Metaculus doesn't have money at stake, so a whale is not advantaged. You could define a different type of whale as someone who had made lots of meta points on accurately predicting other questions and then were willing to tank their account, though.
I think the usual counter to the manipulation argument is that manipulation is 'dumb money'. If a Politician A spends a bunch of money to buy 'The economy growth rate will be at 7% YoY (relative to a 4% average) 4 years after A wins the election', then you can bet against A and make a ton of money. Once prediction markets have enough capital, a single actor can only move the price of an asset by giving a ton of money to smart traders. Current prediction markets have small amounts of money, and are definitely manipulable, though (as you say).
Robin Hanson's posts on prediction markets offer other alternatives to solve the problem you mention.
by the by, about Bolsonaro, I know a few reliable people who were in Brazil for the thick of Covid 19 there(which I am told was overblown in terms of media coverage), and no amount of telling their compatriots to stay home was going to be sufficient. What India did about a similar issue was to have non-compliant bar-goers bludgeoned with sticks by brute squads / Lou Ferrigno.
A) Very easy to say 'they didn't do it because it wouldn't have worked', when it wasn't tried.
B) Bolsonaro was not just not telling people to lock down (and therefore of course also not enforcing anything like lockdowns), he was actively encouraging gatherings with thousands of people packed in tight with no masks, turning down offered contracts for vaccines at prices Brazil could afford, etc. Also telling people they were wimps and gay if they tried to protect themselves or their families or wanted to get vaccines.
So, yeah, no ... There's 'mishandling' and then there's what Bolsonaro did.
(A) Easy or Hard, a casual presumption is neither false nor true on face-value for having BEEN casually constructed. But I trust first hand impressions from people (Brazilian doctors) on the ground more than I do reporting from abroad ANY day of the week.
(B) placating people who have no intention of sheltering in place cannot be said to encourage them to do what they would inevitably have done.
I have a lot of on the ground info as well (I lived in Rio for 15 ys, and have contacts all over the country). It's been awful, and Bolsonaro didn't just 'placate people who have no intention of sheltering in place'. Check out the reporting from WITHIN Brazil, if that would be more convincing.
Although perhaps our points of reference are part of the disagreement, here, as well;
I do accept the data your using as accurate (to the extent that we like the way that they define covid deaths - which is a hilariously involved subject in and of itself that we probably shouldn't delve into).
I don't believe Canada can be compared with respect to its “R naught" R0 to a country like Brazil, wherein population density and population behaviors are so wildly different (I am being anecdotal, but that seems fair enough).
Also believe healthcare in Canada is superior to brazil.
So blaming policy for the differential covid mortalities and morbities is a stretch in my opinion.
(you do out rank me if you lived in Brazil for 15 years)
The comparison was primarily to note that you and I may have different mental base rates for how bad things have been.
But even so, given that Canada and the US are much more comparable as far as wealth and health-care systems, I think the numbers show that policy DOES make a big difference, as do the words of gov't leaders.
(Although Quebec especially did a shamefully terrible job with long-term care homes.)
I think Canada and the US are much more comparable, but that the average canadian is colder and further away geographically (population density and behaviorally) from one another than the average american.
These things matter a LOT, and it isn't clear how enormous the effects should be.
Also healthcare in Canada is actually very different, and Covid reporting also differs.
Covid case-fatalities vs exposure fatality is another enormous can of worms..
I don't believe that policy doesn't make a difference, just that comparing across countries as a means to characterize one leaders policies as worse than another disparate leader's is dubious to me.
I mean... at this point, congratulation, you've essentially created a narrative that's impervious to evidence?
Like, I know that's a rude thing to say, but I really see no other way to frame this. No matter what actions Bolsonaro had taken, no matter how insane, you could justify them by saying that saner actions wouldn't have persuaded people anyway. No matter what hard numbers people give you, you can say they're overblown and they don't match the impressions you got from people on the ground.
Worth noting that "impervious to evidence" is the ideal situation for a politician, and I'm pretty sure your framing was explicitly quoted as the basis for the UK's initial cull-the-weak/herd immunity policy: some unit of government concluded that our freedom-loving citizens just wouldn't obey rules geared towards zero COVID.
If Metaculus were a real-money market, you could imagine a world where in 2029 there existed some SMR nuclear reactors, but not in sufficient quantities or in economies where they made sense to deploy at scale for national electric power, but someone floated a few into whatever the smallest, poorest island nation is to supply 1% of its electric power and win the market.
But, you know, I guess that won't be worthwhile even if possible, unless Metaculus leaderboard positions become REAL valuable in the next 8 years.
Maybe we should create a prediction market about the real-world dollar value of a position on Metaculus leaderboard in 2030.
Tuvalu built a solar power farm in 2008, with capacity of 40KW, and per Tuvalu this represents ~5% of peak demand on the most populated island, Fongafale.
Russia has two Small Nuclear Reactor boats each producing net 32MWe. It seems like all it would take would be to sail those boats down to Tuvalu and hook them up
Potentially this plan to build a 300 MWe BWRX-300 in Poland would constitute about 1% of their electricity. I guess the chances of it starting operation by 2030 are slim.
More plausibly, this NuScale 6-module plant to be built in Romania is supposed to start operation in 2028, and would be something like 7% of their energy.
I definitely feel like "1% of any nation" is really just asking you to go out and look at a bunch of small nations and try to figure out whether any of them might do this, rather than asking anything about whether small modular reactors will be seen as a meaningful contributor to energy.
I don't have experience with google's new prediction market. However, when I worked there a decade ago, I did use prophit, which also had "play money with leaderboards" as the reward. It was not quite the right incentive system. Back then at least, leaderboards and play money were reset on a quarterly schedule, and the people at the top of the leaderboard got gift certificates (I think $75 was typical). This means it was best to make somewhat-risky bets with your finite play money and hope they paid out. If there were a market where the outcome were 100% known (but that would only pay out at end of quarter), it would still have been a losing strategy to bet at 70% odds, I'd guess.
It's worth noting that you've described two separate issues:
* Prediction markets can be constrained on capital. That is, even if someone were a perfect oracle, they would have to be strategic about where they spent their money. As a result, a given market may not reflect the collective beliefs of the individuals in the market. This relates to the issue of options that Scott raises in the article, since options get you leverage on your existing capital (at the cost of increasing risk).
* Binning results in weird behavior. Since it's play money, people can take unbounded risks so long as the payout is pretty good. Adding options trading would make this especially obvious, since way undershooting the cutoff for a payout would be just as bad as missing it by 1 unit of play currency.
Cool to hear you used Prophit! I'm always trying to learn more about it. Gleangen, Google's current prediction market, has last-30-days, quarterly, and all-time leaderboards. The all-time leaderboards are divided by category, so that you can play the long game of trying to be the best forecaster of, say, moonshots.
Even so, you're right that there's asymmetry that incentivizes risky bets.
On the questions of the form "If this party wins, what will be the value of this metric?", in a one-shot I don't think you learn much except the political prejudices of metaculus users.
But if you did this a really large number of times over a really large number of elections, you could probably learn something. If unemployment is consistently forecast to be 0.5% higher under Party X than Party Y, and unemployment is consistently higher than the Metaculus estimate in years when Party X wins and consistently lower than the Metaculus estimate in years when Party Y wins, then you might be able to figure out exactly how wrong Metaculus users are, subtract it, and figure out the actual effect of Party X vs Party Y on unemployment. (Of course you'd need to wait a very long time to have enough data for this to be useful.)
Often, theory suggests that party in power in year X is more strongly correlated with macroeconomic performance in year X+2 or X+5 than in year X.
For each new market, Metaculus users will be calibrating against past Metaculus performance, so we shouldn't expect averaging across many years of Metaculus performance to give a proper calibration factor (just as pre-election polls have different bias from real results each election, as pollsters incorporate factors that would have been predictive in the previous year).
If you let this influence elections too much, it will also lead to people 'buying' votes by intentionally voting outside their actual expectations to support their party.
Additionally, when people know they are measured die specific numbers, they'll start optimizing for them. Though this might be advantageous in some ways.
Regarding "looking for options" -- prediction markets could adopt methods similar to what financial markets use for cleared derivatives transactions. Lets say you want to buy 100 shares of "yes" on some question at a 50/50 chance. You are risking $50, and your total payout will be $100 if correct, in 2100. The daily volatility in the contract may be some fraction of 1%, and a really big price move in the prediction for something that far out might be 2%. The market could simply make you post $2 upfront instead of the entire $50. As the market moves either direction, you get credited or debited 100% of each market move. If you do not have the money to cover the margin call when the market moves against you, the clearing agent liquidates your position. That money reserve could be either posted at the prediction market exchange or take the form of say having a credit card on file.
The obvious benefit is that this method reduces the initial opportunity cost of capital by 96%. The downsides?
(1) People might be worried about getting margin called. Of course they can prevent this completely if they want to buy just keeping $48 in their account in my example, so they are no worse off than the status quo regardless. If they make predictions in many different questions, they likely have lots of diversification benefits and their risk of being proven hugely wrong on all their questions at the same time is quite low. Over the life of their predictions they will need to keep some cash buffer, so the lifetime opportunity cost of capital isn't 96% saved, but could be pretty close anyway.
(2) The market might move by more than the required $2 margin amount, and the people on the losing side might opt not to make good on their payment obligation to cover the difference (i.e. they default). This risk is mitigated when predictors have lots of different positions on different prediction contracts on the same exchange (cross-collateralization). In financial markets, the clearinghouse itself acts as guarantor against defaults, so no predictor would be taking the credit risk of the other predictors. The clearinghouse takes the risk, and charges some sort of fee to fund a pot of money from which to pay for any future credit defaults.
It's not a new problem and a complex market has taken a pretty good shot at an efficient solution. If you have a better solution you can probably make at least hundreds of millions of dollars displacing the CME or LCH from their current gigs.
Say I make a prediction one year out, and then drastically adjust it with 1 month left (closer to what will actually happen), then my Brier score is going to be pretty bad right? But if the majority of votes came in with only 1 month left, being close to the actual outcome, does that mean overall Brier score will be good?
And I think predictions also need a complexity score. So for example predicting 2022 inflation accurately is probably more impressive than predicting the outcome of a sports match (which is a lot more local). And predicting something further out is generally more impressive as well, the more global it is.
A value measure for each prediction could sort of solve this, where each person has a limited number of upvotes they can give to predictions. Where predictions with higher scores count more towards overall prediction score.
Black and Scholes showed in their famous model that (under some assumptions that have been made less restrictive over time) you can replicate the performance of an option using a mixture of cash (or a loan) and holding the underlying asset, then re-balancing the portfolio of the underlying and the cash over time. If these sorts of assumptions can hold here, then this is wrong: "But if nobody is buying shares directly and all the action is in options trading on the side, that won’t work. " People buy options, market making option sellers price those options and hedge their risk using the underlying prediction market, and the market can reflect the beliefs of the people buying the options. The hedging portfolios that the market makers create (a replicating portfolio) brings the information from the option buyer into the market prices of the underlying asset.
Also, it is not rare for the market in options on `X' to be more active than the market for `X' itself. For example, Goldman Sachs found last year that stock option trading volumes were higher than stock trading volumes (https://nitter.ir/LizAnnSonders/status/1286648865828077569) and it is quite common for credit default swap markets (CDS), a kind of bond derivative, to be more liquid than the bonds that they are derived from.
I think a more fair description of your link would be "GS found last year that stock option trading volumes became higher than stock trading volumes for the first time in the history of the entire stock market at some time near the peak of the insane Gamestop and related meme-stock mania, an unprecedented event".
Using market-maker-hedging to tie the kinds of markets that Scott's talking about together would get really tricky as the time-to-expiry in the derivative market got rather close. If the underlying market is thinly traded, an owner of a large position in the derivative could try to drive the price of the underlying at precisely the time of expiry. People on the other side of the trade could try to drive it the opposite direction. The result can be very hard to predict, can be way off of the intrinsic value, and can depend on things like which side had more concentrated holders and/or was more sophisticated rather than on the underlying probability. This happens less (but some!) in real financial markets, because under some conditions it would bring an enforcement action by the SEC. I imagine this would be a very big problem in prediction markets, and I would not own the derivative side of any of these positions within several months of expiry unless I was the one planning on trying to drive the price of the underlying at the expiry time of the derivative.
I agree that options are only one kind of derivative, but I don't see the expiry problem. As long as opinions exist in both directions on the bet, I don't expect this to be an issue. Because the bets are in zero net supply, for every long bet their is a short bet elsewhere, and that means that while they might want to drive the price of the underlying at precisely the time of expiry, there would be people working to do the opposite. In a world where we stipulate that lots of people want to make bets on the policy through options on the underlying, I am not persuaded that this would be an illiquid market.
And CDS are not special here. There are other markets where derivatives are more liquid than the underlying. Futures volumes are often higher than spot market volumes in foreign exchange. Treasury futures also. Ninety percent of the agency MBS trading volume occurs in the TBA forward market.
But, even if it is rare for options but not for futures, it seems like you could do what Scott suggests just as easily with futures markets. Just like you can break a a 30 year interest rate swap into 30 one year forward rates, it seems pretty easy to break a 30 year bet into a series of 30 one year bets of the evolution of something.
Scott does this funny thing where he'll admit ignorance of something very basic, but then manage to frame his questions about it exactly the way that some seminal work had to frame them in order to discover a now-famous answer. I'm not recalling what the earlier examples were, but I know this isn't the first time I've noticed him do this.
Surely the obvious problem with political prediction markets is that money that wanted to make The Other Party look bad would drown out smart money that actually wanted to predict for a return?
Experience suggests greed trumps vicarious triumph, every time. Id est, the number of people wanting to make money on their predictions in order to go skiing or get a new iPhone would always drown out the number who get satisfaction in losing money -- but making Their Side look good.
This was not my experience trading on predictit at MANY points over the past two presidential election cycles. Maybe if the max position size was much higher this would get washed out. However at least for the biggest real money politics prediction market that has existed thus far, at many times political activists seemed to see it as pretty cheap advertising for e.g. a niche primary candidate
I think it depends on the ratio between the amount of influence a particular market has and the amount of money involved.
I think right now, prediction markets might be getting into the regime where their influence (in terms of being able to get reasonably high profile people in certain communities to write about them) is dangerously mis-sized compared to the amount of money involved. If I were on the campaign team for a second-tier candidate for the 2024 Presidential election, I'd be spending up big right now to increase my candidate's perceived chances on every prediction market.
Maybe, but if people thought that was was what people were doing, then they might decide they can make money by betting against the people trying to push the market in a pasrticular direction, so you'd get back to equilibrium.
In re obesity predictions: Are you betting that the definition of obesity won't change? Or you'll go with whatever the definition is then?
