# Your Enemies Can Use Your Prediction Markets Against You

It is the year 2525. Earth and Mars are in a state of cold war against each other. Both planets import uranium from Ceres. Ceres' government is pro-Earth…for now. Earth needs to know how likely it is the Ceres government will be overthrown and replaced by a pro-Mars regime.

Earth creates a prediction market on the blockchain. Earth seeds the prediction market by buying shares that pay out if there is a coup. This lopsided approach prevents Earth from directly subsidizing a coup it doesn't want.

Earth must provide lots of liquidity because if Earth provides too little liquidity then Mars can cheaply influence Earth's decisions by manipulating the prediction market's prices.

Ceres' allegiance is zero-sum. Mars wants there to be a coup because an anti-Earth regime is a pro-Mars regime and *vice versa*. Mars can subsidize a coup by buying shares that pay out if there is not a coup. Mars' investment simultaneously acts as an investment in a coup and insurance against the coup failing to materialize.

Suppose Mars values a coup at 5 million Dogecoin. Mars buys shares that pay out 5 million Dogecoin if there is not a coup. Mars' investment subsidizes a coup because entrepreneurial space pirates can become Mars' counterparty and use their expected profits to fund the conquest of Ceres. Even more efficiently, the Ceres government could buy the shares itself and then change its foreign policy to be pro-Mars, thereby realizing a risk-free profit without any violence at all (while also discouraging space pirates).

But from Mars' perspective it no longer matters if there is a coup because if there is a coup then Mars' windfall of 5 million Dogecoin exactly neutralizes the value it gains from a coup.

The less likely a coup is, the more Mars stands to gain by buying insurance. Suppose the prior implied probability of a regime change is 0.20. Mars can buy its shares for 1 million Dogecoin, pocketing a risk-free net utility equivalent to 4 million Dogecoin. If, alternatively, the prior implied probability of a regime change is 0.80 then Mars pockets a risk-free profit of only 1 million Dogecoin.

Where does this free money come from? Opportunity cost. The alternative to buying blockchain prediction market insurance is for Mars to send its own marines to overthrow the Ceres government. Mars landing troops on Ceres is only profitable if Mars does not buy insurance because insurance directly neutralizes the profits of a coup on Ceres. It might be that deploying marines is cheaper than hiring spaces pirates. But even if hiring marines is technically cheaper, operating through the prediction market provides a level of deniability overt operations lack. After all, Mars' enthusiastic participation in a blockchain prediction market created by Earth can hardly be considered a breach of the peace.

Mars' strategy requires the prediction market contains sufficient liquidity—which Earth conveniently provided. Thus, the strategy of buying shares that pay out in outcomes you dislike I outlined [here](https://www.lesswrong.com/posts/LsyuX5rLsApZFdQGp/bet-on-rare-undesirable-outcomes-when-seeding-a-prediction) fails when you have enemies because your enemies can leverage the prediction market's liquidity to their advantage.