In a long post on sustained irrationality in the markets, Vitalik Buterin describes his experience wading into to 2020 election prediction markets:
I decided to make an experiment on the blockchain that I helped to create: I bought $2,000 worth of NTRUMP (tokens that pay $1 if Trump loses) on Augur. Little did I know then that my position would eventually increase to $308,249, earning me a profit of over $56,803, and that I would make all of these remaining bets, against willing counterparties, after Trump had already lost the election. What would transpire over the next two months would prove to be a fascinating case study in social psychology, expertise, arbitrage, and the limits of market efficiency, with important ramifications to anyone who is deeply interested in the possibilities of economic institution design.
There’s a skippable technical section. His take-home is that intellectual underconfidence is a big part of why these markets can stay so wrong for so long.
But nevertheless it seems to me more true than ever that, as goes the famous Yeats quote, “the best lack all conviction, while the worst are full of passionate intensity.”