What do you mean by applying Kelly to the LMSR?
Since relying on Kelly is equivalent to maximizing log utility of wealth, I'd initially guess there is some equivalence between a group of risk-neutral agents trading via the LMSR and a group of Kelly agents with equal wealth trading directly. I haven't seen anything around in the literature though.
"Learning Performance of Prediction Markets with Kelly Bettors" looks at the performance of double auction markets with Kelly agents, but doesn't make any reference to Hanson even though I know Pennock is aware of the LMSR.
"The Parimutuel Kelly Probability Scoring Rule" might point to some connection.
Sorry, should've been more clear.
I've started work on a rudimentary play money binary prediction market using LMSR in django (still very much incomplete, PM me for a link if you'd like), and my present interface is one of buying and selling shares, which isn't very user friendly.
With a "changing the price" interface that Hanson details in his paper, accurate participants can easily lose all their wealth on predictions that they're moderately confident in, depending on their starting wealth. If I have it so agents can always bet, then the wealth ...
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