Yeah, I mean, I think sort of one class of questions which makes me really uncomfortable and it doesn't really exist on polymarket yet, but occasionally it will show up on manifold is these very personal ones of people who aren't celebrities. It's like if you're in high school and you can make a betting market on whether this in that couple will break up, I don't know, it's kind of like the way that no one's allowed to bet on high school sports, and you can't do proper hats on college athletes, it's just like you don't need to expose anonymous individuals to stuff. But I don't know. And then you also have this sci-fi arc of a lot of those Biden markets were kind of like Biden death markets and the assassination connection that it seems like there are in some of these does feel a little unseemly, but you know, like having some sense of like the probability that Putin will succeed in assassinating Zalinsky is a useful thing, but then you know, you have some horrible incentives where like someone bets on it and like commits an assassination. I mean, there are enough crazy people out there, right? I don't know what I'm going on with this donor. Yeah, I mean, I think it's something that we need to grab a with for sure. I'm not sure that I have the answer. I do agree that not everything necessarily deserves a market and where we draw the line in terms of what's a market and what's not a market, you know, we need to kind of think hard about that question. As you trade and as you see these markets move, I'm curious for the sort of balance of slow versus fast thinking. We're on the one hand, you know, you mentioned the Pope earlier about how you want to understand how past conclaves play out and like get the backgrounds of all the different players and whatnot, but you know, once news starts happening, these markets can move very quickly and it seems like there's a lot of money that's made in, you know, one in lost and sort of responding to breaking news and like processing it in the right way. So how do you think about that conceptual difference and how has the sort of speed of these markets changed over time? I mean, it used to be that if you read some tweet and you log into the market, like it might take minutes for that tweet to fully be incorporated, like a by tweet, I mean, like some breaking news event, which usually is encapsulated with like a quick tweet. So, but if you look at what's happening recently, like in the past few months, if you take more than three seconds to react like you're weight, you're glacially slow. So the speed of these markets adapting to news has just, you know, it's just so much faster than it used to be. So you have to be very, very, very careful and quick in how you're reacting to things, but then you know, the second order effect is like, okay, now that the quick reaction has happened, like, let's think slower about this, let's kind of figure out how does this actually make sense, because sometimes the initial move in something is not necessarily correct. And is there like algorithmic trading in the way there is on sort of public financial markets, or is it still, or is it just like a lot more people who click a lot faster still? Yeah, so actually someone with some of the VC firm was actually asking me about this the other day, because I think they're looking at it. I know at least two people have tried it, and I don't think there was really much level of success. Well, I know in one instance, because I invested in this guy, and he now works for an AI company. So it didn't work out for us, but it worked out for him, I guess. But yeah, so it has not been successful yet that I know of. I mean, who knows? Maybe there are people with sugar, polyamorca accounts that are using AI agents, but it's coming. Yeah, it's interesting, because like, we are now very much at the world, where the AI sort of like processing the quarterly report and listening real time to the conference call earnings, it will do it faster and probably better than the analyst sitting there. But the fact that that hasn't come to polymarket yet, I guess, is partially a function of their just being less money to be made. But I mean, maybe there's something also about these markets being much more idiosyncratic than like comparing this quarter's Walmart returns to last quarter's Walmart returns. Yeah, I mean, there is a very strong qualitative element to it, not necessarily quantitative, not that AI is necessarily amazing, a quantitative either yet. But yeah, there are idiosyncracies, there's intricacies, there's little things in the rules that may alter a market either this way or that. So, yeah, AI is not quite at that level yet. Are there teams trading yet? Is it still mostly like an individual game? I think at the high level, yes, it is individual. I know that teams have been created around the presidential election because there's a lot of information out there and you need to get it very quickly. So, I know teams are created for the US presidential election. I was on a team for that and actually the previous two elections. So, but yes, most of the time, I like to say it's kind of like Ronin, right? We're kind of individual, samarized, kind of just going about our lives. We talk to a lot of the other Ronin, but not necessarily coordinating with them. So, yeah, I talk with people all the time, but it's all individual pretty much. That's interesting. I mean, this is like, again, the financial parallel of hedge funds, right? It's like, you know, you now have like entire, I mean, you know, many of the almost all the most successful hedge funds have like dozens, if not hundreds, if not even a thousand