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leplen comments on Prediction Markets are Confounded - Implications for the feasibility of Futarchy - Less Wrong Discussion
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Given how you have set this problem up, what do you think will be the relative prices of the 4 contracts you specified?
In the scenario I provided, the contracts will be traded at the following prices after the demon reveals his information:
Hillary elected and US nuked: $14.3 (1/7 of $100) Hillary elected and US not nuked: $28.6 (2/7) Jeb elected and US nuked: $14.3 (1/7) Jeb elected and US not nuked: $42.9 (3/7)
Like you said, if people change their votes based on the market, the prices may be distorted by the market predicting itself.