What's the argument for more Americans being obese? The drugs don't work that well? They don't work that well on a lot of people? There are side effects and the drugs are withdrawn? The drugs are expensive and/or otherwise not available? Odds of a black market if they aren't available?
I'm similarly a bit confused at how Guyanet thinks it would still be 35% if he's optimistic about the drugs. I'd think his distribution would be more bimodal... like it'd be either 10% or 60%
The drug might not work on all people, but only on 50% of the cases. Or 60%. Or 40%. If all these outcomes are possible, we get a continuous spectrum.
In fact, that should be our base assumption, because many drugs don't work for everyone, and this applies pretty much to all drugs that work via brain chemistry. (Ask Scott.) As far as I understand, the obesity drugs work exactly like this, via brain chemistry.
There's also a possibility that whatever is making Americans fatter* will continue to have a strong effect, and the drugs won't work and/or won't be very available.
*Are Americans still getting fatter? I thought obesity was levelling off.
Yes, I think the idea is that whatever is causing obesity rates to rise will keep causing them to rise, and drugs aimed at fighting obesity may only be able to slow the rate of increase. E.G., Semaglutide seems to help people lose about 20% of their body weight. That sounds nice, but what if there are a growing number of people out there who could drop 20% of their body weight and still qualify as obese?
> What's the argument for more Americans being obese? The drugs don't work that well? They don't work that well on a lot of people? There are side effects and the drugs are withdrawn? The drugs are expensive and/or otherwise not available?
A culture that views weight loss pills as hokum / low status, versus virtuously trying to earn weight loss via diet & exercise, regardless of how effective willpower-based solutions are? Medical progress mitigating obesity-related conditions, so the urgency to treat fatness itself lessens? (As Scott posted, Metaculus predicts US obesity will go up from 43% to nearly 50% by 2032; Metaculus also currently predicts the US adult diabetes rate will be 13% in 2032, same as it was in 2016.)
Less likely: A culture whose perspective of 'normal' weight has drifted enough that the lower edges of the 'obese' category don't seem like that big a deal overall?
The trend is still going up, and not even slowing down. So if you just extrapolate the current trend, then obesity will increase.
The trend has been robust for a long time, and consistent over basically all countries in the world. So you should have very good reasons for the guess "this trend will stop/invert".
Hasn't it slowed down over the past decade? And for a while, it looked like childhood obesity rates had actually plateaued (though I don't know if that has changed in recent years).
I agree that politicians will probably try to wave away bad looking results and the result of tradeoffs, but isn't that still better than the political discourse we have now?
I guess I don't know the British talking points, so I'm switching to American politics here. Like I can imagine Republican politicians responding to conditional markets saying that Democrats will lead to better test scores by saying that it's only because they'll tax you dry to fund education (cue a discussion of the conditional markets on tax rates). But today I'd imagine the Republican saying that they'll produce higher test scores *even though* the Democrats are spending more money on it because the Democrats will be spending money on teaching white kids to hate themselves or something rather than any useful educational goal.
That's a caricatured way of saying that the Republicans would accuse the Democrats of lowering standards, which is both truer and more obvious. I suppose the CRT stuff would get grafted onto it to get people riled up.
OK. Fair. My specific arguments were probably less charitable to the Republican position than they should have been. However, I think my main point still stands: today politicians will mostly argue that electing them will improve outcomes in all possible ways. I think making them acknowledge that they are making some tradeoffs would be an improvement.
I don't think the current discourse is much if at all different than the predicted prediction market discourse. I'm under the impression that politicians, rather than saying that they'll improve all the outcomes, focus their messaging on specific issues and framing those issues in ways favourable to themselves, which often involves a lot of hand waving away criticisms (eg, bad results) and trade-offs.
I think that's a bit unfair to the prediction markets.
If I am an expert on a question, then I might agree that I don't learn a lot (maybe). But if I am not an expert? For most question on metaculus, I wouldn't have a clou.
It's like saying that if you are an expert on company X, you don't need stock markets to know how much the company is worth. But most people are not experts on company X.
I think that prediction markets are only useful for events that do not depend strongly on individual actions (Hari Seldon said so, in the books anyway!). For example, the results of the presidential election seem to be reliably predictable, since they aggregate a very large number of decisions whose average is reasonably easy to estimate. Similarly, the evolution of a technology can probably be estimated with some reliability since there are usually quite a few actors involved. In contrast, for example, policies that depend on who is appointed to a given department and then what kind of choices that person will make, seems to me to be almost impossible to estimate reliably by a prediction market.
These prediction markets are worthless because the only predictions that really matter are the non-linear ones.
AI/machine learning can do linear extrapolations just fine.
The 2nd, more fundamental problem with prediction markets is that they are ultimately flawed. If any market shows any promise - it is then trivially skewed by a small amount of money/effort. If y
ou can't trust them early, and you can't trust them once they've proven themselves, that is the literal definition of useless.
Not sure what you mean? Is "% chance Biden will get re-elected in 2024" linear or nonlinear? If linear, I...don't think machine learning can handle that. If non-linear, this is a classic example of what prediction markets are good at, so what's the problem?
It's actually very hard to skew prediction markets. If you don't believe me, try skewing one and see what happens!
I distinctly remember that the "prediction markets" for 2016 were skewed because the Democrat/Clinton bettors made far larger bets than the Republican/Trump ones. So that's one clear example of skew - albeit unintentional. As such, an intentional skewing is more than possible.
1. "The whole point of prediction markets is that their prices correspond to the chance of something happening. But if nobody is buying shares directly and all the action is in options trading on the side, that won’t work..."
It is possible to arbitrage any price discrepancies between options and the underlying stock. For example, if you buy a put and sell a call at the same strike and same expiration date, that is a synthetic short position that can be perfectly hedged by buying the underlying. If the options are already cheaper than the underlying, you can arb it by doing the opposite thing (buy call, sell put, sell underlying)
People will quickly arb any price discrepancies, so there's no risk of the prediction market getting far out of whack that way. The biggest problem I see is that options will be too illiquid. On wall street, companies under $5B don't have liquid options for next month, and even $500B megacorporations have 20% bid-ask spreads on options expiring 2 years in the future. That's even worse than Predictit fees! People can put limit orders in the middle and wait a long time for someone to fill them, and hope they don't get past-posted when news comes out, but that experience kinda sucks.
2. Caution on conditional prediction markets.
Betonline has some hilarious alien-themed markets (https://www.betonline.ag/sportsbook/futures-and-props/entertainment/aliens) for who will get abducted by aliens first, which country will get attacked by aliens first, and who will win the alien v human war. All bets are void if the aliens don't show up by 12/31/2021. So they're basically getting free loans from whoever bets these things. People have nothing to lose except interest, so they don't care what the lines are and might bet it just to generate reward points or something.
The more improbable the condition, the less skin in the game people have. If the condition is <1%, then probably nobody really wants to bet it except for ideological reasons or silly reasons that have nothing to do with the correct conditional probability.
I think the arbitrage corridor (for those reading: The an arbitrage corridor is a stable gap between a theoretically optimal price achieved through arbitrage activity and the actual price, and is generally driven by transaction costs) here is potentially huge; as you flag, companies need to be properly big to have a proper options market without enormous bid/ask spreads. You can see this in the bond markets; even very large bond markets (in the single-digit billions of dollars) don't really have functional associated options markets; the minimum scale is just too large before you get enough liquidity to support it.
I also think the role of regulation and a regulator is, as always in this kind of discussion, vastly underappreciated. Market makers, especially in smaller markets ('smaller' here being less than hundreds of billions) do have the ability to get up to no good, and regulation (or even the threat of regulation) does a lot of work to keep markets functional.
Over my time in finance, I've developed an appreciation for fuzzily-worded regulation which allows the regulator to work on a principles-based model, rather than having to imagine every possible scenario.
Most actual prediction markets themselves are actually relatively robust to market maker malicious intervention due to their price being driven by 'money in the pot'
(not exactly, I know, but it's a close enough approximation in most cases for my point here) rather than 'marginal buyer/seller' dynamics of most securities markets (so 'spoofing' a prediction market is either meaningless or has no value).
This robustness to malicious intervention is less true for prediction markets which allow you to cash out your prediction prior to expiry, which incentivises pump & dump style schemes so common in cryptocurrency. These incentives also exist in current financial markets, of course, but these are regulated and the people who deal with them are watched (by UK law, all my trades on any platform are registered with my employer and tracked, and other than broad index savings need to be pre-approved).
My comment was in particular in relation to the options element, which is where you (by necessity) reintroduce all the downsides of traditional securities markets (you can crystallise early via selling the option, there's the potential for option markets to balloon beyond the size of the underlying market (this does not necessarily need to be in total size outstanding, it can simply be in terms of your sensitivity to price movements (DV01, in the jargon), which means that a large market maker in options (who will, short of self-imposed regulation on the part of the users, be the only person with full vision of what has been bought and sold) might be able to disproportionately impact the value of those options by relatively small investments in the prediction market itself (for example, putting money into the underlying to change the current pricing on the prediction market, thereby reducing the value of the options so they can buy them back at a lower price).
I'm not sure how much assumed knowledge I'm working off of here so please let me know if unclear.
If you want a prediction market for something that will happen (or not) in 2100, then that market needs to trade not in 202x dollars but in safe bonds maturing at 2100. This is important both because of the time value of money (since a 100% certain win of $100 at 2100 is likely worth just a few dollars now, so you should not have to put up $100 so that the other side would expect to get $100 at the end of the bet) and because of the need for the market to decouple the fluctuations of the actual bet from the fluctuations on the expected interest/discount rate for that decades-long bond, which - at least when the payoff is still distant - would be much more influential than the actual expected value of the bet.
How do they define 'Nation'? Per the question, they have 'Resolution may come from credible media reports, government agencies, or energy industry researchers such as the IEA.' as a resolution criteria, but that isn't clear on who exactly counts. Does Israel count? They still aren't fully recognized. Kosovo? Less recognized, but recognized by some big players. Taiwan? Barely recognized. Bougainville? Aiming for independence but arguably not there yet. Scotland? In no way independent but may or may not want to be, also still labelled a kingdom.
Can I declare independence as dictator of the Russian city Metaculus links as having a Small Nuclear Reactor already, have an article written about me as a crackpot trying to secede from Russia, and win?
Metaculus has humans to make these sorts of judgment calls, and on the tiny offchance that the resolution of this particular question comes down to whether or not Taiwan or Kosovo counts as a _real_ country then they'll resolve it one way or the other.
There are plenty of questions which are more likely to cause resolution headaches than this one.
I think the closest correlate to you option market conundrum is VIX futures. Since there is no such thing as trade able spot vix, the curve exhibits some interesting behavior.
I don’t know if the following helps re options since I didn’t read the previous post in depth but here’s something:
Options can be arbitraged with their underlying asset in the following way: if you buy a call and sell a put at the same strike , that’s equivalent to buying the stock for the premiums plus the strike since you will either exercise the call or be forced to buy by the holder of the put depending on where them price of the underlying ends up.
Wegovy. The drug was approved by the FDA on June 4. It is very expensive (>$300/week). After a failed attempt to obtain insurance coverage, I began a course of treatment in September. The course of treatment described by the package insert is to begin at 0.25 mg and escalate by steps to the therapeutic dose of 2.4 mg, which will be my next step. I have had none of the side effects described in the warnings. By the time I completed the third step, I had already lost 7% of my body weight. When I started my BMI was almost 40. My goal is to get that down below 30, at which point i will be merely overweight. Right now it seems to be very doable.
The biggest problem with mass use of Wegovy are 1. cost/insurance, which in the long run will be solved. Every one of the five other prescriptions I take was once patented and expensive. They are now all off patent (one is now OTC) and are a lot cheaper. And 2. the supply chain (sigh):
"Novo Nordisk (NOVOb.CO) shares fell as much as 16% on Monday after the Danish drugmaker was hit by U.S. supply issues for its new obesity drug as it seeks to establish a market foothold before the launch of a rival drug by Eli Lilly.
"The obesity market has proved difficult for pharmaceuticals companies, but Novo made a breakthrough with its Wegovy drug. The company hopes the drug, which helps to achieve weight loss of 17% on average over almost two years, will offset growing pressure on its core insulin business. read more
"In a stock announcement after Friday's market close, Novo said that a contract manufacturer filling syringes for pens to inject the drug had halted deliveries and manufacturing temporarily after issues relating to good manufacturing practice.
"The Danish drugmaker was already facing separate supply constraints after being "overwhelmed" by initial uptake of the drug. read more
"As a consequence, fewer new patients will start treatment with the drug in the first half of next year. Novo now expects to be able to meet U.S. demand in the second half of next year, having previously estimated it would do so at the beginning of the year."
I started on Ozempic, because my insurance would cover it. (Same molecule as Wegovy, just a different dosage.) Down 4% body weight in three weeks. I'm kind of stunned.
My doctor ,who is an excellent doctor whom I like very much, does not color outside the lines. I have never in the 10 years I have been seeing him had an A1C that was not firmly in the middle of the normal range, so he would not consider Ozempic. But, it's only money, I might as well spend it before the government turns it into scrap paper.
Canada just approved Wegovy, so if you have a valid prescription, it should soon be possible to get the med for cheaper from someplace like Mark's Marine. I know a lot of people get their Ozempic from there. $300 instead of $1,300.
Thanks Ellen. Good idea. Once I get to the steady state therapeutic dose I will have to look into that. I would be concerned about the supply chain issues though.
I would expect a third problem with both products using this drug: it requires weekly self-injection. If I understand correctly that it was originally targeted at diabetics, who would be used to that anyway, that makes sense, but as an overweight person of normal blood sugar, it seems like an issue. I saw "somewhere" that there are, naturally, attempts in progress to adapt the drug for oral use.
I'm on a couple of Facebook support groups for people losing weight with semaglutide. The needle is an issue, but you have to factor in how desperate people are to lose weight. Lots of needle-phobic people get calmed down on the group and go head and learn to inject. It helps that the pen is very easy to use and has a tiny needle.
a higher-dose daily pill for obesity management is currently in Phase III clinical trials and will almost surely be brought to market within the next couple years
(the Rybelsus dose is so much higher than the injection dose because most of the active ingredient is destroyed by your GI tract prior to being absorbed)
The injection, which concerned me before I started, has turned out to be a non-problem. The injection does not involve using a syringe and a needle like you usually see in Doctor's offices. I am preternaturally clumsy and would need as many arms as Vishnu to be able to inject myself with that kind of lash up.
The medicine comes in plastic tubes that are prefilled at factory. The tubes are about 5.6 in long and 0.6 in in diameter. The needle is concealed under a cap and guarded by the tube.
To inject yourself, you remove the cap, place the end with the needle in it at the spot you are aiming for, and press down firmly. The needle goes in, the injector's piston pushes the medicine into your body, and when it is done it gives an audible click and you can see the yellow piston through a window.
The whole process takes just a few seconds. The pain is negligible and I have never drawn blood in the process.