person, strong research teams. And like, I don't know, I'm sure you can imagine what a, like, what would a 10 person team like, you know, could you talk me through an example of a market where you traded in, where like you felt like if you had, if you could duplicate yourself and you had sort of like more research, you could get more of an edge or is it sort of wider coverage where you think there's more alpha? Like, what could a, what could a 10 person outfit potentially do in this space? Yeah. So, I mean, people have approached me about forming a team. So, so I know a little bit about it. And I think where you would really want to focus is making sure that everybody has different strengths. And probably also, you know, if if I were building a 10 person team, I would want, you know, somebody who's really strong on politics, somebody who's really strong on like foreign politics, somebody who's really strong on quantitative things, modeling, statistical modeling, and then I also probably want to duplicate each one of those people so that there's two people doing the same things because the other thing about prediction markets that doesn't really get as much focus in terms of comparing them to financial markets is prediction markets are 24/7. The news does not sleep like if you're trading financial markets, you can safely get your eight hours of sleep. I mean, not necessarily the you are, but I mean, you could theoretically and not miss any news whatsoever. But prediction markets sleep is the enemy. It's very, it's very dangerous to sleep. So, if you're building a team, you would probably want redundancies and then also a widespread level of expertise in a lot of different areas. Are there sort of, you know, you said you talked to a lot of other people in this space like, I don't know, give us a little anthropology. Like who are these folks who make up the majority of trading in the market? You know, I come from a poker background and I think a poker player is actually probably a good like kind of benchmark to think about these players or the people that are betting on these markets. It's mostly young men who like taking risk who are good at math, good at analyzing things and, you know, interested in in the world. So, that's pretty much, I would say, described in 95% of people using prediction markets. Yeah. Well, it's interesting because like, poker, right, is like getting better at poker, you're getting better at this like very closed system, right? And there's an aspect of like, okay, you're reading human beings or whatever, but like, you know, every, every new market you are exploring, you are learning something which is novel, right? And it's about a new country or a new situation or a new politician or, you know, something about the economy or what have you. So, it's a, you know, it's a different like layer of curiosity of like, well, there's a different type of curiosity of someone who wants to like memorize all the openings in chess or memorize all like the, you know, hands and ratios and correct playing strategies in poker and someone who's like willing to play in such a open-ended space as political prediction markets. Yeah. I mean, I would say a poker player or chess player is very math focused and also very, very, good at pattern recognition, which is also, you know, reading the opponent and you're reading patterns. So, I, that is an element of prediction markets, but to your point, the other element of prediction markets is kind of like creative thinking and being able to pivot from one topic to another that may be very disparate and may not be related at all, but you can notice some similarities and quickly come up to speed on a new topic. So yeah, I would say it's not only the chess thing, but also or the poker thing, but also creative thinking. Um, I guess another thing is like the sort of like there's not a lot of like emotional valence and connection that you have with any given poker hand, aside from your sort of personal investment in it as opposed to, you know, a war starting or a presidential election. I mean, I'm curious sort of how you and other folks have like trained like almost is like anesthetized. Maybe that's not the nicest word, but like maybe just like divorce yourself from the actual developments in order to, you know, be a more, a more clinical analyst of this stuff. Yeah, I mean, I was just nodding nonstop to that question because it applies. You know, you have to kind of divorce yourself because, you know, I'm a person who reads the news. I watch a lot of news. I follow the news. I'm well aware of the world. I talk with other people. You know, I talk with my spouse and it's like, so I have very strong opinions and you have to kind of put leave those opinions at the door, which is very hard to do. Or, you know, if if if you're trying to predict something that you want to happen, maybe kind of limit yourself to only a couple hundred bucks and not really not really trying to make a living doing betting on things that you want to happen or betting against things that you don't want to happen. So you have to both, yeah, number one, put it at the door and then number two, kind of like self limit yourself and not get too involved in something that you want or don't want to happen. Speaking of a topic, people have a lot of strong feelings about, you know, a lot of politics and a lot of these markets are modeling the thought process of Donald Trump. What are the sort of mental models of his decision making, which you found most helpful over the years? Well, the big level view of Trump is that he's very chaotic and chaos is great for prediction markets because, you