In this case, either the price finalises before the scan and no collapse happens, or it finalises after the scan and so the information from the scan is incorporated into the price at the time that it informs the decision. So as long as you aren’t jumping the gun and making decisions based on the non-final price, I don’t think this fails in a straightforward way.
But I’m really not sure whether or not it fails in a complicated way. Suppose if the market is below 50%, the coin is still flipped but tails pays out instead (I think this is closer to the standard scheme). Suppose both heads and tails are priced at 99c before the scan. After a scan that shows “heads”, there’s not much point to buy more heads. However, if you shorted tails and you’re able to push the price of heads very low, you’re in a great spot. The market ends up being on tails, and you profit from selling all those worthless tails contracts at 99c (even if you pay, say, 60c for them in order to keep the price above heads). In fact, if you’re sure the market will exploit this opportunity in the end, there is expected value in shorting both contracts before the scan—and this is true at any price! Obviously we shouldn’t be 100% confident it will be exploited. However, if both heads and tails trade for 99c prior to the scan then you lose essentially nothing by shorting both, and you therefore might expect many other people to also want to be short both and so the chance of manipulation might be high.
A wild guess: I think both prices close to $1 might be a strong enough signal of the failure of a manipulation attempt to outweigh the incentive to try.
I was thinking about a scenario where the scan has not yet happened, but the scan will happen before prices finalize. In that scenario at a minimum, you are not incentivized to bid according to your true beliefs of what will happen. Maybe that incentive disappears before the market finalizes in this particular case, but it’s still pretty disturbing—to me it suggests that the basic idea of having the market make the choices is a dangerous one. Even if the incentives problem were to go away before finalization in general (which is unclear to me) it still means that earlier market prices won’t work properly for sharing information.
In this case, either the price finalises before the scan and no collapse happens, or it finalises after the scan and so the information from the scan is incorporated into the price at the time that it informs the decision. So as long as you aren’t jumping the gun and making decisions based on the non-final price, I don’t think this fails in a straightforward way.
But I’m really not sure whether or not it fails in a complicated way. Suppose if the market is below 50%, the coin is still flipped but tails pays out instead (I think this is closer to the standard scheme). Suppose both heads and tails are priced at 99c before the scan. After a scan that shows “heads”, there’s not much point to buy more heads. However, if you shorted tails and you’re able to push the price of heads very low, you’re in a great spot. The market ends up being on tails, and you profit from selling all those worthless tails contracts at 99c (even if you pay, say, 60c for them in order to keep the price above heads). In fact, if you’re sure the market will exploit this opportunity in the end, there is expected value in shorting both contracts before the scan—and this is true at any price! Obviously we shouldn’t be 100% confident it will be exploited. However, if both heads and tails trade for 99c prior to the scan then you lose essentially nothing by shorting both, and you therefore might expect many other people to also want to be short both and so the chance of manipulation might be high.
A wild guess: I think both prices close to $1 might be a strong enough signal of the failure of a manipulation attempt to outweigh the incentive to try.
I was thinking about a scenario where the scan has not yet happened, but the scan will happen before prices finalize. In that scenario at a minimum, you are not incentivized to bid according to your true beliefs of what will happen. Maybe that incentive disappears before the market finalizes in this particular case, but it’s still pretty disturbing—to me it suggests that the basic idea of having the market make the choices is a dangerous one. Even if the incentives problem were to go away before finalization in general (which is unclear to me) it still means that earlier market prices won’t work properly for sharing information.