The biggest problem with the injectors is the supply chain issue I cited above.
I tried to fill my prescription for Wegovy 2.4 mg this week. My usual pharmacy, in a Kroger supermarket did not have any and could not obtain it from their distributor. They checked other Kroger stores in their database. Four of them showed an inventory. Further checking revealed that none of them actually had it.
I tried Giant Eagle, another supermarket chain. No luck. Went to Walgreen's -- Maybe in a store in another city two hours away. CVS not in my local store but they gave me the phone numbers of four stores that might have it. The third one did, even though it was clear across the metro area. I said fine, I'll buy it. And ran over there through pre-christmas shopping traffic.
Four pharmacies visited, seven more called. Oh yes and CVS charged $65 more than Kroger.
"I don’t know, maybe you wouldn’t learn anything there either. If Conservatives had better GDP growth, maybe leftists would say “of course, they’re the more capitalist party, they trade off environmental damage and inequality for a slightly hotter economy”. If Labour had better test scores, maybe rightists would say “of course, they’re the more socialist party, they’ll tax you dry and throw some of the money at schools but it will still be inefficient.”"
I think this is pessimistic. Yes, of course this is the kind of thing each side will say, but isn't that how it should be? Imagine a world where there are established prediction markets for public policies like this with strong track-records of accuracy. Then the public debate could be about what what values people want to support: crime reduction vs. mass incarceration; economy vs. environment, etc. rather than the byzantine factual/counterfactual arguments about which side's policies would *really* be better for crime reduction or economy that we have today. Also it would encourage parties to drop policies that suck at a achieving their intended/stated ends.
> Here I admit I don’t know much about markets or options - is there some way to combine regular trading and options trading into a single price, so that we could get the advantages of options trading, but traders would still be betting on the regular market and increasing our predictive accuracy?
Yes, this would happen naturally and automatically via arbitrage. See:
> That peak at the end is weird-looking and shows up on many Metaculus questions. I think this is something like all dates after April 1 getting crammed into April 1 for the graph, and even though very few people think it will be after April 1, that’s still a really high number of guesses when it’s all concentrated into an individual day.
I assumed this was happening because users really put their prediction on the last day of the time window to signal “I don’t believe this will happen within the time window of this question”. Many questions include “If this does not occur by [last selectable date], it resolves as > [last selectable date]” in the fine print.
Usually for those questions the upper bound is open, so you can put probability mass outside the question window. But I think some users don't fully understand this and don't adjust their probability mass sliders correctly. The other factor contributing to the bump at the end is the sliders are imprecise. You can put the majority of the probability mass outside the open upper bound, but the best way to do that is to make a narrow distribution and slide the slider all the way to the right, but no matter what you do it leaves a sliver of the probability mass within the bounds, creating the weird peak on the right side. I agree with Scott, it's something they should fix because right now it's weird and is hard to interpret.
Did Robin Hanson really invent prediction markets? On the Wikipedia article on prediction markets, I see that he made the first known corporate prediction market in 1990, but it also says that the University of Iowa's market first ran in the 1988 presidential election. Did he make one earlier?
Depending on what counts as a prediction market, there have been various financial derivatives of the relevant sort for sale for centuries, though usually only when the underlying prediction is itself either a financial instrument, or something like the weather that directly serves as a hedge for some lines of business. (Farmers want a hedge against no rain; beach resort owners want a hedge against rain.)
> Suppose you want to predict something in 2100. It’s hard. Nobody wants to lock their money up for 80 years to get a 5% or 10% or even a 100% rate of return.
A partial solution to this problem:
Prediction markets presumably provide a little bit of diversification, so the mean-variance-optimal portfolio contains at least a small allocation to prediction markets, regardless of how low the expected return is (as long as it's still positive). Investors can add leverage until they reach the desired level of risk.
This solution is not complete because it only works if you can borrow money at the risk-free rate. Pretty much nobody can do that. Even if you're only paying an extra 0.5% for leverage (which is something like what institutional investors pay), that could be enough to wipe out your expected return. So long-dated predictions are still worth buying *if* you can get cheap enough leverage. The question then becomes how to get sufficiently cheap leverage.
"My next question is: is there a structure where options directly move the market? The whole point of prediction markets is that their prices correspond to the chance of something happening. But if nobody is buying shares directly and all the action is in options trading on the side, that won’t work. Here I admit I don’t know much about markets or options - is there some way to combine regular trading and options trading into a single price, so that we could get the advantages of options trading, but traders would still be betting on the regular market and increasing our predictive accuracy?"
Options move the stock market through arbitrage and the hedging of market makers (they don't want to make or lose money on the outcome of the options they buy/sell, so they buy/sell the underlying security to offset price moves and stay "delta neutral.") Presumably something similar could work for a prediction market that had a liquid market supported by market making firms.
On the subject of options effects on security prices when they dominate the flows of their underlying, investory/day trader types might be intersted in googling about NOPE, the Net Options Pricing Effect, a calculation invented in 2019 by Lily Francus and some cohorts that tries to guess when stock prices (specifically SPX index or SPY ETF given their liquidity) will have a near term reversion due to market maker hedging - if too many calls or puts are bought relative to the actual stock, they eventually have too much built up pressure and risk and have to engage in hedging purchases/sales (usually through /ES futures, which are abritraged to effect the SPX/SPY prices) that will cause a short term "snap back" in the underlying price until the put/call flow becomes more balanced.
It's had some useful backtesting as well as identifying conditions where it doesn't work well (actual market moving news is going to run over relatively modest hedging flows, as will high options gamma structures).
Relatedly, the GME volatility of early 2021 was in part due to a [gamma squeeze](https://smartasset.com/investing/gamma-squeeze), wherein options sellers hedge their delta exposure on short-dated call options by buying the underlying asset. The correlated buying of the underlying asset caused the stock price to spike as a result of options activity.
I'm quite surprised that the Metaculus article doesn't mention the recently FDA-approved Setmelanotide nor any of the other melanocortin small molecule agonists currently in development (e.g. LR-19021).
Guyenet argues that the obesity epidemic is caused by modern hyper-palatable processed foods that entice us to overeat. The Big Food industry engineers these foods in labs to be enticing. As the industry has improved its techniques, it has surrounded us with more and more tempting food at lower and lower prices.
A negative scenario is that the palatability of processed foods evolves in response to the introduction of these GLP+ drugs. What if the current performance of semaglutide is like the initial performance of a new antibiotic? It's a miracle drug at first, but Big Food responds by updating its processed food recipes, producing something analogous to antibiotic-resistant bacteria.
Through the Darwinian selection of capitalism, processed foods that partially overcome the power of the new drugs attain more shelf space and, eventually, "share of stomach". Big Pharma responds with new drugs that, for a while, have stronger efficacy. Etc. So we end up with something closer to a dynamic stalemate than to a total victory over obesity.
That sounds a little unlikely. It'd be hard for Frito Lay to defeat an effective pharmaceutical without adding something to their snack food that would itself require FDA approval, like a pharmaceutical. I would think the optimal equilibrium here for both parties would be that you eat a crapload of junk food, and thanks to the miracles of modern pharmacology, never gain any weight from it, so thoughts like "this is bad for you; stop eating so many potato chips" never enter your mind in the first place.
I think the bigger concern is that in order to keep from gaining weight back, people might have to keep taking something like semaglutide for long periods of time, maybe indefinitely, and thus they develop a tolerance to it, like with alcohol or painkillers, so for the drug to continue to be effective, they have to keep taking higher doses until the side effects get too much for them to tolerate any longer, at which point they just get fat again.
Great to see coverage on Google's new prediction market!
[Disclaimer: I created and run Gleangen. Opinions are mine, not Google's.]
First, you're right, the accuracy graph is confusing, sorry about that. The red line counts the number of markets in each forecasted probability decile that actually happened. The first point means that for markets that Googlers gave a 0-10% chance of happening (at various time points before expiry), slightly more than 5% happened. By this metric, markets Googlers give a low probability happen more often than predicted, and markets Googlers give a high probability happen less often.
Second, on the Hal Varian quote: Personally, I think there's a very large space for questions that are (a) are of interest to the company but (b) do not reveal financially critical information. The most basic case is forecasting engineering timelines. More interesting is predicting tech advances, such as Google's quantum computing milestones: https://quantumai.google/learn/map.
In general, I agree with Scott's take. So far all we’ve demonstrated is that a prediction market can be popular, employees value the information it generates, and it can be fairly accurate. Whether it can improve Google’s high-level strategy remains to be seen.
With regard to the SAT/ACT thing: I think some of the higher predictions may have to do with the wording of the question i.e. there could be an alternative standardised test that would technically satisfy the question.
I haven't read Hayek, but it seems like there's an obvious problem with this:
> COWEN: Why doesn’t business use more prediction markets? They would seem to make sense, right? Bet on ideas. Aggregate information. We’ve all read Hayek.
A prediction market might provide info on, e.g., "will China invade Taiwan in the next 10 years". Markets might provide info on, e.g., the market-clearing price of a pound of copper. But it makes sense for the market to provide more info on the market-clearing price of a pound of copper, because that price is determined by the desires of people to buy/sell copper (or stuff that is made with copper). If more people suddenly want copper for some reason, then that increases both the free market's price of copper, and the market-clearing price of copper, because they're the same thing; whereas "a central planner's estimate as to the market-clearing price of copper" is very much not the same thing. The reason the market "works" isn't some generic "wisdom of crowds" idea, it's that the desires of the crowd - even if the crowd is all dumbasses! - directly defines what the price should be in the first place
But for the "invade Taiwan" question there's no link between the prediction market and the reality. I don't see why it would provide any information on that question at all.
There can be a more direct link in the case of, say, an election, where the result really is an aggregation of what people want. But even then there are some obvious differences between what a prediction market would say, and what the election result would be, that make it not like markets and Hayek.
The basic idea of real-money prediction markets is:
a) a person A exists who is best at predicting X class of events
b) the prediction market will bleed money from anyone who bets against A regarding X
c) people don't like losing money, so at equilibrium with perfect information A sets the price (no-one bets against A)
d) hence you have an automated mechanism to get the honest prediction of the truly-best available expert on X.
There are certainly cases in which the perfect-information assumption is broken, and there are cases in which the truly-best expert is still shit (e.g. literally no-one predicts over 10% X happens, X is actually 80% likelihood). But this is the basic principle.
First is the perfect information thing - actually I'm not sure what "perfect information" means here. To take my "will China invade Taiwan" example, what does perfect information mean? What about other possible predictions like the future obesity rate, COVID hospitality rate, or whether a major Hurricane will hit Florida in 2028?
Second is why the existence of person A matters/why the price would converge on what they say. Take the predictions on Trump vs Biden. I'm not sure if the idea is that A would have bet 100% on Biden, or some lower number, but anyways ... that person bets and so do 1 million other people. His honest prediction is out there, so are 1 million other people's. It's not like you know ahead of time who the guru is out of the million. So what does that accomplish?
And my final question is how good A's prediction is supposed to be. It's very different from the market example - I don't expect the world's best expert on a great deal of questions to actually be worth a whole lot.
> I don't expect the world's best expert on a great deal of questions to actually be worth a whole lot
If prediction markets become large enough that people can start making real money from them, financial institutions will start hiring the experts, and so the experts will be backed by a lot of money.
Also, we'll be able to identify as experts people who make good predictions, rather than people with big framed pieces of paper from famous diploma mills.
>First is the perfect information thing - actually I'm not sure what "perfect information" means here. To take my "will China invade Taiwan" example, what does perfect information mean? What about other possible predictions like the future obesity rate, COVID hospitality rate, or whether a major Hurricane will hit Florida in 2028?
I'm referring to perfect information within the market i.e. "people know that A keeps taking their money on this sort of question and will therefore not bet against A".
>Second is why the existence of person A matters/why the price would converge on what they say. Take the predictions on Trump vs Biden. I'm not sure if the idea is that A would have bet 100% on Biden, or some lower number, but anyways ... that person bets and so do 1 million other people. His honest prediction is out there, so are 1 million other people's. It's not like you know ahead of time who the guru is out of the million. So what does that accomplish?
This is why I said "at equilibrium with perfect information" and "X class of events" (i.e. at least somewhat repeatable). A keeps taking people's money on X class of events, so rational people who notice this will stop betting against A on it (you can't win on average against someone who's better at predicting something than you are). If people don't realise this and keep betting against A, A will take their money until in the limit the stupid people go bankrupt or stop playing, though the limit may not be reached quickly.
>And my final question is how good A's prediction is supposed to be. It's very different from the market example - I don't expect the world's best expert on a great deal of questions to actually be worth a whole lot.
>>and there are cases in which the truly-best expert is still shit
Options are tied to the underlying market by market-makers (or "arbitrageurs," who are functionally equivalent to market-markets in derivative markets). But market-makers only show up when there is both (a) enough money to pay them for their service, and (b) enough liquidity in the underlying for them to eliminate their risk. The second criterion prevents an options market from creating a market in the underlying (long-term prediction) that doesn't otherwise exist. The market in the underlying has to exist and trade with sufficient liquidity to support the derivatives market. Otherwise the options, if created, will not be derivatives but rather will be their own untethered speculative arena.
So I've spent a bit of time reading about these, and haven't seen any mention of counterparty risk, which seems particularly large for perpetual options and *especially* large for power perpetuals - how is counterparty credit risk dealt with in these situations?
Particularly in the absence of extremely well-capitalised (or multi-party insured, same difference) central counterparties which do the matching work on traditional financial exchanges.
I'm honestly not sure, but a potential option is for power perps, the counter-party's credit is dealt with similarly to "regular" options, with a contract being sold and credit being offered by a central pool that is created by a third party staking their own capital.
It seems that in a lot of these DeFi implementations the replacement for these central credit providers is just a pool of stakers that sort of assume the role of holding a savings account in a bank, where the bank leverages your capital and you earn some consistent premium. I'm also pretty new to this so take this with a grain of salt.
So I'm working through power perps live here, but I'm struggling to think of how you would design a collateralisation system - whilst many existing trades have open ended potential loss profiles, these are both fairly easily hedged and have broadly normalised value at risk profiles ; the failures come in when a single counterparty can't make a collateral call when the risk profile changes, in which case all other members of that central counterparties which system effectively serve as insurers once a certain buffer is burned through.
For power perps, they're very difficult to hedge other than holding multiples of the underlying (in whatever opposite direction is required), which would make it expensive to hedge, and given it is perpetual you don't get a neat time discounting on ever more extreme price shifts.
On a totally subjective and aesthetic note, the use of the word 'discovered' by the authors bothers me. It doesn't exist in nature, we invent financial products! (Or 'structure' them, in the argot)
Regarding options, in financial markets they can move the market itself. This happens in the "manufacturing" of these options and the hedging that the seller has to make to balance their obligations in the options.