know, if you just have a president like, for instance, Biden, Biden did not, did not fire a single cabinet secretary. I think the only cabinet secretary that left, he was like, going to become the commissioner of the NHL. So if you have this very boring presidency versus this very chaotic presidency, obviously the chaotic presidency is going to be much more conducive to predicting what's going to happen next and people also following what's going to happen next. But the interesting thing about Trump is, is he's kind of changed between his first presidency and his second presidency, because in his first presidency, he was firing people like, I think he probably had three cabinet secretaries fired within six months or whatever it was. Like it left right in center is just like there was a controversy fired. This time he's kind of just like weathering through it and the interesting thing, the interesting kind of model of this presidency is he's kind of moved to like an Elon Musk type of over promise under deliver, especially on trade deals, right? He's like constantly trying to, oh, we're going to whack this country, but then it comes down to it and it's like, oh, no, we're pulling back. So yeah, it's interesting not only trying to get into the mind of Trump, but also the way in which Trump has changed from one presidency to the next, because he's gotten in some ways less chaotic, but then in other ways more chaotic in terms of how he's dealing with economic policy in particular, because you know, it's very hard for a company to plan if they think there's going to be tariffs one day and tariffs the next day or not tariffs the next day or whatever. So it's a very different type of chaos in this in this second Trump presidency. The sort of reality television framework for this, like how have you applied that in the past? Well, yeah, somebody who is smarter than me said a long time ago that if you want to figure out who Trump is going to let's say pick for something, right? Print out pictures of everyone that he's considering, right? And go up to a random person and be like, who would you cast for a TV show if you're a casting, you know, Supreme Court justice? And the person that they point to is probably who he's going to pick because he's casting his show. So that's sort of like the way that I think about Trump is a lot of what he's doing is focused on like, what is the best present? Like he's the star of a TV show. And that's how he treats a lot of what he's doing, not only personnel, like are they good on TV, but also like policy is this does this sound strong? Do I look strong? Right? So a lot of what he's doing is kind of entertainment focused. And that's obviously his background as well. You know, he's been a showman since the 80s since kind of he took over from his father. So yeah, I think that is a very strong core tenant of Trump as like the entertainer, somebody who's trying to keep people engaged with what he's doing, a marketer, things along that lines. What are your heuristics and I don't know fake news separating fact from fiction? What do you mean by that? What you have to do as someone who works in prediction markets. Sort of once you do your basic research is this, you know, very, you know, high stakes money on the line effort of news literacy, right? Is like you have this mental model of what you think's happening. And then there are new data points and you have to sort of process and react to them. And at the same time, you are watching these markets move of other people sort of reacting and processing them. Like are there sort of news literacy heuristics that you think are sort of just like broadly useful as a citizen or maybe like category errors that you've seen these markets based on who's in them like make over time where they overread or underread into like a specific type of new data point that emerges. Yeah, I think that's a really interesting question. You know, there's two facets of it that I'm thinking about. Number one is kind of like fake news, right? If one of the markets recently is Will Elon Musk form his own party and he's, you know, made this big announcement and he's there's a lot of fanfare with it. Whether he actually does the paperwork, you know, TBD, that's kind of what the market is about. Recently, there was this filing with the FEC, you know, pretending to be the American party. It was not actually true, right? But someone who is new to prediction markets may see this FEC filing, which is very official. It's on the FEC website, like somebody actually filled it out and has Elon Musk's name. You know, they're going to see that. They'll be like, oh, the market's over. He formed it. Yes, he's a money free money. But somebody who's been doing this a long time knows that people make fake FEC filings all the time, right? So it's like comes from experience and also being able to distill kind of fact from fiction. So yeah, so if you've been doing it a long time, you're definitely on the lookout for fake news because fake news happens all the time. And I would say actually it's increased in frequency lately, especially with people trying to create fake news in order to profit from it, whether it's financial markets or prediction markets or whatever. So the second part of your question that struck me was kind of like, how do you know which reporters to trust, which is a very, very, very important part of, especially if you're predicting American politics because in American politics, there's dozens of reporters that are reporting on Congress, the presidency, et cetera. And a lot of the focus is kind of on day to day drama. Is this bill going to pass? This person