We strive to keep things simple but, in this case, doing so would distort the market. Not debiting by risk would make it artificially difficult for traders to buy ‘No’ shares in multiple contracts in the same market. The result could be aggregate probabilities in many multiple-contract markets of over 100%. (Remember, since there can only be one winner, the sum of all probabilities should approximate 100%, or $1 in price.) For researchers, these kinds of valuations would diminish the usefulness of PredictIt’s data. For traders, they would impose unnecessary burdens on those wishing to buy both “Yes” shares (whose prices would be too high) or “No” shares (which would be artificially costly). Besides, there’s no reason for us to debit a trader’s account more than is necessary to cover the cost of a share.
Debiting according to risk sounds complicated. Why not keep it simple and just treat each contract individually?
Modified on: Fri, 16 Oct, 2015 at 10:00 AM
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