I am not sure how this would work in a prediction market, as I don't know what kind of margin requirements you would have in such a case.
"Lots of people think it will be 100%, with a long tail of people predicting various other things."
This doesn't seem right to me. That graph corresponds to the aggregate thinking 100% is quite likely, but this could be because everybody thinks there's a, say, 30% chance of that, rather than 30% of people thinking it a certainty.
You are asking if "is there some way to combine regular trading and options trading into a single price, so that we could get the advantages of options trading, but traders would still be betting on the regular market and increasing our predictive accuracy?"
If I understand your question correctly, by "regular trading" you mean the prediction of the event itself, such as "Bolsonaro is on trial before 2025", while by "option trading" you mean trading in contracts like "the market for <<Bolsonaro on trial before 2025>> is pricing probability more than 30% as of 1st of July 2023". In that case, the answer is that the option market already contains the regular market, so there is nothing to combine.
To see why that is the case, let C be the base contract "Pay $1 on 01/01/2025 if Bolsonaro is on trial before 2025, pay $0 otherwise". As of today, there is a simple arbitrage between C and the contract C23 defined as "Pay the price of C as observed on the market on 1st July 2023". If we ignore interest rates and counterparty risk, the price of these two contracts should be simply equal until 1st of July 2023 and if it is not, one can buy the cheaper one and sell the more expensive one to lock in a riskless profit. With non-zero interest rates and appropriate counterparty risk mitigation, the prices of C and C23 will diverge but an arbitrage link will persist.
Now, C23 is a special case of an option (namely, it is a call option on C with strike of $0 and maturity 07/01/2023.) So the options market already contains the market for C.
In fact, traders on an options market will be keen watchers of whatever is the most liquid market in the base contract C or anything equivalent to it, like C23 or C22 or whatever and will be not just updating their prices with movements in the base market but trading actively in the base market as it moves to hedge their option positions. So the market for C will be closely linked with the options market as a whole, not just with the market in the 0-strike C23.
Re. "Suppose you want to predict something in 2100. It’s hard. Nobody wants to lock their money up for 80 years to get a 5% or 10% or even a 100% rate of return. ... One option we talked about last time is chained prediction markets."
When you buy a stock, you're predicting the time-discounted returns of that stock to infinity. So use the stock solution: Instead of giving a probability, have prediction-market users buy a "true" or a "false". The relative prices of a T and a F are determined by the (Laplace adjusted) ratio of Ts and Fs outstanding. The question is capitalized by both "true" and "false" purchases, and at resolution all money is divided up among holders of stock in the correct prediction. The price of a "true" vs a "false" should translate directly into an odds ratio whenever you want an odds ratio or a probability, and anyone who wishes to exit the market can sell their shares back to the now-capitalized question at the current price.
(I'd always assumed that was how prediction markets worked; but Scott's statement, quoted above, implies that they don't work that way.)
Re. "Conservatives are right-wing": NO. Stop saying that. It's extremist, left-wing and right-wing propaganda, whose purpose is to present our political choices as between either left or right, thus obscuring the fact that left-wing and right-wing are, for all practical purposes, just different flavors of the same mindless Hegelian poison.
"Right wing" has many distinct meanings, including these:
- The nobility sat to the right of the presiding officer's chair in the Estates General of 1789 at the start of the French Revolution. "Right-wing", using this precedent, means "in favor of hereditary aristocracy", and more-generally, "in favor of class hierarchy without social mobility".
- Left Hegelians (today you can read this as Marxists, Unitarians and other non-literalist Christians, and self-described "Progressives") pursue a religious, apocalyptic, historicist (teleological) program based on ideological purity; while Right Hegelians (nationalists, fascists, Nazis) pursue a religious, apocalyptic, historicist (teleological) program based on racial or ethnic purity. Right Hegelians historically formed temporary alliances with conservative religious groups, primarily pre-Vatican 2 Catholics and the Orthodox and Russian Orthodox Churches, as they did in fascist Spain, Italy, Germany, and Yugoslavia.
- According to Wikipedia, "Right-wing_politics", the US Dept of Homeland Security defines "right-wing" as being either hate-based, or preferring conflicts to be resolved at the state level rather than at the federal level--IMHO a shockingly biased definition which attempts to associate local political autonomy with racial hate.
None of these meanings of "right-wing" correlate positively with conservatism. Conservatism today in the US means Enlightenment liberalism: supporting the continuation of free markets, free speech, mistake theory, and liberal democracy. Both left and right wings have always been resolutely anti-liberal and pro-conflict-theory.
The French nobility were conservative in their time, but would be radical today; and the centrally-planned monarchy they believed in was much closer to communism than to an individualistic, free-market democracy. Fascists were never conservative. They sought to create a new society, using the fantasy of an imaginary distant past as propaganda, just as Marxists do.
The Social Justice movement today can't be classified as either left or right. It has strong ties to Marxism through the 1960s student movements and the resulting post-1990 aging-hippy university faculties; and to fascism through Nietzsche, continental phenomenology and existentialism, post-modernist philosophers who studied under Nazi professors (e.g., Michel Foucault and Herbert Marcuse), and the associated resurgence of Plato (who literally *invented* racial essentialism, for use in creating his perfect State). It views culture through the Nazi lens of racial essentialism, assuming that culture is a manifestation of a racial essence and therefore culture maps 1-1 onto race. This is why it calls cultural assimilation racially oppressive (e.g., blacks who live in the suburbs are being oppressed by a false racial consciousness).
The social division in the US today is between urban and rural culture. Rural culture doesn't align with nationalism; it correlates with nationalism only because the dominant ideology of urban culture today is actively anti-American, and saying you're proud of America can get you Twitter-mobbed. Rural culture is more religious; yet the right-wing religious--Catholic, Orthodox, Muslim, and Hindu--all now lean Democrat (https://www.pewforum.org/religious-landscape-study/party-affiliation/). Except for Mormons, the only majority-Republican religious sects are Protestant sects formed as left-wing dissenters from the right-wing Catholic hierarchy.
In my experience reading American political parlance, 'right-wing' and 'conservative' are used basically interchangeably. Feel free to fight the prescriptivist linguistic fight if you want tho.
My guess is that's because you're reading American news media, which deliberately confound "right-wing", "conservative", and "(Enlightenment) liberal", in order to demonize liberals. I certainly intend to fight that misinformation campaign.
It isn't prescriptivist to ask people to use words consistently rather than deceptively. If everybody agreed to use "right-wing" to mean "supporting local government", that would be okay. If they use it to mean "supporting local government" and "Nazi", and then pretend they've proven that people who support local government are Nazis, that's not okay, regardless of whether you believe in descriptive or prescriptive linguistics.
[Epistemic status: I am a retail investor who's been pretty serious about it for 10 years plus moderately active on predictit/metaculus. 75% confidence]
I thought about prediction market options some more, and I think liquidity concerns make me prefer directly using leverage on the underying contracts, instead of options.
Example: Suppose JGalt wants to bet $100 each on 100 different markets. Total bet value is $10k. How much should JGalt have to deposit to cover this if the markets are all uncorrelated coin flips? He wins a mean of 50 contracts with a standard deviation of 5, so to cover 4 standard deviations of negative variance, he needs 4*5*$100=$2000 in his account, so that he is getting 5x leverage. This is conservatively assuming we let all the contracts run to completion, but the system could get some additional protection by preemptively liquidating some of JGalt's contracts if the aggregate of their market prices moves unfavorably and he gets down to <2SD of margin.
This math can be generalized to cover a set of contracts with arbitrary variance and covariance. To protect the site from people who might lose a bunch of correlated bets to get a negative balance and then not pay their debt, admins would need to estimate covariance. Each time they create a new market, they need to run a search for related markets and override the default-zero covariance appropriately. In the limit as you assume every market has 100% covariance with every other market, you get what most prediction markets do, which is to not let anyone use any margin at all (except within a single market where it's logically impossible to lose both contracts).
What could go wrong:
* Maybe admins are bad at estimating covariance, so someone is allowed to make a bunch of correlated bets that all lose, and his account goes negative, and he doesn't pay his debt.
But options based systems have all the same margin problems, *plus* liquidity problems that make it much harder to liquidate accounts that fall below an adequate margin. So I'm 75% confident that leverage on the underlying would make a better prediction market than options.
Re. weight-loss drugs, this ignores the fact that the medical establishment is morally opposed to weight-loss drugs. Most doctors feel that prescribing a fat person a pill that would make them thin, instead of teaching them good Puritan self-control, would be immoral. This is why, for perhaps the past 40 years, the foremost weight-loss pill has always been subjected to a withering attack from the medical establishment until it was effectively banned.
Today, the most-effective weight-loss pill I know of is phentermine. It was developed in the 1960s as an alternative to amphetamines. Studies done at the time showed it was non-addictive. Recent studies have also all concluded it's non-addictive. But as soon as the previous effective weight-loss pill (IIRC it was ephedrine) was banned, phentermine came under attack. If you read Wikipedia today, or for-the-public websites like WebMD, they'll say that phentermine is an addictive amphetamine, even though it is not an amphetamine and is not addictive, except under the new "my patient resists stopping this drug because it works" definition of "addictive". It's now a scheduled drug with stringent requirements even when issued by prescription, which were tightened just this year to ensure that you have to be obese to be allowed to use it, and will have to stop using it before reaching a healthy weight.
verywellmind.com says (https://www.verywellmind.com/how-long-does-adipex-stay-in-your-system-80217), "Phentermine increases levels of norepinephrine, dopamine, and serotonin, producing an effect similar to amphetamine. For this reason, phentermine is a controlled substance and only available legally via a prescription." In reality, the stimulant effects of phentermine are like those of caffeine, which also effectively increases increases levels of norepinephrine, dopamine, and serotonin. (I wrote "effectively" because this may in part be mediated by increasing dopamine receptor availability; https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4462609 .)
(I don't recommend ephedrine because it works by speeding up your metabolism, which surely shortens lifespan. I don't recommend phen-fen because apparently it really is dangerous. Phentermine enabled me to permanently lower my stable body fat from over 14% of body weight to perhaps 12%, with a total weight loss around 3%, but weight loss did not continue past that level. That was on 19mg EOD, which is 1/4 of the usual dose. You can lose more weight by combining it with Topamax, but I found that made me feel tired all day long. I eventually stopped using phentermine entirely because, like caffeine, it gives me migraine headaches.)
If the market is large enough to support statistical arbitrage, then options traffic will be reflected in the underlying. AFAIK no such liquid options markets exist today.
> I bet a lot of people would care a lot if the conservatives could produce 0.01% higher GDP growth vs. 5%.
What if we want to know how much GDP is actually driven by policy, if at all? Can we use prediction markets to get a sense of the correlation coefficient?
We might naively expect we could just look at the distribution of the predictions to determine the variance of outcomes, but I'm really nervous about that. Prediction markets combine wisdom of crowds and incentives for knowledge to chase out bad predictions. But there's no direct and obvious way for good distributional information to chase out bad distributional information on this second layer. If a bunch of crazy people are guessing randomly all over the place, and you're the smart money and you're really sure the correlational coefficient is much tighter, there's no additional incentive for fixing the shape of the graph after you've committed the appropriate amount for where the outcome will land. If the smart money has already gotten in, there's no payout for you to go in and tweak the shape of the graph.
So I think we'd need a new tool on top of prediction markets to tease this out and I'm not sure what it would be.
If you had an infinite number of players, then maybe you could have a bunch of markets with different precisions. Predict the impact on next year's GDP to the trillion, to the hundred billion, down to the individual dollar if you like. Nobody's going to take the individual dollar bet. Nobody's going to bet in the tens of trillions because it will be a fixed market. The market with the most action might tell us where the biggest area of debate is that is plausible to predict, which might tell us something about the likely variance in outcomes?
Aside from being utterly impractical, that might be an interesting direction to explore. :D
Anyone have any other market technology to help predict how tightly A causes B? Maybe this is a solved problem already and I'm just missing it.
Options Markets today are hedged. When you buy an options contract a market maker hedges their risk by buying (some of) the underlying contact, this moves the market.
I predict that the UK's GDP will be higher five years after the next election if the Conservatives win than if Labour does. Why? Nothing to do with what either party would do if they win; it's just that the Conservatives are in government now, and economic growth is correlated with incumbent parties getting re-elected.
What about GDP growth starting from after the next parliament takes office? Perhaps the expected GDP growth should be higher if Labour wins than if the Conservatives do, again not because of their policies, but because expected GDP at the time of the election will be higher if the Conservatives win than if Labour does, and it could regress to the mean.
This sort of thing will always be a problem when trying to use conditional prediction markets to influence decisions that are also influenced by other things. The differences in conditional expectations don't tell you the direction of causation.
Metaculus doesn't have money at stake, so a whale is not advantaged. You could define a different type of whale as someone who had made lots of meta points on accurately predicting other questions and then were willing to tank their account, though.
I think the usual counter to the manipulation argument is that manipulation is 'dumb money'. If a Politician A spends a bunch of money to buy 'The economy growth rate will be at 7% YoY (relative to a 4% average) 4 years after A wins the election', then you can bet against A and make a ton of money. Once prediction markets have enough capital, a single actor can only move the price of an asset by giving a ton of money to smart traders. Current prediction markets have small amounts of money, and are definitely manipulable, though (as you say).
Robin Hanson's posts on prediction markets offer other alternatives to solve the problem you mention.
by the by, about Bolsonaro, I know a few reliable people who were in Brazil for the thick of Covid 19 there(which I am told was overblown in terms of media coverage), and no amount of telling their compatriots to stay home was going to be sufficient. What India did about a similar issue was to have non-compliant bar-goers bludgeoned with sticks by brute squads / Lou Ferrigno.
A) Very easy to say 'they didn't do it because it wouldn't have worked', when it wasn't tried.
B) Bolsonaro was not just not telling people to lock down (and therefore of course also not enforcing anything like lockdowns), he was actively encouraging gatherings with thousands of people packed in tight with no masks, turning down offered contracts for vaccines at prices Brazil could afford, etc. Also telling people they were wimps and gay if they tried to protect themselves or their families or wanted to get vaccines.
So, yeah, no ... There's 'mishandling' and then there's what Bolsonaro did.
(A) Easy or Hard, a casual presumption is neither false nor true on face-value for having BEEN casually constructed. But I trust first hand impressions from people (Brazilian doctors) on the ground more than I do reporting from abroad ANY day of the week.
(B) placating people who have no intention of sheltering in place cannot be said to encourage them to do what they would inevitably have done.
I have a lot of on the ground info as well (I lived in Rio for 15 ys, and have contacts all over the country). It's been awful, and Bolsonaro didn't just 'placate people who have no intention of sheltering in place'. Check out the reporting from WITHIN Brazil, if that would be more convincing.
