Say, for example, that you know something about oil prices that other market participants don’t. Even if the price is just a little bit off from where you think it should be, you can make big bets that will produce a substantial payout if things move your way. And if the price of oil happens to move against you on a given day, you can make the bet again tomorrow, and the next day, and the day after that — and if you truly know something special, you’ll make money in the long run.
But if you know better about an election than other participants in an election-prediction market, what good does that do you? You can sell a contract for 60 cents that will earn you $1 if Trump loses the election, which sounds like a fat profit. But because there are regulatory limits on how much money U.S. participants can put into betting markets, you can only bet so much. And if you bet through PredictIt, the most prominent U.S.-based site for placing political bets, you’ll have to pay a fee of 10 percent of your profits, plus 5 percent of all the money you withdraw from the site after you win.
And elections are infrequent. It’s plausible that Trump is so mispriced that you could make a profit betting against him despite all those fees. But then what do you do after you win? There isn’t another presidential election for four years, and the election markets may not be so out of whack next time.