Weekend Edition: The problem with prediction markets

Welcome to the weekend! This is your guide to Bloomberg’s new Weekend Edition, a collection of essays, reviews, and stories at the intersection of finance, life and culture.

Conflicting predictions are in the air this month, whether it’s Donald Trump vs. Kamala Harris on the US economy, Goldman Sachs vs. JPMorgan on the next decade of S&P returns or hedge funds vs. real estate investors on the merits of clean-energy investment. One thing you can be sure of, though: If there’s a $108 million mansion for sale, it will be Bloomberg’s most-read story.

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The US election is a nail-biter, making political betting a subject of debate… again. For centuries, prediction markets have been side-eyed for their potential to change the reality they’re meant to reflect, an idea known as “reflexivity.” Social change is amplifying that potential, writes Bloomberg Opinion columnist John Authers, and we’re now more inclined to trust the “wisdom of crowds.”

Sometimes, though, those wise “crowds” barely fill out a soccer team. Since Sept. 1, more than 102,000 users of Polymarket have bet on a Trump or Harris win, propelling the former’s odds to 66.4% this week. But nearly half of the total purchase volume came from 0.7% of all accounts. Among that subset, 16% of bets could be traced to just 10 whales.

Market reflexivity is amplified by our psychological need for an anchor; humans cling to the illusion of control a number provides. See also: inflation. That anchor is how we know a beer that cost 20 cents in 1913 should cost $6.40 today — and why we’re outraged to fork over $10 for a Bud Light. But Ben Steverman writes that such calculations miss a lot, including the changing value of money.

Vancouver
Adam and Jack Lundin are the chairman and CEO of Lundin Mining Corp., a publicly traded metals producer that their father inherited from his father. Now 37 and 34,the Lundin boys, as they’re known in Canada’s tight-knit mining circles, are setting their sights on copper in Argentina. “They’re not just betting on this government,” one analyst says. “They’re betting on the next 10 governments.”

US law draws a clear distinction between criminal incarceration and immigrant detention. But that line is getting blurry in Louisiana, which is repurposing shuttered private prisons to house asylum-seekers. The shift has intensified under the Biden administration — despite the president’s promise to close private detention centers — and the stakes are high. Statistics show that incarceration dramatically reduces detainees’ chances of being granted asylum. Read the Weekend Big Take.

What we’re reading: Public Net Worth. Ian Ball, a former New Zealand Treasury official, is on a mission to export his country’s experience of adopting accrual-based accounting to reduce public debt.

What we’re repeating: “To achieve satisfactory investment results is easier than people realize; to achieve superior results is harder than it looks.” So says Benjamin Graham in The Intelligent Investor, which turns 75 this month.

What we’re wondering: Is China a developing country? The question looms over next month’s UN climate conference, and the answer matters. If China is “developed,” it would have to pay more for climate action in developing nations.

What we’re telling our bickering kids: I’m not taking sides! Neither are the 100 countries now embracing political neutrality amid a shifting geopolitical landscape that is remaking the pathways of global trade.

What we’re buying: the Tank, a $325 baseball bat that got high marks on Baseball Bat Bros. The MrBeast-meets-Consumer-Reports YouTube channel has become a force in the billion-dollar market for baseball gear.

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