just said this, you know, this is happening and you have to be very, very, very careful about who you trust. And you know, as you're the longer you're doing it, the more you learn that like for instance, the punch bowl guys, you know, people that are in this space get tons of newsletters every single day, right? And so punch bowls like one of the main ones, Politico. So if you're getting the punch bowl newsletter and you see, okay, the head of the Republican party in Congress is saying this and this and this and it looks like maybe the bills and jeopardy, right, exclamation point, right? Well punch bowl is they're constantly slightly exaggerating whether a bill is in danger of passing or in danger of failing, like they really play up the drama. So the longer you're in this space, the more you realize like the intricacies of reporters, who you can trust, who is like reliable, who is constantly exaggerating, what is happening. So it's very important as a trader to kind of like be able to distill between what's happening and what people kind of are trying to pretend is happening. Does that make sense? - I think wanna, yeah, I mean, it is like, it is an ineffable thing, which I think only really comes from following these stories in real time and seeing how people behave, right? And so it's a hard thing to kind of just like, oh yeah, like any punchball headline, I'm gonna give a 20% discount factor to in my model, right? It is more nuanced and sophisticated than that. You know, as I've dabbled a little bit in the legal markets that are open to US citizens, it has been a remarkable learning experience and humbling experience as someone who, yeah, has been while not betting in these markets for 15 years has been following news pretty damn closely and professionally for at least since 2013. And only trading in markets that I think I know and like being wrong a lot, I think has just taught me a lot about, you know, probabilities and degrees of confidence and these markets are real now and they're liquid enough to like have a lot of signal on them. So I think it is a really useful exercise for people who, you know, work in and around politics. To, as you said, go from a pundit to someone who has, you know, who's forced to discipline their thinking and their opinions about the future with a market and that didn't really exist until relatively recently whereas sort of market, sort of financial market participants were able to have that learning experience of, you know, taking views and seeing them play out correctly or incorrectly and kind of gaining context and experience over time. So I don't know. So, you know, don't get addicted, don't spend a lot of money on this stuff. I don't sort of endorse gambling here on China Talk, but as a sort of learning tool to understand what the world is, like spending, putting $10 in account and kind of trying to market size and react to news, I think is a, is it worthy experiment to at least do for a month in a, in a topic you're interested in? Yeah, I mean, I would second that. I think it's fun to do even if you're just doing five bucks or 10 bucks because if you're following with anyway, you know, it gives you like a little bit of a rooting interest like if you're watching a sports game or whatever. So from that aspect, it's really, it's really fun. The other thing about it is I like to say that prediction markets are kind of easy if you know what you're doing, but it's also similarly very easy to lose a lot of money very quickly. Like for instance, if you rewind to last year, like the Trump versus Biden debate, like there were whole accounts that are just gone now because they didn't think there was any chance that Biden would drop out even after the debate. And I was like, I don't know, like I'm not gonna stake my account on this. It seems, it seems a little sketchy. So it is not just about being able to predict things correctly, which I don't think is that hard if you're familiar with the space. The really hard thing is being able to avoid the pitfalls and not betting against things that are actually more likely than you think they are. - All right, so don't worry, there was like three lines in the one big beautiful bill, which got a lot of professional gamblers very worried. Why don't you give the audience some context? - Yeah, so in the House version did not exist. In the Senate version, nobody noticed it. I think until after it passed. So it was like three little lines and it said that for people who are either betting professionally or even non-professionally, right? If you can only deduct 90% of your losses. So what does that mean? If somebody is gambling recreationally and they win $10,000 and they lose $10,000, right? So they're just recreational, even gambler, didn't win any money. If you can only deduct now 90% of your losses, you can only deduct 9,000 from that 10,000. So all of a sudden, even though you didn't make any income, you now have a thousand dollars of taxable income. Well, you can imagine some professional gamblers, if you multiply that times a hundred, like all of a sudden they have phantom income that is very large and they go from maybe owing 20,000 to owing 120,000 or whatever it may be, depending on the circumstances of the specific gambler. So it can have a very deleterious effect on not only sports matters, but also poker players. TBD on whether it impacts prediction market traders because there is some leeway there where you can count it as a capital gain, you can market as a future or whatever. So it really depends on the future of how IRS classifies prediction market winning. So, but I mean anything that's bad for poker players