With sufficient liquidity, the CCP would lose so much money so fast doing that that bribery would be cheaper. That's one of the intended features of a prediction market.
There's some kind of "liquidity to influence" ratio that's important here. If the liquidity-to-influence ratio gets too low (for a specific question on a specific market) then market manipulation becomes worthwhile, for certain interested parties.
I am concerned that the more we talk about prediction markets, the quicker we get to the point where their influence exceeds their liquidity, and then silly things start to happen.
Was there ever a real culture with a true anti-censorship ethos? Every culture has its taboo topics, which nobody but a few weirdos even think to question, an activity which is by definition very low status. Censorship becomes a hot topic only when there's a culture war with more than one legitimate pretender to societal dominance, an unstable state of affairs.
"A few smart people will know ways around this." Outlaw something, only outlaws will use it, or those using it will be deemed to be outlaws. Such a waste. Other countries may be smart enough to make better policy choices.
I don't think "real money" will be a key feature for prediction markets to go mainstream -- it will need to be a reputation-based system.
You're well aware of the "why would I invest money on something that is 99% likely to happen but will not resolve for 5 years" problem. There are also all the problems of poker sites - the few people that make money are subsidized by a large amount of financial losers. And losing money predicting the future is less fun than poker. And third -- you want an ecosystem where the top predictors more than double their "money" every year - which is possible with fake money but not real money.
I could 100% believe this. Prediction markets as some analogue to competitive programming -- most people pop in just long enough to flex that they've got big brains and get hired by a big corp that wants those skills and pays good money, plus a smaller contingent who just like it enough to do it regardless of the rewards
I'm skeptical of reputation based systems for a few reasons.
First of all, this kind of reputation just isn't that valuable. I'm a well-known public commentator who makes money by commenting on important issues, everyone knows I use Metaculus, and nobody has ever asked me what my Metaculus reputation is! What hope is there for reputations to provide incentives for anyone else?
Second, because it's hard to do right. Metaculus' system incentivizes making lots of thoughtless predictions; if there was any incentive to care about it, people would game it to the point of uselessness. Partly this reinforces my first point (nobody cares), but Metaculus is usually impressively competent and if even they are getting this wrong I think it's tough. Lots of reputation systems are naturally vulnerable to the "create a new account, get your 100 free reputation points, then lose a bet against your normal account that gives them all your reputation" attack. Other systems are vulnerable to "create a new account, get your 100 free reputation points, stake them all on a long-shot bet, repeat if you lose, finally one time you'll win and have a reputational fortune" attack. And none of them let you do the thing where you (someone who has never used the site before) are very very sure the site is wrong and willing to invest a lot of risk into correcting it. If the site is real money, you can invest your life savings into this; if it's reputation only, you can only invest your 100 free reputation points.
I'm "Level 5", but that's completely meaningless without you knowing how many predictions I've made or how much time I've spent on the site, which is both a cause of the problem (people rightly don't care about Metaculus reputations) and an effect of it (if Metaculus thought people would care, they would provide a usable number)
I don't buy argument that Metaculus would have done it if people cared. How do they know if they haven't seriously tried it?
People should care about prediction track records.
An election prediction of someone who got say 12 out of 14 last elections right is worth listening to more than some random forecaster. Or maybe even a collection of random forecasters.
One problem is that they could influence a prediction too much and create group think. So some kind of extra reward would have to be offered for being contrarian to top forecasters.
Reputation doesn't work because being an excellent forecaster isn't adequately cool - not in the way that being a poker shark or even a Scrabble champ is cool.
If high reputation on a major prediction market site signified to the world that you're a sexy Nostradamus, the Farseerr dating app would follow, people would put links to their scores in their twitter bios, and all the rest of it.
Point isn't to have yet another election prediction method. Point is to generalize this to the point where you put on your facebook a "will I look better with a beard as decided by hotornot.com", subsidize it with $100 and get an answer.
I get why some people are so gung-ho about this. It means significantly less uncertaintly overall in all areas of life. There are (as of yet theoretical) ways to trade long term bets, so you can make money now from betting if we'll get a man to Europa in 30 years.
So yeah, Scott is right to be disappointed that more people seem to be working on rounding corners in facebook windows than working on this.
What is your track record? Metaculus is 12% underconfident on (exactly) 1000 questions. I couldn't beat metaculus with my 17% underconfidence (on way less questions). This information is more important than your level, since track record tells us more about the *quality* of your predictions, not the quantity. (You can find it under your profile)
Some of those issues have straightforward solutions (if the average Joe gets 100 reputation points for free, perhaps Joe can pay to start with 10000 points, and Barack Obama would get 5 million points for free).
Other issues may well be impossible to solve. The "stake everything on a longshot bet" issue happens on other forms of reputation as well; if you remember Bill Mitchell from 2016 he built quite a reputation by making one bet on "every piece of evidence proves Trump will win in 2016".
I don't think you should be able to pay for more points, since then you can buy your way to a good reputation, and reputation doesn't accurately track how good you are at predicting.
Also, either you buy points for money at a 1:1 ratio, or you do some weird complicated function. If it's the weird complicated function, I bet it's game-able; if it's 1:1, then it's basically money, so why not call it that?
It would certainly be weird and gameable -- not necessarily gameable to get real money, but gameable to get reputation points.
On the other hand, you probably want "people who are good at gaming systems" to participate in your prediction market, so that's not necessarily a bad thing.
If the initial allocations are unfair or random, that's fine because they'll end up distributed rationally. Just make sure there's exactly one "initial" event.
You could get around the gambling/unregulated futures issues by making the payout solely upside -- i.e., no losing for bad predictions but only rewards for correct predictions. It's not 100% ideal. But like stock traders competing for a bonus from their firm, there should be a powerful incentive to be right if serious money is at stake.
