“PSA: Predictions markets often have very low liquidity; be careful citing them.” by Eye You

I see people repeatedly make the mistake of referencing a very low liquidity prediction market and using it to make a nontrivial point. Usually the implication when a market is cited is that it's number should be taken somewhat seriously, that it's giving us a highly informed probability. Sometimes a market is used to analyze some event that recently occurred; reasoning here looks like "the market on outcome O was trading at X%, then event E happened and the market quickly moved to Y%, thus event E made O less/more likely."

Who do I see make this mistake? Rationalists, both casually and gasp in blog posts. Scott Alexander and Zvi (and I really appreciate their work, seriously!) are guilty of this. I'll give a recent example from each of them.

From Scott's Mantic Monday post on March 2:

Having Your Own Government Try To Destroy You Is (At Least Temporarily) Good For Business

On Friday, the Pentagon declared AI company Anthropic a “supply chain risk”, a designation never before given to an American firm. This unprecedented move was seen as an attempt to punish, maybe destroy the company. How effective was it?

Anthropic isn’t publicly traded, so we [...]

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First published:
March 16th, 2026

Source:
https://www.lesswrong.com/posts/SrtoF6PcbHpzcT82T/psa-predictions-markets-often-have-very-low-liquidity-be

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Narrated by TYPE III AUDIO.

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