Although perhaps our points of reference are part of the disagreement, here, as well;
(# from 13 December), deaths per million
Brasil 2,920.91
USA 2,418.09
Canada (where I am) 797.14
I do accept the data your using as accurate (to the extent that we like the way that they define covid deaths - which is a hilariously involved subject in and of itself that we probably shouldn't delve into).
I don't believe Canada can be compared with respect to its “R naught" R0 to a country like Brazil, wherein population density and population behaviors are so wildly different (I am being anecdotal, but that seems fair enough).
Also believe healthcare in Canada is superior to brazil.
So blaming policy for the differential covid mortalities and morbities is a stretch in my opinion.
(you do out rank me if you lived in Brazil for 15 years)
The comparison was primarily to note that you and I may have different mental base rates for how bad things have been.
But even so, given that Canada and the US are much more comparable as far as wealth and health-care systems, I think the numbers show that policy DOES make a big difference, as do the words of gov't leaders.
(Although Quebec especially did a shamefully terrible job with long-term care homes.)
I think Canada and the US are much more comparable, but that the average canadian is colder and further away geographically (population density and behaviorally) from one another than the average american.
These things matter a LOT, and it isn't clear how enormous the effects should be.
Also healthcare in Canada is actually very different, and Covid reporting also differs.
Covid case-fatalities vs exposure fatality is another enormous can of worms..
I don't believe that policy doesn't make a difference, just that comparing across countries as a means to characterize one leaders policies as worse than another disparate leader's is dubious to me.
I mean... at this point, congratulation, you've essentially created a narrative that's impervious to evidence?
Like, I know that's a rude thing to say, but I really see no other way to frame this. No matter what actions Bolsonaro had taken, no matter how insane, you could justify them by saying that saner actions wouldn't have persuaded people anyway. No matter what hard numbers people give you, you can say they're overblown and they don't match the impressions you got from people on the ground.
Worth noting that "impervious to evidence" is the ideal situation for a politician, and I'm pretty sure your framing was explicitly quoted as the basis for the UK's initial cull-the-weak/herd immunity policy: some unit of government concluded that our freedom-loving citizens just wouldn't obey rules geared towards zero COVID.
"placating people who have no intention of sheltering in place cannot be said to encourage them to do what they would inevitably have done."
But he didn't just placate *those* people. He also strongly encouraged *other* people who *wanted* to take safety precautions not to do so.
in the act of placating yes he did. there is enormous collateral damage. of course there is.
I am not actually Brazil's official apologist for "placate your people and win their stupid little votes".
appreciate your point of view.
If Metaculus were a real-money market, you could imagine a world where in 2029 there existed some SMR nuclear reactors, but not in sufficient quantities or in economies where they made sense to deploy at scale for national electric power, but someone floated a few into whatever the smallest, poorest island nation is to supply 1% of its electric power and win the market.
But, you know, I guess that won't be worthwhile even if possible, unless Metaculus leaderboard positions become REAL valuable in the next 8 years.
Maybe we should create a prediction market about the real-world dollar value of a position on Metaculus leaderboard in 2030.
Tuvalu built a solar power farm in 2008, with capacity of 40KW, and per Tuvalu this represents ~5% of peak demand on the most populated island, Fongafale.
Russia has two Small Nuclear Reactor boats each producing net 32MWe. It seems like all it would take would be to sail those boats down to Tuvalu and hook them up
https://pacificdata.org/data/publications/the-tuvalu-solar-power-project2/resource/67954080-6d11-4415-a58d-9f0916c41de3
https://pris.iaea.org/PRIS/CountryStatistics/ReactorDetails.aspx?current=895
Potentially this plan to build a 300 MWe BWRX-300 in Poland would constitute about 1% of their electricity. I guess the chances of it starting operation by 2030 are slim.
https://www.world-nuclear-news.org/Articles/Polish-joint-venture-to-commercialise-SMRs
More plausibly, this NuScale 6-module plant to be built in Romania is supposed to start operation in 2028, and would be something like 7% of their energy.
https://www.world-nuclear-news.org/Articles/NuScale-SMR-planned-for-Romania
I definitely feel like "1% of any nation" is really just asking you to go out and look at a bunch of small nations and try to figure out whether any of them might do this, rather than asking anything about whether small modular reactors will be seen as a meaningful contributor to energy.
I don't have experience with google's new prediction market. However, when I worked there a decade ago, I did use prophit, which also had "play money with leaderboards" as the reward. It was not quite the right incentive system. Back then at least, leaderboards and play money were reset on a quarterly schedule, and the people at the top of the leaderboard got gift certificates (I think $75 was typical). This means it was best to make somewhat-risky bets with your finite play money and hope they paid out. If there were a market where the outcome were 100% known (but that would only pay out at end of quarter), it would still have been a losing strategy to bet at 70% odds, I'd guess.
It's worth noting that you've described two separate issues:
* Prediction markets can be constrained on capital. That is, even if someone were a perfect oracle, they would have to be strategic about where they spent their money. As a result, a given market may not reflect the collective beliefs of the individuals in the market. This relates to the issue of options that Scott raises in the article, since options get you leverage on your existing capital (at the cost of increasing risk).
* Binning results in weird behavior. Since it's play money, people can take unbounded risks so long as the payout is pretty good. Adding options trading would make this especially obvious, since way undershooting the cutoff for a payout would be just as bad as missing it by 1 unit of play currency.
Cool to hear you used Prophit! I'm always trying to learn more about it. Gleangen, Google's current prediction market, has last-30-days, quarterly, and all-time leaderboards. The all-time leaderboards are divided by category, so that you can play the long game of trying to be the best forecaster of, say, moonshots.
Even so, you're right that there's asymmetry that incentivizes risky bets.
On the questions of the form "If this party wins, what will be the value of this metric?", in a one-shot I don't think you learn much except the political prejudices of metaculus users.
But if you did this a really large number of times over a really large number of elections, you could probably learn something. If unemployment is consistently forecast to be 0.5% higher under Party X than Party Y, and unemployment is consistently higher than the Metaculus estimate in years when Party X wins and consistently lower than the Metaculus estimate in years when Party Y wins, then you might be able to figure out exactly how wrong Metaculus users are, subtract it, and figure out the actual effect of Party X vs Party Y on unemployment. (Of course you'd need to wait a very long time to have enough data for this to be useful.)
Several additional problems:
Often, theory suggests that party in power in year X is more strongly correlated with macroeconomic performance in year X+2 or X+5 than in year X.
For each new market, Metaculus users will be calibrating against past Metaculus performance, so we shouldn't expect averaging across many years of Metaculus performance to give a proper calibration factor (just as pre-election polls have different bias from real results each election, as pollsters incorporate factors that would have been predictive in the previous year).
If you let this influence elections too much, it will also lead to people 'buying' votes by intentionally voting outside their actual expectations to support their party.
Additionally, when people know they are measured die specific numbers, they'll start optimizing for them. Though this might be advantageous in some ways.
Regarding "looking for options" -- prediction markets could adopt methods similar to what financial markets use for cleared derivatives transactions. Lets say you want to buy 100 shares of "yes" on some question at a 50/50 chance. You are risking $50, and your total payout will be $100 if correct, in 2100. The daily volatility in the contract may be some fraction of 1%, and a really big price move in the prediction for something that far out might be 2%. The market could simply make you post $2 upfront instead of the entire $50. As the market moves either direction, you get credited or debited 100% of each market move. If you do not have the money to cover the margin call when the market moves against you, the clearing agent liquidates your position. That money reserve could be either posted at the prediction market exchange or take the form of say having a credit card on file.
The obvious benefit is that this method reduces the initial opportunity cost of capital by 96%. The downsides?
(1) People might be worried about getting margin called. Of course they can prevent this completely if they want to buy just keeping $48 in their account in my example, so they are no worse off than the status quo regardless. If they make predictions in many different questions, they likely have lots of diversification benefits and their risk of being proven hugely wrong on all their questions at the same time is quite low. Over the life of their predictions they will need to keep some cash buffer, so the lifetime opportunity cost of capital isn't 96% saved, but could be pretty close anyway.
(2) The market might move by more than the required $2 margin amount, and the people on the losing side might opt not to make good on their payment obligation to cover the difference (i.e. they default). This risk is mitigated when predictors have lots of different positions on different prediction contracts on the same exchange (cross-collateralization). In financial markets, the clearinghouse itself acts as guarantor against defaults, so no predictor would be taking the credit risk of the other predictors. The clearinghouse takes the risk, and charges some sort of fee to fund a pot of money from which to pay for any future credit defaults.
It's not a new problem and a complex market has taken a pretty good shot at an efficient solution. If you have a better solution you can probably make at least hundreds of millions of dollars displacing the CME or LCH from their current gigs.
Say I make a prediction one year out, and then drastically adjust it with 1 month left (closer to what will actually happen), then my Brier score is going to be pretty bad right? But if the majority of votes came in with only 1 month left, being close to the actual outcome, does that mean overall Brier score will be good?
And I think predictions also need a complexity score. So for example predicting 2022 inflation accurately is probably more impressive than predicting the outcome of a sports match (which is a lot more local). And predicting something further out is generally more impressive as well, the more global it is.
A value measure for each prediction could sort of solve this, where each person has a limited number of upvotes they can give to predictions. Where predictions with higher scores count more towards overall prediction score.
Re: Looking For Options
Black and Scholes showed in their famous model that (under some assumptions that have been made less restrictive over time) you can replicate the performance of an option using a mixture of cash (or a loan) and holding the underlying asset, then re-balancing the portfolio of the underlying and the cash over time. If these sorts of assumptions can hold here, then this is wrong: "But if nobody is buying shares directly and all the action is in options trading on the side, that won’t work. " People buy options, market making option sellers price those options and hedge their risk using the underlying prediction market, and the market can reflect the beliefs of the people buying the options. The hedging portfolios that the market makers create (a replicating portfolio) brings the information from the option buyer into the market prices of the underlying asset.
Also, it is not rare for the market in options on `X' to be more active than the market for `X' itself. For example, Goldman Sachs found last year that stock option trading volumes were higher than stock trading volumes (https://nitter.ir/LizAnnSonders/status/1286648865828077569) and it is quite common for credit default swap markets (CDS), a kind of bond derivative, to be more liquid than the bonds that they are derived from.
I think a more fair description of your link would be "GS found last year that stock option trading volumes became higher than stock trading volumes for the first time in the history of the entire stock market at some time near the peak of the insane Gamestop and related meme-stock mania, an unprecedented event".
CDS can be more liquid than underlying bonds, but CDS are importantly not options. Also their existence has been shown to at times wreak havoc with their underlyings (e.g. https://www.bloomberg.com/opinion/articles/2017-11-17/blackstone-may-do-its-cleverest-cds-trade-again?sref=1kJVNqnU, https://www.bloomberg.com/opinion/articles/2018-04-10/hovnanian-s-weird-cds-trade-gets-weirder?sref=1kJVNqnU, https://www.bloomberg.com/opinion/articles/2018-05-01/another-weird-deal-upsets-cds-traders?sref=1kJVNqnU)
Using market-maker-hedging to tie the kinds of markets that Scott's talking about together would get really tricky as the time-to-expiry in the derivative market got rather close. If the underlying market is thinly traded, an owner of a large position in the derivative could try to drive the price of the underlying at precisely the time of expiry. People on the other side of the trade could try to drive it the opposite direction. The result can be very hard to predict, can be way off of the intrinsic value, and can depend on things like which side had more concentrated holders and/or was more sophisticated rather than on the underlying probability. This happens less (but some!) in real financial markets, because under some conditions it would bring an enforcement action by the SEC. I imagine this would be a very big problem in prediction markets, and I would not own the derivative side of any of these positions within several months of expiry unless I was the one planning on trying to drive the price of the underlying at the expiry time of the derivative.
I agree that options are only one kind of derivative, but I don't see the expiry problem. As long as opinions exist in both directions on the bet, I don't expect this to be an issue. Because the bets are in zero net supply, for every long bet their is a short bet elsewhere, and that means that while they might want to drive the price of the underlying at precisely the time of expiry, there would be people working to do the opposite. In a world where we stipulate that lots of people want to make bets on the policy through options on the underlying, I am not persuaded that this would be an illiquid market.
And CDS are not special here. There are other markets where derivatives are more liquid than the underlying. Futures volumes are often higher than spot market volumes in foreign exchange. Treasury futures also. Ninety percent of the agency MBS trading volume occurs in the TBA forward market.
But, even if it is rare for options but not for futures, it seems like you could do what Scott suggests just as easily with futures markets. Just like you can break a a 30 year interest rate swap into 30 one year forward rates, it seems pretty easy to break a 30 year bet into a series of 30 one year bets of the evolution of something.
Scott does this funny thing where he'll admit ignorance of something very basic, but then manage to frame his questions about it exactly the way that some seminal work had to frame them in order to discover a now-famous answer. I'm not recalling what the earlier examples were, but I know this isn't the first time I've noticed him do this.
Surely the obvious problem with political prediction markets is that money that wanted to make The Other Party look bad would drown out smart money that actually wanted to predict for a return?
Experience suggests greed trumps vicarious triumph, every time. Id est, the number of people wanting to make money on their predictions in order to go skiing or get a new iPhone would always drown out the number who get satisfaction in losing money -- but making Their Side look good.
This was not my experience trading on predictit at MANY points over the past two presidential election cycles. Maybe if the max position size was much higher this would get washed out. However at least for the biggest real money politics prediction market that has existed thus far, at many times political activists seemed to see it as pretty cheap advertising for e.g. a niche primary candidate
I think it depends on the ratio between the amount of influence a particular market has and the amount of money involved.
I think right now, prediction markets might be getting into the regime where their influence (in terms of being able to get reasonably high profile people in certain communities to write about them) is dangerously mis-sized compared to the amount of money involved. If I were on the campaign team for a second-tier candidate for the 2024 Presidential election, I'd be spending up big right now to increase my candidate's perceived chances on every prediction market.
Maybe, but if people thought that was was what people were doing, then they might decide they can make money by betting against the people trying to push the market in a pasrticular direction, so you'd get back to equilibrium.
In re obesity predictions: Are you betting that the definition of obesity won't change? Or you'll go with whatever the definition is then?
What's the argument for more Americans being obese? The drugs don't work that well? They don't work that well on a lot of people? There are side effects and the drugs are withdrawn? The drugs are expensive and/or otherwise not available? Odds of a black market if they aren't available?
I'm similarly a bit confused at how Guyanet thinks it would still be 35% if he's optimistic about the drugs. I'd think his distribution would be more bimodal... like it'd be either 10% or 60%
The drug might not work on all people, but only on 50% of the cases. Or 60%. Or 40%. If all these outcomes are possible, we get a continuous spectrum.
In fact, that should be our base assumption, because many drugs don't work for everyone, and this applies pretty much to all drugs that work via brain chemistry. (Ask Scott.) As far as I understand, the obesity drugs work exactly like this, via brain chemistry.