or sports players, I view as kind of like a kin to prediction market trading. So it's very, very not good. Well, I don't know, maybe your markets are about to get a whole lot more liquid, Don'tmer, if they sort of all the unproductive, un-un-soscially productive sports gambling gets shifted into having more efficient trading on markets that are actually useful for the world to have numbers on. Yeah, I mean, I guess more competition is coming, which is not necessarily a great thing, but we'll see how it goes. One thing that is kind of interesting about prediction markets is like, often there are rule fights over things that you cannot possibly see coming, like this Salinsky suit where he kind of wore a suit, but he kind of didn't wear a suit and then it devolves him to a rule fight and then all of a sudden you're arguing over the judges. Like it's easy to imagine that happening with Taiwan if like China's like, okay, this little outlying island that nobody lives on, we're gonna take it over, but Taiwan's like, well, it's our island. And, but did they invade or did they not invade? So, I mean, it's easy to see how these markets that are important, like we should have a market on whether China invades Taiwan could get railroaded by very minute details. So currently, we'll try and invade Taiwan right now. It has $3.5 million of volume and an 8% chance of happening in 2025 according to Polymarket. And it's defined as, we'll resolve to yes, if China commences a military offensive intended to establish control over any portion of Taiwan by the end of the year. What are the sorts of things that you've seen move that market in the past? And I don't know, what does 8% even mean? - Yeah, I mean, well, so you know, you kind of have to look at things not only from the event itself, but also kind of like the risk rate, right? So markets that don't expire for a long time, they're gonna trade in probably around the mid-signal digits no matter what. So you can kind of factor that into your analysis. So what it's basically telling you, it's a very, very, very low chance of happening, right? And but the other interesting thing about that market, I feel like is that it's kind of correlated with what's happening in with Russia and Ukraine, you know, as Russia has more success, that market may start to push up and not necessarily this year, but you know, if that market existed for 2030, maybe it's trading at 25%, and if Russia starts to have a lot more success, maybe it moves up to 30%, 'cause these events are kind of correlated in the reaction of the US to what's happening in Russia, Ukraine also has a lot of impacts on that market as well. So I think the interesting thing is kind of how it correlates with the other things happening in the world. - I think the risk-free rate concept is an important one, because when I see 8% I'm like that is insanely high, but you don't earn like the treasury rate for holding a position on polymarket. - So I mean like Will Aliens invade the US is probably trading at 4%. So there are a few, like Will Jesus returned to Earth is trading at like 2.5%. So there are markets where you can kind of figure out what the risk-less rate on the site is, like this is zero percent chance of it or very, very, very small percent chance of happening. And so kind of everything pivots off of that. So I would view the real odds that's probably closer to 4% to 5%, which is still way too high in my opinion, but people disagree. - You know, you can earn like 3.9% or something by having like owning a treasury bill for a year. So getting to 2.5% for like Aliens or like Jesus being resurrected, it's like people will pay 2.5% to like have a meme stock or like, you know, do the logic out to me of like how we have these markets where like you will not make any money and it sits for a long time. - Well, I'm not sure what the logic is on the people who are buying yes, but bonding as a general concept is very popular in prediction markets where you're betting on events that you at least think are impossible. So for instance, Aliens landing, I mean, that's not impossible, but it's so unlikely that it's very, very close to zero. And plus if you lose the bet anyway, I'm not sure you need to worry about money. So yeah, so the riskless rate on prediction markets usually sits in the mid single digits for a year. I mean, it's usually maybe 2% or 3% above the bond rate in the US. - Gotcha. What would you sort of say? to policymakers or folks working on this stuff in Washington about how they should think about and interpret what they see in a polymarket market. Well, first of all, I would focus on the liquidity. If it's a liquid market, if it's a lot of volume, then there's been a lot of thought that went into this market and there's a lot of money involved. It's not just random people, making bets and just trying to move prices around for fun. People treat this very seriously. So number one, I would say assuming that the volume is substantial and it's pretty liquid, I would say number one, treated seriously. Number two, the other thing I would say is it's kind of going back to what I was saying earlier. It's kind of advanced level punditry. It's not just people being paid to have opinions. It's actually like, okay, this is very, very important whether I get this right or wrong. So it's kind of the next level of people figuring out what's going to happen in the future. So I would kind of dub that advanced level punditry. And the number three is you know, there can be some quirks on prediction markets that cause events to not necessarily be reflective of reality. Like for instance, like will the US get a Air Force one