Matt Levine’s Money Stuff: Prediction Market Making Is Hard

Prediction market microstructure

I write about sports gambling around here more than I used to, because sports gambling has become pretty closely integrated with postmodern financial markets. Sometimes, when I write about sports gambling, I get emails from readers explaining that sportsbooks set their betting lines to balance bets on each side: A sportsbook sets the odds or point spread of a game so that it will pay the same amount of money regardless of which team wins. The book will collect, say, $100 of bets on the favorite and $50 of bets on the underdog, and it will set ...