Or people might just compensate and eat that much less healthy and that much more quantity.....
There's also a possibility that whatever is making Americans fatter* will continue to have a strong effect, and the drugs won't work and/or won't be very available.
*Are Americans still getting fatter? I thought obesity was levelling off.
No, it isn't. See this article series for infinitely more than you wanted to know. (This specific question is Mystery 3 in the article.)
https://slimemoldtimemold.com/2021/07/07/a-chemical-hunger-part-i-mysteries/
Yes, I think the idea is that whatever is causing obesity rates to rise will keep causing them to rise, and drugs aimed at fighting obesity may only be able to slow the rate of increase. E.G., Semaglutide seems to help people lose about 20% of their body weight. That sounds nice, but what if there are a growing number of people out there who could drop 20% of their body weight and still qualify as obese?
> What's the argument for more Americans being obese? The drugs don't work that well? They don't work that well on a lot of people? There are side effects and the drugs are withdrawn? The drugs are expensive and/or otherwise not available?
A culture that views weight loss pills as hokum / low status, versus virtuously trying to earn weight loss via diet & exercise, regardless of how effective willpower-based solutions are? Medical progress mitigating obesity-related conditions, so the urgency to treat fatness itself lessens? (As Scott posted, Metaculus predicts US obesity will go up from 43% to nearly 50% by 2032; Metaculus also currently predicts the US adult diabetes rate will be 13% in 2032, same as it was in 2016.)
Less likely: A culture whose perspective of 'normal' weight has drifted enough that the lower edges of the 'obese' category don't seem like that big a deal overall?
The trend is still going up, and not even slowing down. So if you just extrapolate the current trend, then obesity will increase.
The trend has been robust for a long time, and consistent over basically all countries in the world. So you should have very good reasons for the guess "this trend will stop/invert".
Hasn't it slowed down over the past decade? And for a while, it looked like childhood obesity rates had actually plateaued (though I don't know if that has changed in recent years).
About the conditional markets and politics:
I agree that politicians will probably try to wave away bad looking results and the result of tradeoffs, but isn't that still better than the political discourse we have now?
I guess I don't know the British talking points, so I'm switching to American politics here. Like I can imagine Republican politicians responding to conditional markets saying that Democrats will lead to better test scores by saying that it's only because they'll tax you dry to fund education (cue a discussion of the conditional markets on tax rates). But today I'd imagine the Republican saying that they'll produce higher test scores *even though* the Democrats are spending more money on it because the Democrats will be spending money on teaching white kids to hate themselves or something rather than any useful educational goal.
That's a caricatured way of saying that the Republicans would accuse the Democrats of lowering standards, which is both truer and more obvious. I suppose the CRT stuff would get grafted onto it to get people riled up.
OK. Fair. My specific arguments were probably less charitable to the Republican position than they should have been. However, I think my main point still stands: today politicians will mostly argue that electing them will improve outcomes in all possible ways. I think making them acknowledge that they are making some tradeoffs would be an improvement.
I don't think the current discourse is much if at all different than the predicted prediction market discourse. I'm under the impression that politicians, rather than saying that they'll improve all the outcomes, focus their messaging on specific issues and framing those issues in ways favourable to themselves, which often involves a lot of hand waving away criticisms (eg, bad results) and trade-offs.
This sums up beautifully what I think of the whole prediction market biz:
"You’re not really learning anything you wouldn’t have guessed otherwise. But it’s a proof of concept."
I think that's a bit unfair to the prediction markets.
If I am an expert on a question, then I might agree that I don't learn a lot (maybe). But if I am not an expert? For most question on metaculus, I wouldn't have a clou.
It's like saying that if you are an expert on company X, you don't need stock markets to know how much the company is worth. But most people are not experts on company X.
I think that prediction markets are only useful for events that do not depend strongly on individual actions (Hari Seldon said so, in the books anyway!). For example, the results of the presidential election seem to be reliably predictable, since they aggregate a very large number of decisions whose average is reasonably easy to estimate. Similarly, the evolution of a technology can probably be estimated with some reliability since there are usually quite a few actors involved. In contrast, for example, policies that depend on who is appointed to a given department and then what kind of choices that person will make, seems to me to be almost impossible to estimate reliably by a prediction market.
These prediction markets are worthless because the only predictions that really matter are the non-linear ones.
AI/machine learning can do linear extrapolations just fine.
The 2nd, more fundamental problem with prediction markets is that they are ultimately flawed. If any market shows any promise - it is then trivially skewed by a small amount of money/effort. If y
ou can't trust them early, and you can't trust them once they've proven themselves, that is the literal definition of useless.
Not sure what you mean? Is "% chance Biden will get re-elected in 2024" linear or nonlinear? If linear, I...don't think machine learning can handle that. If non-linear, this is a classic example of what prediction markets are good at, so what's the problem?
It's actually very hard to skew prediction markets. If you don't believe me, try skewing one and see what happens!
I distinctly remember that the "prediction markets" for 2016 were skewed because the Democrat/Clinton bettors made far larger bets than the Republican/Trump ones. So that's one clear example of skew - albeit unintentional. As such, an intentional skewing is more than possible.
1. "The whole point of prediction markets is that their prices correspond to the chance of something happening. But if nobody is buying shares directly and all the action is in options trading on the side, that won’t work..."
It is possible to arbitrage any price discrepancies between options and the underlying stock. For example, if you buy a put and sell a call at the same strike and same expiration date, that is a synthetic short position that can be perfectly hedged by buying the underlying. If the options are already cheaper than the underlying, you can arb it by doing the opposite thing (buy call, sell put, sell underlying)
People will quickly arb any price discrepancies, so there's no risk of the prediction market getting far out of whack that way. The biggest problem I see is that options will be too illiquid. On wall street, companies under $5B don't have liquid options for next month, and even $500B megacorporations have 20% bid-ask spreads on options expiring 2 years in the future. That's even worse than Predictit fees! People can put limit orders in the middle and wait a long time for someone to fill them, and hope they don't get past-posted when news comes out, but that experience kinda sucks.
2. Caution on conditional prediction markets.
Betonline has some hilarious alien-themed markets (https://www.betonline.ag/sportsbook/futures-and-props/entertainment/aliens) for who will get abducted by aliens first, which country will get attacked by aliens first, and who will win the alien v human war. All bets are void if the aliens don't show up by 12/31/2021. So they're basically getting free loans from whoever bets these things. People have nothing to lose except interest, so they don't care what the lines are and might bet it just to generate reward points or something.
The more improbable the condition, the less skin in the game people have. If the condition is <1%, then probably nobody really wants to bet it except for ideological reasons or silly reasons that have nothing to do with the correct conditional probability.
I think the arbitrage corridor (for those reading: The an arbitrage corridor is a stable gap between a theoretically optimal price achieved through arbitrage activity and the actual price, and is generally driven by transaction costs) here is potentially huge; as you flag, companies need to be properly big to have a proper options market without enormous bid/ask spreads. You can see this in the bond markets; even very large bond markets (in the single-digit billions of dollars) don't really have functional associated options markets; the minimum scale is just too large before you get enough liquidity to support it.
I also think the role of regulation and a regulator is, as always in this kind of discussion, vastly underappreciated. Market makers, especially in smaller markets ('smaller' here being less than hundreds of billions) do have the ability to get up to no good, and regulation (or even the threat of regulation) does a lot of work to keep markets functional.
Over my time in finance, I've developed an appreciation for fuzzily-worded regulation which allows the regulator to work on a principles-based model, rather than having to imagine every possible scenario.
Could you describe how a market maker in a small unregulated market would "get up to no good" in ways that might be applicable to prediction markets?
Most actual prediction markets themselves are actually relatively robust to market maker malicious intervention due to their price being driven by 'money in the pot'
(not exactly, I know, but it's a close enough approximation in most cases for my point here) rather than 'marginal buyer/seller' dynamics of most securities markets (so 'spoofing' a prediction market is either meaningless or has no value).
This robustness to malicious intervention is less true for prediction markets which allow you to cash out your prediction prior to expiry, which incentivises pump & dump style schemes so common in cryptocurrency. These incentives also exist in current financial markets, of course, but these are regulated and the people who deal with them are watched (by UK law, all my trades on any platform are registered with my employer and tracked, and other than broad index savings need to be pre-approved).
My comment was in particular in relation to the options element, which is where you (by necessity) reintroduce all the downsides of traditional securities markets (you can crystallise early via selling the option, there's the potential for option markets to balloon beyond the size of the underlying market (this does not necessarily need to be in total size outstanding, it can simply be in terms of your sensitivity to price movements (DV01, in the jargon), which means that a large market maker in options (who will, short of self-imposed regulation on the part of the users, be the only person with full vision of what has been bought and sold) might be able to disproportionately impact the value of those options by relatively small investments in the prediction market itself (for example, putting money into the underlying to change the current pricing on the prediction market, thereby reducing the value of the options so they can buy them back at a lower price).
I'm not sure how much assumed knowledge I'm working off of here so please let me know if unclear.
If you want a prediction market for something that will happen (or not) in 2100, then that market needs to trade not in 202x dollars but in safe bonds maturing at 2100. This is important both because of the time value of money (since a 100% certain win of $100 at 2100 is likely worth just a few dollars now, so you should not have to put up $100 so that the other side would expect to get $100 at the end of the bet) and because of the need for the market to decouple the fluctuations of the actual bet from the fluctuations on the expected interest/discount rate for that decades-long bond, which - at least when the payoff is still distant - would be much more influential than the actual expected value of the bet.
>SMR Metaculus
How do they define 'Nation'? Per the question, they have 'Resolution may come from credible media reports, government agencies, or energy industry researchers such as the IEA.' as a resolution criteria, but that isn't clear on who exactly counts. Does Israel count? They still aren't fully recognized. Kosovo? Less recognized, but recognized by some big players. Taiwan? Barely recognized. Bougainville? Aiming for independence but arguably not there yet. Scotland? In no way independent but may or may not want to be, also still labelled a kingdom.
Can I declare independence as dictator of the Russian city Metaculus links as having a Small Nuclear Reactor already, have an article written about me as a crackpot trying to secede from Russia, and win?
Metaculus has humans to make these sorts of judgment calls, and on the tiny offchance that the resolution of this particular question comes down to whether or not Taiwan or Kosovo counts as a _real_ country then they'll resolve it one way or the other.
There are plenty of questions which are more likely to cause resolution headaches than this one.
I think the closest correlate to you option market conundrum is VIX futures. Since there is no such thing as trade able spot vix, the curve exhibits some interesting behavior.
Scott,
I don’t know if the following helps re options since I didn’t read the previous post in depth but here’s something:
Options can be arbitraged with their underlying asset in the following way: if you buy a call and sell a put at the same strike , that’s equivalent to buying the stock for the premiums plus the strike since you will either exercise the call or be forced to buy by the holder of the put depending on where them price of the underlying ends up.
Wegovy. The drug was approved by the FDA on June 4. It is very expensive (>$300/week). After a failed attempt to obtain insurance coverage, I began a course of treatment in September. The course of treatment described by the package insert is to begin at 0.25 mg and escalate by steps to the therapeutic dose of 2.4 mg, which will be my next step. I have had none of the side effects described in the warnings. By the time I completed the third step, I had already lost 7% of my body weight. When I started my BMI was almost 40. My goal is to get that down below 30, at which point i will be merely overweight. Right now it seems to be very doable.
The biggest problem with mass use of Wegovy are 1. cost/insurance, which in the long run will be solved. Every one of the five other prescriptions I take was once patented and expensive. They are now all off patent (one is now OTC) and are a lot cheaper. And 2. the supply chain (sigh):
"Novo Nordisk (NOVOb.CO) shares fell as much as 16% on Monday after the Danish drugmaker was hit by U.S. supply issues for its new obesity drug as it seeks to establish a market foothold before the launch of a rival drug by Eli Lilly.
"The obesity market has proved difficult for pharmaceuticals companies, but Novo made a breakthrough with its Wegovy drug. The company hopes the drug, which helps to achieve weight loss of 17% on average over almost two years, will offset growing pressure on its core insulin business. read more
"In a stock announcement after Friday's market close, Novo said that a contract manufacturer filling syringes for pens to inject the drug had halted deliveries and manufacturing temporarily after issues relating to good manufacturing practice.
"The Danish drugmaker was already facing separate supply constraints after being "overwhelmed" by initial uptake of the drug. read more
"As a consequence, fewer new patients will start treatment with the drug in the first half of next year. Novo now expects to be able to meet U.S. demand in the second half of next year, having previously estimated it would do so at the beginning of the year."
https://www.reuters.com/business/healthcare-pharmaceuticals/novo-nordisk-shares-slump-us-supply-challenges-obesity-drug-2021-12-20/
I started on Ozempic, because my insurance would cover it. (Same molecule as Wegovy, just a different dosage.) Down 4% body weight in three weeks. I'm kind of stunned.
My doctor ,who is an excellent doctor whom I like very much, does not color outside the lines. I have never in the 10 years I have been seeing him had an A1C that was not firmly in the middle of the normal range, so he would not consider Ozempic. But, it's only money, I might as well spend it before the government turns it into scrap paper.
Canada just approved Wegovy, so if you have a valid prescription, it should soon be possible to get the med for cheaper from someplace like Mark's Marine. I know a lot of people get their Ozempic from there. $300 instead of $1,300.
Thanks Ellen. Good idea. Once I get to the steady state therapeutic dose I will have to look into that. I would be concerned about the supply chain issues though.
I would expect a third problem with both products using this drug: it requires weekly self-injection. If I understand correctly that it was originally targeted at diabetics, who would be used to that anyway, that makes sense, but as an overweight person of normal blood sugar, it seems like an issue. I saw "somewhere" that there are, naturally, attempts in progress to adapt the drug for oral use.
I'm on a couple of Facebook support groups for people losing weight with semaglutide. The needle is an issue, but you have to factor in how desperate people are to lose weight. Lots of needle-phobic people get calmed down on the group and go head and learn to inject. It helps that the pen is very easy to use and has a tiny needle.
post-titration steady-state doses:
Ozempic: weekly injection, 0.5-1.0 mg semaglutide (for Type 2 diabetes)
Rybelsus: daily pill, 7-14 mg semaglutide (for Type 2 diabetes)
Wegovy: weekly injection, 2.4 mg semaglutide (for obesity management)
a higher-dose daily pill for obesity management is currently in Phase III clinical trials and will almost surely be brought to market within the next couple years
(the Rybelsus dose is so much higher than the injection dose because most of the active ingredient is destroyed by your GI tract prior to being absorbed)
@JackG: thanks for the information. I am actually OK with the injections and wouldn't switch to avoid them.
The injection, which concerned me before I started, has turned out to be a non-problem. The injection does not involve using a syringe and a needle like you usually see in Doctor's offices. I am preternaturally clumsy and would need as many arms as Vishnu to be able to inject myself with that kind of lash up.