Better predictions should be worth enough to someone with an interest in the predicted events to be worth funding the upside payments. Perhaps a billionaire like Elon Musk could fund the venture in return for getting first use of the information before releasing it to the public. A billionaire with a known network for predicting the future ought to be able to figure out how to monetize that reputational asset.
at least regarding the "free point attacks" you list: that's why you don't do reputation with "points", you do reputation with reputation. because a person's reputation is what it is.
as for incentives: no one on the internet wants to shut up. they apparently don't need any incentives.
How do we measure reputation, then? If I want to quickly know whether [blogger] is any good at predictions, what tells me? "Ask around about his reputation" is obviously worthless here, but I see no other way.
Additionally, without some measure like points or money, a lot of the neat features we want — the ones we get from it being a prediction *market* — don't work.
yes, measuring reputation involves finding out how other people evaluate the person in question. that's reputation. but i'm not sure what is "obviously worthless" in your example (people find value in asking about reputations every day), or what particular "neat features" you are referring to.
When I first heard about this, I immediately noticed a conflict-theory explanation for why Metaculus would do this. I don't have proof, and it could be wrong - if someone has proof that it's wrong, please tell me. But my suspicion is this:
[Metaculus is known to have its own proprietary prediction-aggregation software, which presumably has its own, hidden, reputation system or something similar to one. The Metaculus principals, I posit, make money from the Metaculus predictions, either directly via investments/prediction markets or via selling them to third parties. The open reputation system, I posit, is there solely to incentivise people to feed data into Metaculus, and is designed around that goal rather than the goal of letting people actually figure out whose predictions matter (that's what their proprietary system is for, which is for paying customers/Metaculus principals). The useless data is no problem for them, I posit, because their actual aggregation software filters it out when making Metaculus predictions.]
What hope is there for reputations to provide incentives for anyone else? On the one hand, reputation systems will always be crude metrics. On the other hand, so will money. On the gripping hand: Stackoverflow. Incentivizing quality over quantity is a harder problem, however.
I work for Metaculus and wanted to share my perspective on Scott's point about reputation and incentivizing lots of off-the-cuff predictions. For us, there's a difference between 'community' forecasting and 'competitive' forecasting—and we want to encourage both! We support more casual community forecasting where learning and fun are more the focus because fostering and supporting a sizable, engaged forecasting community is part of our overall mission to promote the forecasting mindset in the world. We want Metaculus to be a place to learn, to build forecasting skill, and to connect with interesting, bright people.
Tournaments, though, are where iron sharpens iron: If someone is highly-ranked on a tournament leaderboard and wins prize money, it's because they outperformed other forecasters and contributed a lot of information with their forecasts! We only very recently introduced the current incarnation of Metaculus tournament scoring, with more upgrades on the way. These, combined with our other plans to build out our reputation system more broadly, are going to make the competitive side of Metaculus much stronger.
Also, it's not quite right to say that no one cares about people’s Metaculus reputation: Two organizations that we know of with quite high bars for hiring have incorporated Metaculus track records into their recruiting processes, and we're currently in conversations with a third.
It's possible in principle to combine that with smart contracts using e.g. the mirror protocol. (This is not an endorsement, and I haven't audited their system, and there might be some gaping holes in it)
I wonder if you can create composable prediction markets by allowing bets in any currency, including other bets. (And shorts of other bets, and other bets in a specific currency...)
edit: Hang on, this is just a bad reinvention of hedging maybe. Otoh, maybe you can do nonlinear combinations that way? I don't know enough about economy to see what that gives you. Conditional probabilities?
If you have a market for "will X happen" and the currency is units of "will Y happen" then the price is P(X^Y) which you can divide by P(Y) to get P(X|Y).
I don't think this adds anything new. I'd rather denominate everything in shares of SPY so that the long-term stuff isn't prohibitively expensive in opportunity cost.
I disagree, I suspect people who lose money on prediction markets will blame something external and go back in with even wilder swings to try and earn their money back. There are definitely people like that who seem to be subsidizing me on Kalshi.
I'm not sure people realize how many of us hold "gambling is repulsive" as a first principle. I'm not saying I think gambling should be illegal. But when I see someone buying a lottery ticket, playing poker or otherwise gambling, I definitely feel the same kind of feeling I do when I am at the store and standing next to someone who smells strongly of urine. I don't think urine dude is a BAD person, necessarily, but clearly he's got a problem and I have every reason to hope he starts bathing and changing his clothes.
Oh, yeah, it drives me crazy when I tell people I'm on a forecasting site and when I explain it they're like, "oh so you gamble?" If I try and explain it to them I still get "well there's an element of chance."
Have prediction markets or super forecasters had any luck in predicting the direction of stocks, the success of a startup, etc? This seems like a way to make profit off good predictions outside of the prediction markets themselves
Perhaps, but applying it to something like company worth that can be used to make money can increase the mainstream awareness/popularity of prediction markets and maybe even lead to regulatory changes
The stock market, including futures and options, is already a prediction market for the direction of stocks. Any subset of individual opinions would just amount to a smaller, inferior prediction market.
"I need a prediction summarizing the wisdom of millions about what economic activities are worth investing in. If only there was some kind of....hmm...well, let's say signal." (generic investor-activist, circa 2022)
The problem with this is that we care about things that are not economic activities. And structuring things as "Will X happen" is much easier than structuring them as "Will X happen and then also have the effect on the stock market than I expect".
Meh. Things that have zero to very little economic impact are ethereal abstractions of interest to almost nobody. "Economic impact" is just another way to say "people have to spend money (= the saved hours of their working life) to avoid evil consequences" or "people are able to reap greater rewards for the same work (or no work at all!) because of these good consequences." That covers nearly every form of good and bad luck, which is why economic cost or benefit is pretty much the catch-all measure of broad social impact.