jet from Qatar? Right. You can look at that happen, let's say six months ago or whatever it was. Actually taking possession of the jet may not happen for three years, right? But the big announcement may happen immediately. So sometimes there's a little bit of lag between announcement and event happening and that can cause prices to be a little bit of skew from what you think they would be. So it's always important to at least pay a little bit of attention to what the rules are in terms of like what the events trying to predict. What's the most fun for you? Are there particular countries that you've really enjoyed getting to learn or like questions that have, I mean, aside from the money making aspect, like what is, you know, what are sort of learning journeys that you've gone on that you found to be most intrinsically rewarding? Well, I'm not sure that I think about, I have more fond memories of like monetarily rewarding than intrinsically rewarding, I guess. But like the countries that I enjoy following the most are kind of like the most chaotic countries. Like if you look at Israeli politics or Italian politics or a few years ago, it was like South African politics where it's like things are very chaotic and it's not like, you know, if you look at what's happening in Canada, for instance, where they just kind of rejected a populist and reelected the techno crowd and they've had the same party and leadership for a very long time like this is a very stable country. Whereas if you look at Israel, like there's elections like every nine months maybe at this point or in Italy where they're switching parties from year to year. So I, you know, the chaotic countries are far more fun because there are more events, they're repeatable, right? And you, you know the ins and outs, whereas people maybe who joined the site a year ago don't know about these six other Italian elections that you've predicted in the past seven years or whatever. So yeah, I'm drawn in general to chaos, I guess. Not necessarily in a negative way, but like in a fun way, like dynamic way. Gotcha. Yeah, it's like the sort of like the oil trader energy when it comes to prediction markets. Yeah, if everything's too predictable, it's the what's the fun and that. It's interesting just how homework pays off. You know, as an American who doesn't, I don't know, speak Hebrew or Italian, like, what's it like getting your handle on a foreign country's politics? Or do you speak Italian? I don't know. No, no, no, I only speak English and un poco de español. So, you know, number one, you're subscribing to newspapers in foreign countries, which can be a little bit hard to sign up for because you're not sure what you should type in the sign up fields. And then you're also kind of like, you know, you're trying to get to a base of knowledge that and like, you have to pretend that you're a prediction market trader in Italy. Like who are the top political people that I need to follow? Like who are the smart analysts? Like what accounts do I need to be? Do I need to be following? So you have to kind of get up to speed. And then the other facet is often I'll be like watching like Israeli TV. And I have my phone out and I'm like literally holding my phone up to the TV and like translating the kairons in real time. So I can understand what they're saying. So it can get a little bit ridiculous sometimes. But I mean, it's fun. It's funny. It's fun. It's a lot. It's a lot of work, but it's rewarding. If you were going to teach like a college class on learning how to make money in prediction markets, like what would you put on this all of this? Oh, that's a really good question. I'm not sure. I mean, so in my Twitter profile, I have a list of books. You know, I'll go back to what I was saying earlier. Like I would probably because it's easy to teach people how to read politics and how to learn about politics. Like if you immerse yourself enough, you can get caught up. You can, you know, if you get the political newsletters, if you're following people on Twitter, if you watch Meet the press, if you're watching the Nightly News, like you can get into it pretty quickly. The harder part is knowing how to react quickly and not making big mistakes. And so from that perspective, I would probably like teach very quick reacting, like more like a poker element and more like, you know, managing your bankroll. So there's a lot of intricacies that would go in it beyond just the knowledge element. It's kind of like how you think and how you react and how to not make mistakes. So those would probably be the things that I would focus on. Like the the mental ability to be calm when you have those big market swings, I think is especially because like they I can't do it for you yet apparently. Yeah. Um, I don't know. Well, for us in meditation classes in there too. Yeah. I mean, the number one mistake that I see people making, especially when they first join these markets is being afraid to take a loss. Like loss a version is such a strong thing. It's like, Oh, I put a hundred bucks in. I'm going to try my hardest to get a hundred bucks out. Like they're so averse to taking that $20 loss and being at 80 bucks. Whereas me who's been doing it a long time and I think I'm wrong on something. Oh my god. I'll gladly take that $80. And maybe I'll put it on the other side and then try and get my money back that way. But yeah, being averse to taking losses is probably the number one mistake that people make. All right. Well, don't worry. Uh, best of luck out there. And thanks so much for being a part of China talk. Yeah. Thanks, man. It was a pleasure. All right. We're continuing