Let's say there are two markets A and B. I believe market A current probability P(A) logically implies a different probability P(B) for market B than it's currently valued at.
This can happen for example if the two markets bet on the same event, or very close events, or if A implies B, etc.
Note that this does not necessarily imply that I have better knowledge than the markets about P(A) or P(B). In most cases I don't.
How do I use this knowledge to extract value from these markets?
1,000
1.00Check out https://open.substack.com/pub/astralcodexten/p/your-book-review-the-laws-of-trading. In addition to what @evergreenemily said, it can be helpful to estimate relative "strength" of the belief implied by both markets. Agustin uses bid-asks spreads for that; on Manifold Market you could use factors like volatility (more change = less confidence), number of traders (more traders = more confidence) and so on. However, read the whole thing to see how this might go wrong.
I'm not an expert on this sort of stuff, but how I approach it is:
Take two markets, A and B, which are both predicting either the same thing or almost the same thing. A has more traders than B.
Let's say P(A) = 20% and P(B) = 15%. I think the true probability is 20%, and I expect other Manifolders to agree since A has a larger sample size. This means I think P(B) will, at some point in the future, increase to about 20%.
Therefore, it makes sense for me to buy a little bit of NO on A (because I'm more likely to make a profit that way, since I think a NO resolution is very likely) while also buying some YES on B - and then selling YES on B once B reaches 20%. (I could automate that last part by placing a NO limit order on B at 20%, but I keep forgetting to set new limit orders on markets.)
Say markets A and B bet on the same thing, but A is priced at 40% and B is priced at 50%. Ignoring slippage, that means you can buy ex. 100 yes shares of A for Ṁ40 and 100 no shares of B for Ṁ50, so you're spending Ṁ90 on a guaranteed Ṁ100 return and net Ṁ10 profit either way the markets resolve.
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