Let's rephrase to say we care about things that have economic relevance but cannot be neatly captured by stock movements. The Covid pandemic, an invasion of the Ukraine, adoption of a new technology, should I save for college for my kid or assume college won't be a norm any longer, etc. The things we want to make decisions on are both far broader and far more specific than what stock can measure.
I think a secondary prediction market for public corporations could be interesting and useful if it was based on one or more measurable values like "Net Profit" or "Brand recall in the annual survey from XXXX research company" or even "P/E ratio of the listed stock".
The stock markets are prediction markets based on some measurable metrics for the underlying companies, but also based on memes, short interest, futures markets, potential future growth, potential exposure to liability, and game theory re: everyone else's thoughts on those things.
It is infamously difficult for stock pickers to outperform a well-diversified buy-and-hold portfolio over time because there are so many of these factors baked into the price, and because that game theory piece plays such a big role. It would be really cool to see if people are better at predicting future corporate performance when the concrete statistics are divorced from the rest of what fuels speculation.
You may have a point about certain sub-micro bets that are below the level of stock price that the market sets. Some of that is covered by individual analysts, of course. But they have loads of conflicts and incentives to not stray too far from consensus. Medium-term earnings could be an informative betting pool.
I thought about it, but that file path is what you'd get by default for a particular, very popular OS/browser combination, so it leaks less than you might think. Nevertheless, it's not worth arguing about and I'm fine getting rid of it; deleted.
I think the usual way to subsidize a prediction market is providing liquidity. Without liquidity, what happens is that you, for example, want to buy the YES token at 60% probability, but there is no-one to do the other side of this trade. I think if someone provides liquidity to a market, they need to lock up capital in it, but at the end they will get it all back.
You create a prediction market with an Automated Market Maker for each forecaster you invite to your very exclusive platform. This makes it profitable for each to participate and, to a first approximation, forces them to collaborate.
I think this is far too negative / absolute on the US regulatory piece. If the conditions for making it work are satisfied elsewhere and it begins to attract real money / real volume, the US will grudgingly accept it for fear of losing out on the position as the financial capital of the planet. I strongly doubt the CFTC wanted to accept bitcoin futures but eventually they had no choice; I expect you get that here eventually.
I don't think our government actually cares that much about competition. It's very complacent, and no regulator is going to lose their job because we got invaded by a more competitive government.
No, but regulators will lose their jobs if stakeholders are sufficiently aggressive in lobbying and they prove intransigent. I guarantee the high-frequency market making firms would love to enter to this business if it gets sufficiently large; right now, it's just a curiosity.
There doesn't seem to be any lobby actually in favor of the Census changing their practices to inject fake data for "privacy" (they claim they're required to do this, even though the same law didn't require it before) and this would break a whole lot of things that depend on accurate Census data.
Am I the only person around here who thinks prediction markets are a really bad idea and ideally should not exist? Like, I don't want to live in a world where (a) making money by gambling on your ability to predict the future accurately is a common thing or (b) where decisions are being made by [edit: I mean 'based on the predictions of'] an anonymous mass of gamblers trying to predict the future. Those both seem independently shitty. And prediction markets do not seem like the only solution to the problem of forecasting being difficult and hard to calibrate or scale.
"Bets are a tax on bullshit", ie, betting isn't the only way to do forecasting well, but it's a way to sort out good forecasting for self-serving bullshit. We want our forecasts to be well-correlated with ground reality, not whatever ulterior motives the forecaster might have, and "prediction markets" or "explicitly pay superforecasters based on performance" are the only two that I've heard that work, and the latter is both hard to scale and more-or-less "making money by gambling on your ability to predict the future" anyway.
Prediction markets are repeatedly shown to be the most accurate way to predict the future. There's alpha in being able to predict the future better than others, whether we like it or not.
Why? Without meaning the question prejudicially, honestly why? Is it connected with your statement about "where decisions are being made by an anonymous mass of gamblers" - but these markets of prediction bets aren't making the decisions, they're predicting the decisions. Or are you asserting a dynamic I'm not seeing here?
I mentioned above that I don't like either side of it. Quick explanations are:
* I don't like the idea of a society where a lot of people spend a lot of brainpower gambling on the future because that's just stupid, and also, it has all sorts of weird side effects like incentivizing things to happen for money instead of, like, because we want them to happen because they're good.
* I don't like the idea of decisions being made by [or, yes, I meant based on the forecasts of] anonymous hoards of gamblers, because, again, it conflates financial interests with everything else that matters, and I want to see society being driven more by leadership and decision making and less by mindlessly trusting data that comes out of machines.
Not to mention the immense conflict of interest that starts to arise once money is coupled to outcomes because, after all, the money can also start trying to influence those outcomes. It's not like there hasn't been cheating in literally every thing that anyone ever gambled on. But now, yay, you can gamble on _everything_, how fun.
I don't see why anybody would _want_ this. It is vaguely appealing in a technocratic sense: how cool, we can build a system that predicts things whose inputs are money and time. But I can't imagine a world where it is implemented not being worse for it.
I guess I'm confused, in that you seem to believe that decisions are in any way not connected to financial incentives now, but leaving that cynicism aside, do you think that if we have prediction markets people will "decide things based on the forecasts of"? That's not how prediction markets work, and if they started to, wouldn't that just break prediction markets, since who's going to bet on something which will be decided in a way that's dependent on the bet? That's more like voting shares than prediction markets, which also happens, but is already a mechanism in our society.
" it has all sorts of weird side effects like incentivizing things to happen for money instead of, like, because we want them to happen because they're good." Evidence? Again, this ties to your contention that prediction markets are determinant. What is the evidence for that?
Maybe I'm misunderstanding a large chunk of how prediction markets function.
