arxivcs.AIcs.CEcs.GT2026-07-07
When do prophets profit in prediction markets?
Anri Gu, Nicole Kagan, Alec Sun, Jibang Wu, Haifeng Xu
Prediction markets aggregate dispersed beliefs into prices that act as probabilistic forecasts of uncertain events. Classical theory establishes a clean equivalence between forecasting accuracy and trading profit, but only for the specific automated market maker (AMM) design. How…