The medicine comes in plastic tubes that are prefilled at factory. The tubes are about 5.6 in long and 0.6 in in diameter. The needle is concealed under a cap and guarded by the tube.
To inject yourself, you remove the cap, place the end with the needle in it at the spot you are aiming for, and press down firmly. The needle goes in, the injector's piston pushes the medicine into your body, and when it is done it gives an audible click and you can see the yellow piston through a window.
The whole process takes just a few seconds. The pain is negligible and I have never drawn blood in the process.
The biggest problem with the injectors is the supply chain issue I cited above.
Thanks, very useful info.
Allow me to report on the supply chain problem.
I tried to fill my prescription for Wegovy 2.4 mg this week. My usual pharmacy, in a Kroger supermarket did not have any and could not obtain it from their distributor. They checked other Kroger stores in their database. Four of them showed an inventory. Further checking revealed that none of them actually had it.
I tried Giant Eagle, another supermarket chain. No luck. Went to Walgreen's -- Maybe in a store in another city two hours away. CVS not in my local store but they gave me the phone numbers of four stores that might have it. The third one did, even though it was clear across the metro area. I said fine, I'll buy it. And ran over there through pre-christmas shopping traffic.
Four pharmacies visited, seven more called. Oh yes and CVS charged $65 more than Kroger.
> You could do this for [...] school test scores
And if you did, the question you'd be predicting is "which party will fiddle the figures more by making exams easier".
"I don’t know, maybe you wouldn’t learn anything there either. If Conservatives had better GDP growth, maybe leftists would say “of course, they’re the more capitalist party, they trade off environmental damage and inequality for a slightly hotter economy”. If Labour had better test scores, maybe rightists would say “of course, they’re the more socialist party, they’ll tax you dry and throw some of the money at schools but it will still be inefficient.”"
I think this is pessimistic. Yes, of course this is the kind of thing each side will say, but isn't that how it should be? Imagine a world where there are established prediction markets for public policies like this with strong track-records of accuracy. Then the public debate could be about what what values people want to support: crime reduction vs. mass incarceration; economy vs. environment, etc. rather than the byzantine factual/counterfactual arguments about which side's policies would *really* be better for crime reduction or economy that we have today. Also it would encourage parties to drop policies that suck at a achieving their intended/stated ends.
> Here I admit I don’t know much about markets or options - is there some way to combine regular trading and options trading into a single price, so that we could get the advantages of options trading, but traders would still be betting on the regular market and increasing our predictive accuracy?
Yes, this would happen naturally and automatically via arbitrage. See:
https://en.wikipedia.org/wiki/Put%E2%80%93call_parity
https://en.wikipedia.org/wiki/Replicating_portfolio
> That peak at the end is weird-looking and shows up on many Metaculus questions. I think this is something like all dates after April 1 getting crammed into April 1 for the graph, and even though very few people think it will be after April 1, that’s still a really high number of guesses when it’s all concentrated into an individual day.
I assumed this was happening because users really put their prediction on the last day of the time window to signal “I don’t believe this will happen within the time window of this question”. Many questions include “If this does not occur by [last selectable date], it resolves as > [last selectable date]” in the fine print.
Usually for those questions the upper bound is open, so you can put probability mass outside the question window. But I think some users don't fully understand this and don't adjust their probability mass sliders correctly. The other factor contributing to the bump at the end is the sliders are imprecise. You can put the majority of the probability mass outside the open upper bound, but the best way to do that is to make a narrow distribution and slide the slider all the way to the right, but no matter what you do it leaves a sliver of the probability mass within the bounds, creating the weird peak on the right side. I agree with Scott, it's something they should fix because right now it's weird and is hard to interpret.
Here's another example of a question with an open upper bound that ends up with the weird peak at the right: https://www.metaculus.com/questions/6124/astrazenecaoxford-vaccine-us-eua-date/
They should be able to alleviate this problem by also displaying the cumulative probability density, which would at least make the peak less jarring.
Are there any prediction markets that predict their own continued existence or eventual demise?
Metaculus has a few questions like that. For example: https://www.metaculus.com/questions/841/will-metaculus-exist-in-2030/
Intrade did, if I remember correctly.
Did Robin Hanson really invent prediction markets? On the Wikipedia article on prediction markets, I see that he made the first known corporate prediction market in 1990, but it also says that the University of Iowa's market first ran in the 1988 presidential election. Did he make one earlier?
Depending on what counts as a prediction market, there have been various financial derivatives of the relevant sort for sale for centuries, though usually only when the underlying prediction is itself either a financial instrument, or something like the weather that directly serves as a hedge for some lines of business. (Farmers want a hedge against no rain; beach resort owners want a hedge against rain.)
Is he creditied with prediction markets or futarchy (governance explicitly based on the results of prediction markets)?
> Suppose you want to predict something in 2100. It’s hard. Nobody wants to lock their money up for 80 years to get a 5% or 10% or even a 100% rate of return.
A partial solution to this problem:
Prediction markets presumably provide a little bit of diversification, so the mean-variance-optimal portfolio contains at least a small allocation to prediction markets, regardless of how low the expected return is (as long as it's still positive). Investors can add leverage until they reach the desired level of risk.
This solution is not complete because it only works if you can borrow money at the risk-free rate. Pretty much nobody can do that. Even if you're only paying an extra 0.5% for leverage (which is something like what institutional investors pay), that could be enough to wipe out your expected return. So long-dated predictions are still worth buying *if* you can get cheap enough leverage. The question then becomes how to get sufficiently cheap leverage.
"My next question is: is there a structure where options directly move the market? The whole point of prediction markets is that their prices correspond to the chance of something happening. But if nobody is buying shares directly and all the action is in options trading on the side, that won’t work. Here I admit I don’t know much about markets or options - is there some way to combine regular trading and options trading into a single price, so that we could get the advantages of options trading, but traders would still be betting on the regular market and increasing our predictive accuracy?"
Options move the stock market through arbitrage and the hedging of market makers (they don't want to make or lose money on the outcome of the options they buy/sell, so they buy/sell the underlying security to offset price moves and stay "delta neutral.") Presumably something similar could work for a prediction market that had a liquid market supported by market making firms.
On the subject of options effects on security prices when they dominate the flows of their underlying, investory/day trader types might be intersted in googling about NOPE, the Net Options Pricing Effect, a calculation invented in 2019 by Lily Francus and some cohorts that tries to guess when stock prices (specifically SPX index or SPY ETF given their liquidity) will have a near term reversion due to market maker hedging - if too many calls or puts are bought relative to the actual stock, they eventually have too much built up pressure and risk and have to engage in hedging purchases/sales (usually through /ES futures, which are abritraged to effect the SPX/SPY prices) that will cause a short term "snap back" in the underlying price until the put/call flow becomes more balanced.
It's had some useful backtesting as well as identifying conditions where it doesn't work well (actual market moving news is going to run over relatively modest hedging flows, as will high options gamma structures).
See here, and the whitepaper link at the top.
https://nopechart.com/
More on delta (change in derivative price/change in underlying price) hedging for those curious: https://www.investopedia.com/terms/d/deltahedging.asp
Relatedly, the GME volatility of early 2021 was in part due to a [gamma squeeze](https://smartasset.com/investing/gamma-squeeze), wherein options sellers hedge their delta exposure on short-dated call options by buying the underlying asset. The correlated buying of the underlying asset caused the stock price to spike as a result of options activity.
I'm quite surprised that the Metaculus article doesn't mention the recently FDA-approved Setmelanotide nor any of the other melanocortin small molecule agonists currently in development (e.g. LR-19021).
Highly speculative re weight loss drugs:
Guyenet argues that the obesity epidemic is caused by modern hyper-palatable processed foods that entice us to overeat. The Big Food industry engineers these foods in labs to be enticing. As the industry has improved its techniques, it has surrounded us with more and more tempting food at lower and lower prices.
A negative scenario is that the palatability of processed foods evolves in response to the introduction of these GLP+ drugs. What if the current performance of semaglutide is like the initial performance of a new antibiotic? It's a miracle drug at first, but Big Food responds by updating its processed food recipes, producing something analogous to antibiotic-resistant bacteria.
Through the Darwinian selection of capitalism, processed foods that partially overcome the power of the new drugs attain more shelf space and, eventually, "share of stomach". Big Pharma responds with new drugs that, for a while, have stronger efficacy. Etc. So we end up with something closer to a dynamic stalemate than to a total victory over obesity.
That sounds a little unlikely. It'd be hard for Frito Lay to defeat an effective pharmaceutical without adding something to their snack food that would itself require FDA approval, like a pharmaceutical. I would think the optimal equilibrium here for both parties would be that you eat a crapload of junk food, and thanks to the miracles of modern pharmacology, never gain any weight from it, so thoughts like "this is bad for you; stop eating so many potato chips" never enter your mind in the first place.
I think the bigger concern is that in order to keep from gaining weight back, people might have to keep taking something like semaglutide for long periods of time, maybe indefinitely, and thus they develop a tolerance to it, like with alcohol or painkillers, so for the drug to continue to be effective, they have to keep taking higher doses until the side effects get too much for them to tolerate any longer, at which point they just get fat again.
Is Frito Lay holding back right now because of obesity concerns?
Great to see coverage on Google's new prediction market!
[Disclaimer: I created and run Gleangen. Opinions are mine, not Google's.]
First, you're right, the accuracy graph is confusing, sorry about that. The red line counts the number of markets in each forecasted probability decile that actually happened. The first point means that for markets that Googlers gave a 0-10% chance of happening (at various time points before expiry), slightly more than 5% happened. By this metric, markets Googlers give a low probability happen more often than predicted, and markets Googlers give a high probability happen less often.
Second, on the Hal Varian quote: Personally, I think there's a very large space for questions that are (a) are of interest to the company but (b) do not reveal financially critical information. The most basic case is forecasting engineering timelines. More interesting is predicting tech advances, such as Google's quantum computing milestones: https://quantumai.google/learn/map.
In general, I agree with Scott's take. So far all we’ve demonstrated is that a prediction market can be popular, employees value the information it generates, and it can be fairly accurate. Whether it can improve Google’s high-level strategy remains to be seen.
With regard to the SAT/ACT thing: I think some of the higher predictions may have to do with the wording of the question i.e. there could be an alternative standardised test that would technically satisfy the question.
Seems unlikely to me, the SAT has been on top for a long time, and there's no reason to change to any other test right now.
I haven't read Hayek, but it seems like there's an obvious problem with this:
> COWEN: Why doesn’t business use more prediction markets? They would seem to make sense, right? Bet on ideas. Aggregate information. We’ve all read Hayek.
A prediction market might provide info on, e.g., "will China invade Taiwan in the next 10 years". Markets might provide info on, e.g., the market-clearing price of a pound of copper. But it makes sense for the market to provide more info on the market-clearing price of a pound of copper, because that price is determined by the desires of people to buy/sell copper (or stuff that is made with copper). If more people suddenly want copper for some reason, then that increases both the free market's price of copper, and the market-clearing price of copper, because they're the same thing; whereas "a central planner's estimate as to the market-clearing price of copper" is very much not the same thing. The reason the market "works" isn't some generic "wisdom of crowds" idea, it's that the desires of the crowd - even if the crowd is all dumbasses! - directly defines what the price should be in the first place
But for the "invade Taiwan" question there's no link between the prediction market and the reality. I don't see why it would provide any information on that question at all.
There can be a more direct link in the case of, say, an election, where the result really is an aggregation of what people want. But even then there are some obvious differences between what a prediction market would say, and what the election result would be, that make it not like markets and Hayek.
The basic idea of real-money prediction markets is:
a) a person A exists who is best at predicting X class of events
b) the prediction market will bleed money from anyone who bets against A regarding X
c) people don't like losing money, so at equilibrium with perfect information A sets the price (no-one bets against A)
d) hence you have an automated mechanism to get the honest prediction of the truly-best available expert on X.
There are certainly cases in which the perfect-information assumption is broken, and there are cases in which the truly-best expert is still shit (e.g. literally no-one predicts over 10% X happens, X is actually 80% likelihood). But this is the basic principle.
This doesn't seem that great for a few reasons.
First is the perfect information thing - actually I'm not sure what "perfect information" means here. To take my "will China invade Taiwan" example, what does perfect information mean? What about other possible predictions like the future obesity rate, COVID hospitality rate, or whether a major Hurricane will hit Florida in 2028?
Second is why the existence of person A matters/why the price would converge on what they say. Take the predictions on Trump vs Biden. I'm not sure if the idea is that A would have bet 100% on Biden, or some lower number, but anyways ... that person bets and so do 1 million other people. His honest prediction is out there, so are 1 million other people's. It's not like you know ahead of time who the guru is out of the million. So what does that accomplish?
And my final question is how good A's prediction is supposed to be. It's very different from the market example - I don't expect the world's best expert on a great deal of questions to actually be worth a whole lot.
> I don't expect the world's best expert on a great deal of questions to actually be worth a whole lot
If prediction markets become large enough that people can start making real money from them, financial institutions will start hiring the experts, and so the experts will be backed by a lot of money.
Also, we'll be able to identify as experts people who make good predictions, rather than people with big framed pieces of paper from famous diploma mills.
>First is the perfect information thing - actually I'm not sure what "perfect information" means here. To take my "will China invade Taiwan" example, what does perfect information mean? What about other possible predictions like the future obesity rate, COVID hospitality rate, or whether a major Hurricane will hit Florida in 2028?
I'm referring to perfect information within the market i.e. "people know that A keeps taking their money on this sort of question and will therefore not bet against A".
>Second is why the existence of person A matters/why the price would converge on what they say. Take the predictions on Trump vs Biden. I'm not sure if the idea is that A would have bet 100% on Biden, or some lower number, but anyways ... that person bets and so do 1 million other people. His honest prediction is out there, so are 1 million other people's. It's not like you know ahead of time who the guru is out of the million. So what does that accomplish?
This is why I said "at equilibrium with perfect information" and "X class of events" (i.e. at least somewhat repeatable). A keeps taking people's money on X class of events, so rational people who notice this will stop betting against A on it (you can't win on average against someone who's better at predicting something than you are). If people don't realise this and keep betting against A, A will take their money until in the limit the stupid people go bankrupt or stop playing, though the limit may not be reached quickly.
>And my final question is how good A's prediction is supposed to be. It's very different from the market example - I don't expect the world's best expert on a great deal of questions to actually be worth a whole lot.
>>and there are cases in which the truly-best expert is still shit
Known and acknowledged bug.
Yowza. Semaglutide sounds really exciting except for the part where it costs almost as much as my mortgage payment per month.