I think if prediction markets become a major part of our societal discourse, i.e. like the stock market, then yes I do think government officials and other decision makers will be influenced by those predictions. And since those predictions are financial in nature, it means the decisions by those people will be influenced by financial incentives.
I feel like the whole point of prediction markets is that they are a social machine for producing good predictions; if the only point of that was "just to know, for fun" then they would not be very interesting to anybody. The point, I've assumed, is to get them big enough that their predictions are _accurate_, because they're aggregating over all the knowledge in the market, and then, ideally, use those predictions for something (such as corporate- or government- decision-making).
But maybe _I'm_ missing a large chunk of how prediction markets function and just assuming that is the unstated goal of the whole project. I've certainly just sorta assumed this is where everyone's coming from.
It seems to me like you're drastically overestimating the quality of the decisions that emerge from "leadership and [human] decision making" in the absence of hard data.
Personally -- and this is maybe a kooky take that I couldn't convince anyone of, it's just a feeling really -- I think people dramatically underestimate the quality of _good_ leadership, because there is so little of it around to see as example.
We have had plenty of societies driven by leadership and decision making. Unfortunately these have been totalitarian. Democracy is effectively a prediction market, as the voters gamble on which party will be the best option. This leads to inconsistent leadership and tends to leave decision making in the hands of individuals. It is clear however that democracies out perform totalitarian models on just about every useful metric. Perhaps that hoard of gamblers are going to have better ideas than the leaders and decision makers, whose qualifications for such roles are not actually testable.
Strongly disagree with the analogy between democracy and prediction markets, because voters pay nothing individually for being wrong. The feedback loop is much weaker in democracy than in prediction markets.
> We have had plenty of societies driven by leadership and decision making. Unfortunately these have been totalitarian.
This seems very incorrect. All societies are driven by leadership and decision-making. The quality and degree of those things (and the moral compass of the leaders) varies, but it is absurd to say that having leadership means having totalitarianism.
>"I don't like the idea of a society where a lot of people spend a lot of brainpower gambling on the future"
1. We already live in that society due to the existence of stock markets. The countries that allow stock markets to exist are a lot better off than the countries that don't.
2. Whether or not prediction markets are allowed, people will spend lots of time reading and writing speculation about the future, such as in newspaper op-eds. Prediction markets will make all that speculation much more accountable and accurate.
3. Without prediction markets, media elites can use their platforms to make false predictions with impunity and dishonestly twist politics towards the preferences of their class. The truth is more egalitarian than media ownership structure. Prediction markets are a powerful way to speak truth to power.
One objection I could think of is the fact that one might not want to base policy on something so easily manipulated by spending cash. (Not that other stuff we base policy on, like academic opinions, can also be manipulated by spending cash.)
Suppose an evil version of Scott would like indoor gatherings to be permitted at a certain place and time. The obvious way to do this would be to spend cash on the question "will bad stuff happen if we allow indoor gatherings?", lowering the odds as estimated by the market by, say 10%.
Ideally, a superforcaster would notice this gap and invest in the opposite side, but practically, there are some limitations. Perhaps the market takes a long time to resolve, and the ROI is not worth it. (Are leveraged prediction markets a thing?)
This becomes especially bad in case of self-fulfilling prophecies, because then even the financial punishment might not apply.
Suppose both the Afghan government (as of 2021) and the Taliban are firm believers in prediction markets. Someone willing to influence the outcome might simply place a huge bet on their favorite side, knowing that the other side will most likely not fight to much against terrible odds.
(I would argue that in that case, the natural equilibrium would not be that the prediction market is trusted 100%, but less, so that a prediction would not easily become self-fulfilling. In general, it is not clear to me that such feedback loops do not appear. If you ran a prediction market on the outcome of a Keynesian beauty contest, and the judges knew about the market prediction, they might very well go along with them.)
I guess I see your point, but this seems like way more expensive than just buying politicians, especially when the very act of gaming it this way would (I predict... see what I did there?) get priced in to the market itself. If a prediction market were skewing this way, I'm genuinely wondering if it wouldn't be evident, and takers on the other side of the bet would be hard to find, at the proposed odds.
Again, I'm really not fluent in prediction markets, but these critiques seem (perhaps naively) to be self-correcting, or at least pushing directly against what such markets are supposed to do... and if that happens, they'd cease to be relevant quickly. At least that's my sense of it.
A tax on lying is better than no tax on lying. The latter is what we currently have in the media without prediction markets. If you want to lie the country into a war in Iraq, you don't even need to spend a zillion dollars manipulating prediction markets! You just need to know the right people at major newspapers.
If there are huge, liquid prediction markets, and you "know the right people at major newspapers", then wouldn't you place your bets, proceed as before, with the same outcome?
...except that since you would gain a zillion dollars, you didn't need any other motivation than money, such as ideology, loyalty, whatever.
Another way to phrase it is, if there is a tax on lying, which incents people to lie less, why would they respond by conforming their speech to reality rather than vice versa? Cf. Karl Rove's famous quote "when we act, we create our own reality."
As we see with existing markets, if the market isn't doing what you want it to, it's very easy to convince people it's being manipulated by a conspiracy of traders.
No, seriously, I want to know the answer to this question. Have prediction markets so far produced surprising odds for events, contra public opinion, *and been proven right* reliably?
And just to be clear, I asked the question in hope of a serious answer one way or another - not that I object to Carl P offering a snarky answer in the meantime.
Huh. So if I want to know whether Apophis will hit the Earth sometime in the 2100s, or whether a new nasty COVID variant will emerge, I'm best off getting a load of people to bet on the outcome and taking note of where the odds fall? That's great news. It's sure a lot easier than trying to integrate Newton's equations or sequencing a crapton of viral RNA.
