Subsidizing prediction markets

Abstract

This article argues that subsidizing prediction markets is a viable option for increasing participation and improving the accuracy of predictions. The author identifies five key elements that are necessary for a successful prediction market: well-defined events, quick resolution, probable resolution, limited hidden information, and disagreement and interest. Subsidies can be used to address each of these issues. For example, clear and concise rules, prompt payouts, and compensation for time and capital can help address the first three issues. However, the author cautions that subsidies should not be used to encourage wash trading or other forms of collusion. The author outlines several options for subsidizing prediction markets, including providing liquidity, taking liquidity, subsidizing trading, subsidizing market making, and advertising. The most efficient strategy will vary depending on the specific circumstances of the market. – AI-generated abstract.