Options are tied to the underlying market by market-makers (or "arbitrageurs," who are functionally equivalent to market-markets in derivative markets). But market-makers only show up when there is both (a) enough money to pay them for their service, and (b) enough liquidity in the underlying for them to eliminate their risk. The second criterion prevents an options market from creating a market in the underlying (long-term prediction) that doesn't otherwise exist. The market in the underlying has to exist and trade with sufficient liquidity to support the derivatives market. Otherwise the options, if created, will not be derivatives but rather will be their own untethered speculative arena.
This could be a usecase for perpetual options? Or a new derivative I learned about recently, "squeeth" https://www.paradigm.xyz/2021/08/power-perpetuals/
So I've spent a bit of time reading about these, and haven't seen any mention of counterparty risk, which seems particularly large for perpetual options and *especially* large for power perpetuals - how is counterparty credit risk dealt with in these situations?
Particularly in the absence of extremely well-capitalised (or multi-party insured, same difference) central counterparties which do the matching work on traditional financial exchanges.
I'm honestly not sure, but a potential option is for power perps, the counter-party's credit is dealt with similarly to "regular" options, with a contract being sold and credit being offered by a central pool that is created by a third party staking their own capital.
It seems that in a lot of these DeFi implementations the replacement for these central credit providers is just a pool of stakers that sort of assume the role of holding a savings account in a bank, where the bank leverages your capital and you earn some consistent premium. I'm also pretty new to this so take this with a grain of salt.
So I'm working through power perps live here, but I'm struggling to think of how you would design a collateralisation system - whilst many existing trades have open ended potential loss profiles, these are both fairly easily hedged and have broadly normalised value at risk profiles ; the failures come in when a single counterparty can't make a collateral call when the risk profile changes, in which case all other members of that central counterparties which system effectively serve as insurers once a certain buffer is burned through.
For power perps, they're very difficult to hedge other than holding multiples of the underlying (in whatever opposite direction is required), which would make it expensive to hedge, and given it is perpetual you don't get a neat time discounting on ever more extreme price shifts.
On a totally subjective and aesthetic note, the use of the word 'discovered' by the authors bothers me. It doesn't exist in nature, we invent financial products! (Or 'structure' them, in the argot)
Regarding options, in financial markets they can move the market itself. This happens in the "manufacturing" of these options and the hedging that the seller has to make to balance their obligations in the options.
I am not sure how this would work in a prediction market, as I don't know what kind of margin requirements you would have in such a case.
"Lots of people think it will be 100%, with a long tail of people predicting various other things."
This doesn't seem right to me. That graph corresponds to the aggregate thinking 100% is quite likely, but this could be because everybody thinks there's a, say, 30% chance of that, rather than 30% of people thinking it a certainty.
Thanks for the correction.
You are asking if "is there some way to combine regular trading and options trading into a single price, so that we could get the advantages of options trading, but traders would still be betting on the regular market and increasing our predictive accuracy?"
If I understand your question correctly, by "regular trading" you mean the prediction of the event itself, such as "Bolsonaro is on trial before 2025", while by "option trading" you mean trading in contracts like "the market for <<Bolsonaro on trial before 2025>> is pricing probability more than 30% as of 1st of July 2023". In that case, the answer is that the option market already contains the regular market, so there is nothing to combine.
To see why that is the case, let C be the base contract "Pay $1 on 01/01/2025 if Bolsonaro is on trial before 2025, pay $0 otherwise". As of today, there is a simple arbitrage between C and the contract C23 defined as "Pay the price of C as observed on the market on 1st July 2023". If we ignore interest rates and counterparty risk, the price of these two contracts should be simply equal until 1st of July 2023 and if it is not, one can buy the cheaper one and sell the more expensive one to lock in a riskless profit. With non-zero interest rates and appropriate counterparty risk mitigation, the prices of C and C23 will diverge but an arbitrage link will persist.
Now, C23 is a special case of an option (namely, it is a call option on C with strike of $0 and maturity 07/01/2023.) So the options market already contains the market for C.
In fact, traders on an options market will be keen watchers of whatever is the most liquid market in the base contract C or anything equivalent to it, like C23 or C22 or whatever and will be not just updating their prices with movements in the base market but trading actively in the base market as it moves to hedge their option positions. So the market for C will be closely linked with the options market as a whole, not just with the market in the 0-strike C23.
Re. "Suppose you want to predict something in 2100. It’s hard. Nobody wants to lock their money up for 80 years to get a 5% or 10% or even a 100% rate of return. ... One option we talked about last time is chained prediction markets."
When you buy a stock, you're predicting the time-discounted returns of that stock to infinity. So use the stock solution: Instead of giving a probability, have prediction-market users buy a "true" or a "false". The relative prices of a T and a F are determined by the (Laplace adjusted) ratio of Ts and Fs outstanding. The question is capitalized by both "true" and "false" purchases, and at resolution all money is divided up among holders of stock in the correct prediction. The price of a "true" vs a "false" should translate directly into an odds ratio whenever you want an odds ratio or a probability, and anyone who wishes to exit the market can sell their shares back to the now-capitalized question at the current price.
(I'd always assumed that was how prediction markets worked; but Scott's statement, quoted above, implies that they don't work that way.)
Re. "Conservatives are right-wing": NO. Stop saying that. It's extremist, left-wing and right-wing propaganda, whose purpose is to present our political choices as between either left or right, thus obscuring the fact that left-wing and right-wing are, for all practical purposes, just different flavors of the same mindless Hegelian poison.
"Right wing" has many distinct meanings, including these:
- The nobility sat to the right of the presiding officer's chair in the Estates General of 1789 at the start of the French Revolution. "Right-wing", using this precedent, means "in favor of hereditary aristocracy", and more-generally, "in favor of class hierarchy without social mobility".
- Left Hegelians (today you can read this as Marxists, Unitarians and other non-literalist Christians, and self-described "Progressives") pursue a religious, apocalyptic, historicist (teleological) program based on ideological purity; while Right Hegelians (nationalists, fascists, Nazis) pursue a religious, apocalyptic, historicist (teleological) program based on racial or ethnic purity. Right Hegelians historically formed temporary alliances with conservative religious groups, primarily pre-Vatican 2 Catholics and the Orthodox and Russian Orthodox Churches, as they did in fascist Spain, Italy, Germany, and Yugoslavia.
- According to Wikipedia, "Right-wing_politics", the US Dept of Homeland Security defines "right-wing" as being either hate-based, or preferring conflicts to be resolved at the state level rather than at the federal level--IMHO a shockingly biased definition which attempts to associate local political autonomy with racial hate.
None of these meanings of "right-wing" correlate positively with conservatism. Conservatism today in the US means Enlightenment liberalism: supporting the continuation of free markets, free speech, mistake theory, and liberal democracy. Both left and right wings have always been resolutely anti-liberal and pro-conflict-theory.
The French nobility were conservative in their time, but would be radical today; and the centrally-planned monarchy they believed in was much closer to communism than to an individualistic, free-market democracy. Fascists were never conservative. They sought to create a new society, using the fantasy of an imaginary distant past as propaganda, just as Marxists do.
The Social Justice movement today can't be classified as either left or right. It has strong ties to Marxism through the 1960s student movements and the resulting post-1990 aging-hippy university faculties; and to fascism through Nietzsche, continental phenomenology and existentialism, post-modernist philosophers who studied under Nazi professors (e.g., Michel Foucault and Herbert Marcuse), and the associated resurgence of Plato (who literally *invented* racial essentialism, for use in creating his perfect State). It views culture through the Nazi lens of racial essentialism, assuming that culture is a manifestation of a racial essence and therefore culture maps 1-1 onto race. This is why it calls cultural assimilation racially oppressive (e.g., blacks who live in the suburbs are being oppressed by a false racial consciousness).
The social division in the US today is between urban and rural culture. Rural culture doesn't align with nationalism; it correlates with nationalism only because the dominant ideology of urban culture today is actively anti-American, and saying you're proud of America can get you Twitter-mobbed. Rural culture is more religious; yet the right-wing religious--Catholic, Orthodox, Muslim, and Hindu--all now lean Democrat (https://www.pewforum.org/religious-landscape-study/party-affiliation/). Except for Mormons, the only majority-Republican religious sects are Protestant sects formed as left-wing dissenters from the right-wing Catholic hierarchy.
In my experience reading American political parlance, 'right-wing' and 'conservative' are used basically interchangeably. Feel free to fight the prescriptivist linguistic fight if you want tho.
My guess is that's because you're reading American news media, which deliberately confound "right-wing", "conservative", and "(Enlightenment) liberal", in order to demonize liberals. I certainly intend to fight that misinformation campaign.
It isn't prescriptivist to ask people to use words consistently rather than deceptively. If everybody agreed to use "right-wing" to mean "supporting local government", that would be okay. If they use it to mean "supporting local government" and "Nazi", and then pretend they've proven that people who support local government are Nazis, that's not okay, regardless of whether you believe in descriptive or prescriptive linguistics.
[Epistemic status: I am a retail investor who's been pretty serious about it for 10 years plus moderately active on predictit/metaculus. 75% confidence]
I thought about prediction market options some more, and I think liquidity concerns make me prefer directly using leverage on the underying contracts, instead of options.
Example: Suppose JGalt wants to bet $100 each on 100 different markets. Total bet value is $10k. How much should JGalt have to deposit to cover this if the markets are all uncorrelated coin flips? He wins a mean of 50 contracts with a standard deviation of 5, so to cover 4 standard deviations of negative variance, he needs 4*5*$100=$2000 in his account, so that he is getting 5x leverage. This is conservatively assuming we let all the contracts run to completion, but the system could get some additional protection by preemptively liquidating some of JGalt's contracts if the aggregate of their market prices moves unfavorably and he gets down to <2SD of margin.
This math can be generalized to cover a set of contracts with arbitrary variance and covariance. To protect the site from people who might lose a bunch of correlated bets to get a negative balance and then not pay their debt, admins would need to estimate covariance. Each time they create a new market, they need to run a search for related markets and override the default-zero covariance appropriately. In the limit as you assume every market has 100% covariance with every other market, you get what most prediction markets do, which is to not let anyone use any margin at all (except within a single market where it's logically impossible to lose both contracts).
What could go wrong:
* Maybe admins are bad at estimating covariance, so someone is allowed to make a bunch of correlated bets that all lose, and his account goes negative, and he doesn't pay his debt.
But options based systems have all the same margin problems, *plus* liquidity problems that make it much harder to liquidate accounts that fall below an adequate margin. So I'm 75% confident that leverage on the underlying would make a better prediction market than options.
Re. weight-loss drugs, this ignores the fact that the medical establishment is morally opposed to weight-loss drugs. Most doctors feel that prescribing a fat person a pill that would make them thin, instead of teaching them good Puritan self-control, would be immoral. This is why, for perhaps the past 40 years, the foremost weight-loss pill has always been subjected to a withering attack from the medical establishment until it was effectively banned.
Today, the most-effective weight-loss pill I know of is phentermine. It was developed in the 1960s as an alternative to amphetamines. Studies done at the time showed it was non-addictive. Recent studies have also all concluded it's non-addictive. But as soon as the previous effective weight-loss pill (IIRC it was ephedrine) was banned, phentermine came under attack. If you read Wikipedia today, or for-the-public websites like WebMD, they'll say that phentermine is an addictive amphetamine, even though it is not an amphetamine and is not addictive, except under the new "my patient resists stopping this drug because it works" definition of "addictive". It's now a scheduled drug with stringent requirements even when issued by prescription, which were tightened just this year to ensure that you have to be obese to be allowed to use it, and will have to stop using it before reaching a healthy weight.
verywellmind.com says (https://www.verywellmind.com/how-long-does-adipex-stay-in-your-system-80217), "Phentermine increases levels of norepinephrine, dopamine, and serotonin, producing an effect similar to amphetamine. For this reason, phentermine is a controlled substance and only available legally via a prescription." In reality, the stimulant effects of phentermine are like those of caffeine, which also effectively increases increases levels of norepinephrine, dopamine, and serotonin. (I wrote "effectively" because this may in part be mediated by increasing dopamine receptor availability; https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4462609 .)
(I don't recommend ephedrine because it works by speeding up your metabolism, which surely shortens lifespan. I don't recommend phen-fen because apparently it really is dangerous. Phentermine enabled me to permanently lower my stable body fat from over 14% of body weight to perhaps 12%, with a total weight loss around 3%, but weight loss did not continue past that level. That was on 19mg EOD, which is 1/4 of the usual dose. You can lose more weight by combining it with Topamax, but I found that made me feel tired all day long. I eventually stopped using phentermine entirely because, like caffeine, it gives me migraine headaches.)
If the market is large enough to support statistical arbitrage, then options traffic will be reflected in the underlying. AFAIK no such liquid options markets exist today.
> I bet a lot of people would care a lot if the conservatives could produce 0.01% higher GDP growth vs. 5%.
What if we want to know how much GDP is actually driven by policy, if at all? Can we use prediction markets to get a sense of the correlation coefficient?
We might naively expect we could just look at the distribution of the predictions to determine the variance of outcomes, but I'm really nervous about that. Prediction markets combine wisdom of crowds and incentives for knowledge to chase out bad predictions. But there's no direct and obvious way for good distributional information to chase out bad distributional information on this second layer. If a bunch of crazy people are guessing randomly all over the place, and you're the smart money and you're really sure the correlational coefficient is much tighter, there's no additional incentive for fixing the shape of the graph after you've committed the appropriate amount for where the outcome will land. If the smart money has already gotten in, there's no payout for you to go in and tweak the shape of the graph.
So I think we'd need a new tool on top of prediction markets to tease this out and I'm not sure what it would be.
If you had an infinite number of players, then maybe you could have a bunch of markets with different precisions. Predict the impact on next year's GDP to the trillion, to the hundred billion, down to the individual dollar if you like. Nobody's going to take the individual dollar bet. Nobody's going to bet in the tens of trillions because it will be a fixed market. The market with the most action might tell us where the biggest area of debate is that is plausible to predict, which might tell us something about the likely variance in outcomes?
Aside from being utterly impractical, that might be an interesting direction to explore. :D
Anyone have any other market technology to help predict how tightly A causes B? Maybe this is a solved problem already and I'm just missing it.
Re: Options Markets.
Options Markets today are hedged. When you buy an options contract a market maker hedges their risk by buying (some of) the underlying contact, this moves the market.
I predict that the UK's GDP will be higher five years after the next election if the Conservatives win than if Labour does. Why? Nothing to do with what either party would do if they win; it's just that the Conservatives are in government now, and economic growth is correlated with incumbent parties getting re-elected.
What about GDP growth starting from after the next parliament takes office? Perhaps the expected GDP growth should be higher if Labour wins than if the Conservatives do, again not because of their policies, but because expected GDP at the time of the election will be higher if the Conservatives win than if Labour does, and it could regress to the mean.
This sort of thing will always be a problem when trying to use conditional prediction markets to influence decisions that are also influenced by other things. The differences in conditional expectations don't tell you the direction of causation.