It's not the problem of generating knowledge/predictions that you're trying to solve via prediction markets. It's the problem of _aggregating_ knowledge/predictions in a way that you have a good sense for which knowledge/prediction you can have faith in.
Right now, it's hard to say which expert has put how much work into their prediction, and whether they're making the prediction to be right or to score political points or reputation points or whatever other points. However, the expert knows. If they back up their opinion with a bet made with their money, conditional on their prediction being right, you have a sense for their degree of confidence. In a market, over time, the aggregation of such bets should give you the best predictions. That's (my understanding of) the theory of it. Which is pretty sound. The doubt lies in whether it can be executed well, and Scott has outlined some of those doubts. I have some others, but nothing necessarily insurmountable.
That makes absolutely no sense at all to me. By definition the expert's opinion is unusual, and *not* widely shared, indeed differs non-trivially from the conventional wisdom. That's what makes him an expert, right? That's what distinguishes him from Joe Sixpack. The two key differences between my opinion and that of a dermatologist on whether this lump is cancer or not is that (1) my opinion, if I'm average, will hew closely to folk wisdom, and be widely shared, and (2) her opinion will be much more correct.
Which means, to the extent there is any difference between the truth and folk wisdom, that is, to the extent a problem is genuinely inherently difficult to solve (and we're not talking about wholly different issues of obfuscation or deceit) the massed conventional wisdom will almost always be wrong or correct only in hindsight (i.e. useless).
Garbage in, garbage out, as they say. You can't average out the ignorance or idiocy of the uninformed and thereby sift out rare kernels of insight and awareness, because unfortunately unlike noise human error does not average away.
I think you don't understand the concept of prediction markets. Please note that I also don't understand it very well, but I'll try and explain nonetheless. Averaging predictions out is not how the aggregation of prediction markets happens. It happens (in theory) by someone betting on their prediction, against other predictions, with better predictions making more money. So people are incentivised to make predictions better than others. Let's say you're an expert on asteroids hitting Earth. Let's say someone starts a prediction market on the question of 'when will the next 50m asteroid hit Earth'. Let's say Joe onepack through hundredpack put down 100$ each at some random distribution. An expert who knows much more can bet a very large sum of money against all of them and clean up. This implies that you would see large amounts being bet on the 'best' prediction. Of course a real world market would have several differences, but that, as I understand it, is the basic model. Please know that I have never explored or read about prediction markets. This is simply me knowing about the existence of this concept and reasoning from first principles. There may be several things I'm missing or wrong about
So then what? In hindsight we can say "oh Expert Jane actually knew what she was talking about, and by betting 100:1 against the conventional wisdom she totally cleaned up." How is that useful? It doesn't do us a lick of good *before* the predicted event, because all we can observe is "gee the market is giving 100:1 odds against Jane's prediction coming true, must be stupid." *After* the event we can say gee, that Jane must really know something about asteroids, maybe we should just ask her next time. But *that* is no different than the process by which we judge expertise already, assessing post facto what fraction of an expert's past predictions came true.
And of course, neither of these things helps us at all identifying the expert who can correctly predict whether a new COVID emerges, or put a number on AI risk, because neither of these things has anything to do with Jane's specialty, and she's as likely to be wrong as the rest of us.
As I said, the only place where I can see a market being of use in uncovering the truth is when you have dominant shibboleths to which one can pay lip service and/or give actual service. Take the threat of rising sea levels, for example. Someone can pay tremendous lip service to the fear that this is imminent, but if we examine the price of coastal real estate, and whether those who profess fear of rising sea levels are buyers or sellers in that market, we can penetrate the social fog and find out what people *really* think -- since words are cheap, but $1 million mortgages require real commitment.
So if the goal here is to examine questions where there's lots of social obfuscation and mutual bullshittery -- elections are the obvious example -- then sure, a market will discern the truth faster than any other method. But if you are trying to answer substantive questions where social bullshittery is a trivial factor -- I can't think of any social shibboleths that would cause most people to lie publically about their underlying believes in AI risk or the probability of an asteroid hitting the Earth -- then I don't see how a market is of any use at all.
Well, if all you have is money, that's indeed the best strategy.
Than someone on the other side can invest in understanding Newton's equations or sequencing RNA, and make money off that market.
The predictions in prediction markets don't come from a vacuum.
Check what finance people call 'alternative data' for an example. Basically, hedge funds are paying folks to go out and count the number of cars in Walmart's parking lots, so that the funds have an edge in betting on Walmart's future share price.
That only works if you can identify that the solution will come from Newton's equations or RNA, that is, you're just dividing up who does the grunt work, but you have presupposed an understanding of the correct solution method.
As a contrast, suppose it's the 10th century, and the conventional wisdom is that the best way to determine whether the skies will fall is carefully charting the course of the planets through the Zodiac and consulting the ancient works of Hermes Trimegistus, as translated by certain Coptic scribes. Or the way to figure out whether a new virulent disease will emerge is to slaughter chickens and study the entrails. You could spend all your money on this research, draw a conclusion and act on it -- and that would not work out very well.
So what you've done here is *assume* the existence of, and recognition of, the correct approach to a solution. But if you've already done that, why do you need a prediction market? You *know* how to find the answer, you don't need to make probabilistic bets to find the answer, you can just hire someone to crunch the numbers, and that is indeed the most efficient use of your money.
If you can't make that assumption -- if you not only don't know the answer to a question, you also don't know how to find it out -- then what good does the prediction market do? You can discover what most people think the answer is, for whatever random reason, but if they're on average no smarter than you (which seems like a good a priori assumption), then you won't get out any more information than you already have. The exception would be if you are yourself unusually poorly informed (so the conventional wisdom has something to teach you), or unusually deceived.