our prediction market themes episodes with Jonathan Zubkopf. Otherwise known as Zobie Badger. John, welcome to China talk. Thank you. Thank you. You guys are having me. The insider trading stuff. Like you haven't felt that sort of start to happen yet. Yeah. No, a few times, a few times. So there were just like, Hal Chi in particular. And I believe, Paul, you did the same thing. Got like very granular and like, okay, like these people are going to be the cabinet secretaries. Now we're getting like individual markets on which centers will vote for them. A few times this year, there was just like very obvious movement on certain centers with no update information that indicated that there was some insider level going on. There are people, and I'm not even sure how I feel about this. There are people who think like it's it should be the most efficient market possible. And if somebody from Susan Collins is congressional office wants to put the information down to the market that she's going to vote to confirm RFC junior, then that is making the market the most efficient possible. And so some people believe that others, I think it's very unfair. And there's a lot of new people who are just going to get rolled over because of that. I'm not really sure how I feel about it. It's not fun when you're on the other side of someone like that in your chairs crash, but it probably does make the market more efficient. How has AI changed your research process, if it all? It's really helpful. You can get like a lot of analysis. You can get research that would have taken hours and minutes. For all the reasons it's helpful for everyone. It's helpful for me. I will say right now. like the dumbest people that I go up again. So the ones who are just like, but like I asked Claude this and they said this. Why am I not winning right now? Like that happens all the time. Like, or like, it's just on random stuff. Like I asked Claude what the temperature would be in Central Park today and they said 77. Why is 72 when every stuff like that? Like those are probably like the like big zeros right now. I've also like I'll see you say I to like I've fed like my training to GBT. It's like pretty helpful what they sent back like like you lose the most when you buy and this percent this price range like I've had like I keep spreadsheets for various margins. I've had chat to you to analyze my own data and keeping stuff and came up with like various trends. Oh, that's fascinating. Can you talk a little more about that? Like what like so like you you're not good at estimating like 70% or something like what did it tell you? Yeah, so I like lose the most in like it's not even like the 90 range because it typically when I'm buying in that range. It's like pretty obvious. I only do that when it's pretty obvious and it's usually the higher and yeah, the 80 the 80 ranges my worst range apparently. And I tried to I it's just a range where if I like if I would rationally explain it is a range where it looks like something's obvious to happen. But there's enough that could go wrong that it could send my shares underwater to a point where I get like very uncomfortable and either sell or like just end up losing. I said, yeah, that is that's something I'm trying to grow from. And I think chat to you for showing up to me. But yeah, it's there's a lot of ways you can analyze your own performance and data. Definitely. That's fascinating. Yeah, so what are some other cuts that people look at when trying to think about their their past performance? Oh, they look like they look at like their top five biggest wins like top 10 biggest losses, stuff like that. That can be helpful. For me, I know what those are off the top of my head. I don't need a cheaply to tell me that. But you can look at the price points that you typically win at like how often you sell shares before a market ends, like stuff like that. That can be helpful to how you do selling shares before a market ends versus holding shares to completion of a market, which one you do better on various things like that. There's a lot of helpful information. They can get from it. Yeah. Cool. Are there any other sort of specific markets or like other war stories of, I don't know how things go very right or very wrong? You want to you want to share? Yeah. So there was the biggest like all the sharks loss market with the the Romanian election that just happened. And it was like a big like so it was a two round election round one happens and like the right wing nationalist guy gets like 42%. No one else was even close. So literally every person in a dumped a ton of money into that guy winning. And that and these are people mostly in the US. And the Romanian bookmakers come out and had the second place guy like vastly differently, like vastly closer. Like it was like basically 50, 50. So it became like this war between like the prediction market traders who were like analyzing like the talented in Romania in round one and thinking they had it figured out for like on polymarkets, specifically, you get all these people from Romania who were just joining on and just being like the like nationalist want this guy to win like in their manipulating the odds like to make it look like this bad this guy's going to win. And this is like terrible for Romania and all the and they like slowly like bring the price of the other guy like well pass if you could be the point where these favored and the minions were correct. That guy did win and all of us basically every person I know got like totally smoked by these Romanian bookmakers and shissings of Romania. It was not like it wasn't. That's amazing. Shout out to