AlexMennen comments on A semi-technical question about prediction markets and private info - Less Wrong

6 Post author: CronoDAS 20 February 2017 02:20AM

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Comment author: AlexMennen 20 February 2017 07:37:08AM *  4 points [-]

Let's assume prediction markets are efficient and you didn't already possess any relevant information that you weren't trading on beforehand. Then you should treat the market odds as a prior and your die roll as evidence, in exactly the way you always do Bayesian updates. In this case, that means it looks like that gives you a posterior probability of 5/14 each for the die being weighted in favor of 3 or 6, and 1/14 for each of the other possibilities. Contrary to what other commenters were saying, it doesn't matter what information led to the market odds under these assumptions.