> So what you've done here is *assume* the existence of, and recognition of, the correct approach to a solution. But if you've already done that, why do you need a prediction market? You *know* how to find the answer, you don't need to make probabilistic bets to find the answer, you can just hire someone to crunch the numbers, and that is indeed the most efficient use of your money.
You are making a pretty big leap here.
Yes, in order for prediction markets to work well, someone has to have a clue. But I don't need to know that person nor how they do it. Which stands in stark contrast with your suggestion of finding a person to hire and telling them what to do.
Depends what you mean by "work" doesn't it? If you are trying to answer a question in time for your answer to be actionable, then I don't see how the prediction market helps -- since it only identifies the best expert *after* his prediction comes true. If you are trying to identify an expert for future use, i.e. Joe answered these 3 questions correctly in the past, so we can just ask him the 4th on the same category and ignore everyone else -- well, OK, but I don't see how using the prediction market to identify the expert differs in any meaningful way from the customary way of identifying experts we've been using for the past umpty hundred years, which is comparing their previous predictions to actual outcomes.
And even then, we do nothing about the traditional problems of identifying experts, which is (1) deciding the kind of prior events that are close enough to our event of interest to let us start sorting expert predictions, and (2) deciding whether the prior prediction actually came true or not. Both these things are easy if we're talking about commonplace frequent events with objective outcomes, like finding a good plumber or the best person to do heart bypass surgery.
But if we want to know the right expert to assess AI risk, what are the prior events and predictions thereof that are relevant? Who knows? Nothing like the event of interest has ever happened before, and don't even have a good objective definition that would let us say precisely whether or when the event has taken place. So even if we knew the predictions of every person who knows anything about computers, cognitive science, biology, or metaphysics, and the complete history of the world down to the last detail, I don't see how we could decide which expert to trust with the prediction. And if we can't do it with arbitrary data, what good does the prediction market do?
Yes. Just as, if I want to get some flour to bake some bread, I'm best off getting a load of people to bet on how much flour will be wanted and growing and milling that much and shipping it to those places. It's a lot easier than actually growing the wheat and milling it myself.
I don't see how your analogy is analogous. Whether a substance is "flour" or not is an objective fact, so it's easy to establish a market that exchanges flour for money, because both can be confirmed to be what they purport to be, and buyer and seller can assess their value accurately before agreeing to the exchange.
A prediction market is not comparable. What the buyer wants is a true prediction, but there is no way to know ahead of time whether a given prediction is true, so there's no way to evaluate the value of that prediction. The only thing you *can* know is how many people believe it's true. That is only of value if (1) all I really care about is what people think is true, e.g. I'm a politician running for office, a demagogue, a marketer, professional gambler, social psychologist doing research, et cetera, or (2) it's a very reasonable assumption that what most people think is true is actually true, which pretty much by definition rules out the answers to difficult questions that require expertise.
Whether a substance is flour or not is an objective fact that is easy to ascertain afterwards, and similarly, whether a prediction is true or not is an objective fact that is easy to ascertain afterwards. I suppose it's true that in the case of flour in particular, it can be relatively easy to verify its correctness in advance as well, but there are plenty of other goods where it's hard to verify that they do what is claimed until afterwards.
But if the suppliers of these goods don't get their payments until after the goods have been used and tested, then the ones that stay in business will tend to be the reliable ones, and that gives me confidence in advance that they are producing decently good ones. And that's exactly how it works in a prediction market - the suppliers of predictions don't get their payments until after the question has been settled, and so the ones that remain as frequent participants in the market will tend to be the reliable ones, because those are the ones for whom being in the market tends to make them money.
So then your market is only useful if there is repeated business, that is, if the same (or very closely related) questions get asked over and over again. And I agree *that* works, but then this just an ordinary market in consultancy, and those already exist widely.
If I want to buy a house, for example, I want to hire someone to predict the price-to-value of a given piece of property, so I find a real estate agent with a great reputation, and because the market is relatively efficient I will usually find that his services cost the most so I can use his price as a proxy for his value. Very helpful!
But I would be an idiot to hire even the very best real estate agent to give me the odds of a brain operation fixing my gullibility. Expertise does not generalize -- which is why I need not pay attention to what Matt Damon thinks about space policy even though he's an expert in playing an astronaut in movies.
So the only way to find an expert in Subject Foo is to have plenty of opportunities for decisions about Foo to be made by consultants, which means plenty of clients need those decisions and will pay for them. But then the consultants and clients naturally find each other and shazam I have my market.
What then is the value in layering *on top of that* existing direct market an additional side-betting market in which 3rd parties bet on whether a given consultant-client relationship works out? It can't accelerate the discovery, because the discovery relies on external events that can't be hurried or slowed no matter how many bets are placed. It can't by itself encourage pairing, because the pairing relies on the existence of clients, who don't give a damn about what 3rd parties think of the value of the information. *I* don't care when I hire a realtor that I am providing some information to the person who may or may not hire that realtor in the future, and that fact plays no role at all in my decision to hire him. Why would it? I'm not an altruist, and it doesn't do *me* any good.
I suppose it could function as a weird form of advertising, so people can discover that consultants exist for a given type of decision. But I fail to see why ordinary advertising wouldn't work even better. Why waste money running a betting parlor to make people aware of horse races, when you could just buy an ad on Google?
Generally opposed but it's tricky. I like the idea that most people can be exposed to economic growth via something more direct and lucrative than a savings account (otherwise they are at the mercy of whoever is willing to expose them, like sketchy fund managers). But I don't like that we basically have a giant state-run casino as one of the principle institutions of our society, or that such a large part of the economy is organized around it. If we didn't have one I don't think anybody would be arguing that we should, but instead it's so normalized that nobody questions it. And of course I hate the existence of high-frequency trading and all the other sorts of financial industries that just get to, apparently, freely skim money off of the whole thing, and would love to see them all regulated out of existence (but that is probably not very contentious).
