One of the many issues (or maybe not?) with our prediction market is the fact that I often find myself deciding whether or not to make a trade based on the person I’ll likely be trading with. If I see that I’m trading with someone I think of as incompetent, I’ll become more aggressive in my bets against the market. If I see that it’s with someone whose perceptions of reality I respect, I tend to take a step back and reevaluate my thinking, possibly trying to generate reasons why that person in particular might disagree with me. This isn’t the sort of thing you’d likely see in a larger market where everyone is probably anonymous, but it doesn’t matter anyway because there are so many traders that you’re unlikely to know your opponents and/or run up against them repeatedly.
This is totally a thing even in larger markets! Everyone is anonymous, but you can still make guesses about the sort of person you’re trading against (small investor? large institutional investor? HFT firm?) based on the size of the order, the timing of the order, what exchange/dark pool you’re trading on, stuff like that. And you always want to trade with uninformed participants as much as possible, because if you’re trading with an informed participant there’s a good chance they want to trade because they know more than you.