It might be a bias in terms of the probability of events, but I'm not so sure this is a market inefficiency in terms of actual trading strategy. If true odds are 1% and the event is priced at 4%, I can sell NO for a 3% edge... but lose 100% once out of a hundred. Doesn't seem worth it!

I think you get less return on investment for the same absolute edge in percentage points. A 1% event priced at 4% gets you a 3/96 = ~3.1% return. A 53% event priced at 50% gets you a 6% return. You nearly double your returns by investing in the latter market even though they're both off by 3 percentage points.

If the market isn't resolving soon, the small return might not be worth it.

This is the truth of the matter, ultimately nobody wins except the bookie, who profits either way.

Even if a cut isn't taken and there aren't other inefficiencies, any money tied up in long-term predictions is earning 0% instead of whatever the current risk-free rate of return is.

Untrue for polymarket. True for kalshi. No bookie fees on polymarket

Wouldn't it be 75 cents then? (The cut would come out of higher pricing, since the payout is always a dollar).

If the average no costs less than 73 cents, but the 73% of all polymarkets resolve to No, that would imply that the nothing-ever-happens strategy here is profitable. Are you claiming that it is profitable? Or are one of those premises incorrect?

Edit: conversely, if the average no costs _more_ than 73 cents, but the 73% of all polymarkets resolve to No, that would imply that an everything-always-happens strategy is profitable (neglecting slippage)

Are you willing to pay $.27 for that perspective? Sounds like we have a market!

It doesn't matter if a vast majority of people are not rational economic actors. It only takes 1 rational actor with enough capital to take the other side of all the bad bets, and the market will be priced correctly even if the other 99 people are irrational.

Well, if the price would be incorrectly set, then bots like this one would make money, which would in sufficient time cause the market to adapt and the average price would change so the bot doesn't work.

That doesn't matter so much when it happens in a place where people can make money from other people's irrationality. Even if there are a bunch of irrational people placing bad bets on uncommon future events, rational people looking to make a buck will take the other side of that bet, until the price is sensible.

The alternative would be that there's a bunch of free money sitting there waiting for someone to decide to pick it up, and nobody is, not even you.

The whole premise of prediction markets is that the few people whose perception do match outcomes make bets to push the money-weighted average perception toward outcomes. If perceptions still don't match outcomes at that point, average return is 0 minus transactions, with high variance.

But in aggregate they might.