The problem is that in practice the stock has nothing to do with Henry Ford's factories. The concept of the stockholders owning the company could be abolished and in practice little would change, because people don't buy stocks to own a piece of the company.
Without the aspect of fractional ownership of a real company, a stock would just be another ponzi shitcoin like SHIB.
A well known principle of value investing espoused by Buffett etc is that you should buy the stock if and only if buying the entire company at that price and hodling it forever would be a good deal.
In the short term stock prices may get divorced from reality.
In the long term they are still effectively divorced from reality, because while people may sell stocks of a failing company and buy stocks of a succeeding company, they are not actually seeing anything from the success or failure of the companies.
Yeah, I agree with that, and said so in the post you're replying to. But being able to invest in businesses or economic sectors in the abstract, and having a highly liquid day-trading market with lots of transaction costs and, well, grift, is not a necessary implication of it.
Transaction costs have been going down steadily over the last few centuries.
Those much maligned high frequency traders are another way transaction costs have continued to decrease recently.
Being able to invest in the abstract is exactly that: an abstraction built on top of more concrete investing. Index-based ETFs are a fabulous achievement of modern finance.
I'd agree with you Alex. When you start asking questions which pierce the veil of the priesthood of economics, it becomes a taboo question akin to telling a 15th century catholic priest that Jesus wasn't real.
A central bank which controls the money is not a law of nature as it goes around printing trillions for some and nothing for others as it sets interest rates for the entire economy. A stock market and shareholder capitalism is not a law of nature either and it is a choice to allow it to exist. Private equity has been terrible as corporate raiders destroyed functional business in legalised theft. They'd take out massive loans, buy a company, then use the company they bought to pay back those loans, then loot the company and fire everyone. Why is that legal?
Why does this practice exist for a few wall street insiders to fire hundreds of workers from some small factory in a state they've never been to in an industry they know nothing about? Money makes them gods above any law with the ability to show up and order everyone else to do things. How is this good?
I've long questioned the validity of a stock market. It makes sense to me for the original person who started the company to receive some reward, but by the time the stock moves to the second owner, the third, the hundredth person down the line...that person 'owning' that company is of no benefit to anyone and had no moral validity to an asset they didn't help create.
I'd be more inclined to only have employee owned or self-owned companies which use their profits to buy themselves. In this way VC money and even the founder are basically paid through an internal loan to get their 'just reward' for their risks, effort, or ingenuity in starting the business. This would be a lot more fair and valid and could lead to better choices for business to preserve themselves. Already such companies exist and they treat 'their' workers better because the workers are the 'they' making the choices.
I see our society as overrun by useless do-nothing conmen who have elevated ownership, rigged games, and their scheming into the fabric of society. The most successful con artists are those who founded central banks which were NOT POPULAR when they were implemented in the chaos of WW1.
Nowadays few even think to ask a question of what it would be like if we didn't have a central bank and how many of our economic 'models' of human behaviour and such would simply fall apart without the rules of the artificial rigged children's playground that is our so called 'free market'.
'Free' with set interest rates, money printing like crazy, and a handful of central figures who make choices about our partially-planned economy. If Jesus was around today he'd have to spend a long time throwing all these money changers out of the temples where their profane arts have become central to government. Where choices to take care of the poor come down to if they'll turn around to pay enough taxes or generate enough GDP to be worthwhile instead of valuing them as human beings who have souls.
As economic choices see forests and clean rivers and clean as as optional non-dollar items as conmen in cities high and drunk on power make choices to 'slow down the economy' and 'allow preposterously rigged games' where it is a 'moral imperative' to collect debts from third world nations taken out by the old dictator to buy guns to kill the people of that country who took over....they're on the hook for debts which bought the bullets to kill them. And the IMF and WB and US will crush them in other ways if they don't pay up or cede sovereignty to allow foreign companies to extract their wealth tax free.
So it is essential to ask important questions like...should stock markets be allowed to operate? Can we abolish the central bank? Can we limit mergers and acquisitions by questions of social value and market validity? Do 'lean' principles have a place in power grid management so that some for-profit company in California can give out bloated payments to executives and investors in the good times and fall over during bad times? Should certain things even be measured in money at all? Hard and important questions!
There are plenty of libertarians who will argue against central banking. I think it's more uncommon to say there are problems with how debts can be discharged via bankruptcy and that creates moral hazard (Megan McArdle is vocally in favor of our lenient approach to bankruptcy). But the way unpayable debts were resolved in pre-modern society was via things like slavery that aren't going to be brought back.
In earlier times (e.g. Babylon), debts were slashed regularly, e.g. every 4 years. Maybe not great for those not getting their money back. But there were other solutions for crooks. And society was regularly free of debt. Slavery was another thing, unrelated to debt
Could you link me to some evidence showing that these Jubilees actually happened? I couldn't find anything definitive in a quick search. Wikipedia for example is rather sparse.
They sound more like something some priest would have written-up, but that the merchants would quietly ignore.
Compare also to how Islam officially forbids interest, but clever business people found lots of ways around that.
> In the 19th century, financier Russell Sage used put-call parity to create synthetic loans, which had higher interest rates than the usury laws of the time would have normally allowed.
It is legal because it is only possible if the breakup value of a company is greater than its market value, which means those assets are being mismanaged. When the market price of the whole is less than the market price of the parts, that predicts bankruptcy one way or the other. Buying a profitable company and selling off all the assets is nearly guaranteed to lose money.
I'm concerned about prediction markets at scale. Once everyone gets involved, including really big money, it shifts the incentive structure. For certain predictions where there isn't a lot of human input to the outcome it won't be a big problem.