Romania. We got to find a I don't want I don't want to be on the other side of that. Want to come on China talk. You know, the stories. Oh, they would be great. And the next week, the same people I know this gives you can track the accounts on on polymarket the same people like double down on Poland or something and just gotten totally smoked like the exact opposite happened where like the right like the right wing was like instead of being like favored this time they brought him all the way down to like 15 cents and he like won easily or something. And all these people who made all this money like the week or two weeks prior just got totally eliminated. I don't think we've heard from them since. Is this a common trend of like a constituency just makes a lot of money on a market and then it's like, oh, this is easy and then they lose it very quickly. I would expect I would expect with the New York City mayor election for like whenever the next hot progressive comes along, I would expect that person based on the people winning money from mandami. I would expect that person to then be way overinflated and just like eventually those people will then lose. Yeah, I would. Yeah, because a lot of people made a lot of money there. Cuomo, one point was 93% to win. And then like even the day of because of like anecdotal turnout reports in the Bronx, he was at like 60 to win or something stupid and then like within five minutes, it was just like, oh, it's over. OK, like a game. It's just he lost me. So I would expect the people who made money on mandarin to give it back eventually. It's a very common thing. Like people like when the Trump like the previous thing went like the Magon County would win. Like the next one would just be too high. And then like they would like that person will lose a very common experience. I want to come back to this sort of like you're not great in 80% land. Are there sort of particular personality types that you have observed are more sort of like attracted to different to betting at like different percentiles? Yeah, I know. I know one dude who only bets on the weather every day and only bets at like 97% in above. So he waits for the day to play out when it's like clear what the high will be in like the various eight cities where Calciaz markets and he only puts out orders at 97 to 99 and he gets his bonds for the day. And he's probably made like $100,000 doing that. The a it's the only way he trades and it's something that people should get like take the edge from him. But nobody that's not like fun to it's not like fun to put out 99 cent offers in a weather markets and like minor the time when you should do that. That sucks. It's also like the one out of like 10 times where like you might be slightly wrong. Then that like really sucks and that's really not fun. So he's obviously good at that. But yeah, there are people who only look for bonds. So a mentioned market will be like Trump is giving a speech and we're going to put up a market for each of the words that people might think he'll say. So like we'll put up a market for tariff. We'll put up a market for sleepy Joe. We'll put up a market for Epstein like all the various stuff like that. So there is one dude I know who will just put one cent orders for no out on every single share and just hope somebody, or for yes and for no, and just hope somebody hears the wrong thing and then buys his shares and makes a mistake. And this guy is made like in three markets, I've seen him post like $15,000 screenshots just from somebody hearing the wrong thing and making a bad mistake. So people have different strategies. It works. It's a different type of thing. You would think like that doesn't seem like it should work out, but right now a lot of these are the most efficient markets and a lot of people can take advantage in different ways. - Okay, awesome. All right, John, thanks so much for being a part of Chinese Arc. - Thanks for the game, Peter. ♪ A story I will tell ♪ ♪ By greatest gambler, y'all should know well ♪ ♪ His name was William Conley, and he gambled on his life ♪ ♪ He's a 27-children, yet he's never had a wife ♪ ♪ And he's right, willing, right ♪ ♪ Roll, willing, roll ♪ ♪ Wherever you're gambling now, nobody knows ♪ ♪ Well, he gambled in the White House, ♪ He was seen in the real road yards ♪ ♪ Well, there was people, there was William, his cards ♪ ♪ He had the reputation as a game on his man around ♪ ♪ Wives would keep the husband's home when will he ♪ ♪ Came to town, and he had a ride, a willing ride ♪ ♪ Roll, willing, roll ♪ ♪ Wherever you're gambling now, nobody knows ♪ ♪ But to it, town called Warleens, they're still talking about that card game ♪ ♪ On the Jackson Queen, I've come to end some money ♪ ♪ Gambling will he says when the game finally ended up ♪ ♪ Hold on, vote with his, and it's right, a willing ride ♪ ♪ Roll, willing, roll ♪ ♪ Wherever you're gambling now, nobody knows ♪ ♪ Up in the Rocky Mountains in a town called Cripple Creek ♪ ♪ There was no more poker game, lasted about a week ♪ ♪ 900 money, said late, the money's down ♪ ♪ When will he finally lift the room, he won't hold on to town ♪ ♪ And it's right, a willing ride ♪ ♪ Roll, willing, roll ♪ ♪ Wherever you're gambling now, nobody knows ♪ (upbeat music) ♪ But Willie had a heart of gold in this and Lewis truth ♪ ♪ He supported all his children and all their mothers too ♪ ♪ He won a wings of fancy things I got again ♪ ♪ Like a war, he spread his money far and wide ♪ ♪ To help the sick and poor and it's right, a willing ride ♪ ♪ Roll, willing, roll ♪ ♪ Wherever you're gambling now, nobody knows ♪ (upbeat music) ♪ When you played your card game ♪