But consider a question like "whether Alameda County, California, would permit indoor gatherings of 50 people on January 8th 2022". The outcome of that is 100% based on human decisions. If there's suddenly millions of dollars riding on the outcome, I have a hard time believing those who make the decision are going to be completely objective and unaffected by it. And I don't even mean in the sense of them taking bribes. I think just knowing what the market is predicting will play into their decision-making process.
In a sense I think large scale prediction markets will start having an affect on the outcomes of the things they are predicting. And that can start creating a real self-fulfilling prophecy aspect to it all.
And it's especially a concern if one of the outcomes is really harmful (whether a particular building or structure will still exist at a certain time, whether a particular person will still be alive at a certain time, whether a certain contagious disease will be widespread or not...).
I noted in another comment that this is already a concern for existing futures and insurance markets (that in a way are prediction markets about whether certain property will be valuable and whether certain undesirable events will occur to a particular person, place, or thing), but that it's allegedly solved by regulators investigating suspicious profits. If that's true, regulators might also want the ability to investigate suspicious profits in these markets in order to deter people from betting on very harmful outcomes and then bringing them about.
There are already millions of dollars riding on that outcome - every restaurant in the county might have to close! If you're not already worried about McDonalds doing something because of the megabucks they have on the line, why are you worried about prediction market investors?
I agree with gph, so, my answer to that is: I'm not worried _now_, but I see all of these people who are super into the idea of prediction markets and it sounds like they want a world where they are such a dominant institution that I would have to be worried. Akin to how I would suspect financial firms of doing sketchy things (cf the financial crisis but I'm sure there are myriad examples, mostly nonpublic) to defend their interests today.
>I'm not sure prediction markets would add an extra level of pressure beyond that.
I think they potentially would if they became as large and entrenched of an institution as the stock market
Edit: Just to add, I think lobbying and regulatory capture is a pretty big problem with our current system and if anything prediction markets will add to the problem in new and unforeseen ways. So the fact that McDonalds already has undue influence on the decision making process of government officials doesn't make me feel any better about prediction markets.
Presumably McDonald's interests include their long-term survival as a corporation, whereas the interest created by the prediction market is strictly directional with respect to the decision.
I guess the conclusion you're hinting at, and that Alex is worried about, is that creating big-money prediction markets on domain X would potentially spread the type of hard-to-pin-down corruption that is prevalent in the business world, due to stock markets, to domain X. This particular case is a bad example, since allowing or prohibiting indoor gatherings already has business implications. But what if we had prediction markets on, say, judicial outcomes?
Also, an anonymous prediction market would make insider trading (on anything) a LOT easier (and thus I am not surprised that Kalshi has firm rules about identity verification).
Well for starters, McDonald's is a giant company, every decision that they make involves many people, which means that while I don't trust them to be ethical, there are certain ethical boundaries which I don't expect them to cross. I trust them not to do anything unless their legal department says it's okay.
I have no such trust in the anonymous operator of some random bitcoin wallet. If there's money to be made by assassinating legislators then I don't think McDonald's would do it, but someone might.
"Well for starters, McDonald's is a giant company, every decision that they make involves many people...which means that while I don't trust them to be ethical, there are certain ethical boundaries which I don't expect them to cross." You don't think that executives at McDonald's or other major corporations might engage in corporate assassination? Do you think corporate, for-profit killings are limited to Le Carre novels and cyberpunk RPGs? Would that I had such faith in humanity.
I think that the big thing is that, by financializing it, you make it more liquid, and often create people with big financial interests in something where no one had a ground level interest. For better or worse, McDonalds has interest in things that benefit them and/or their customers. But once you've put those things on a market where there are traders on both sides, now there could be a big money power who has interest in the opposite side of those things. There might not once have been someone who has an interest in seeing every venue closed on Jan. 8, 2022, but now there is, and they might try to make that happen, to win big on these contracts.
The big advantage that these non-financialized things have is that the incentives they have to change the world are at least incentives born out of someone's object level interest, and not a meta-level interest about winning a bet.
This is just another version of the standard shibboleth against the interaction of wealth creation/inequality and governance that I see often on the left. Wealth creation/concentration is bad because it affects the quality of government, so we must use the same government that we think is capable of being affected by wealth to prevent/solve it, regardless of the fact that wealth creation and concentration are enormously useful mechanisms for society.
What we actually need is good governance, not prevention of wealth creation or redistribution. If you have good governance, you are not being influenced by special interest groups like wealth. If you don't have good governance, redistribution does not create an absence of special interest groups. In many ways, it makes them worse, by making the government far more important in society. See any former/current socialist system for evidence - USSR, China, India, Venezuela.
Similarly with prediction markets. If you can aggregate predictions in significantly better ways than you can now, that would be an enormous good for society. Worrying about potential impacts on governance just means that you need to continue solving the problem of govt. (preventing insider trading, factoring in various perspectives and evidence in decision making etc.). Also I think worrying about prediction markets influencing decision makers is strange. That's what you want to happen.
Wealth concentration is not an enormously useful mechanism for society. And spurious right-wing notions of good governance and $1.50 can buy you a cup of coffee. I'll pass.
I think you are the only person. The whole economy and every price charged by anyone is already based on people putting their money where their mouths are and making educated predictions. A betting market doesn't make "decisions" about anything except the odds of the bet. But the crowdsourced information that is made public by this process is made available to **everyone,** who can use it if they choose to make their own, more accurate decisions. So it's actually a democratizing process that takes the advantages of expertise and inside information and levels the playing field by making this information available to the more ignorant masses.
Although your point in general is valid, you might want to really think about why you think "you are the only person." could possibly be true. It's probably best to assume that there are a diversity of opinions, even if they are hiding in the woodwork. (If there aren't a diversity of opinions.. maybe go somewhere else? That would be scary. imo this comment section has serious thought-bubble problems, but they're not so bad that there isn't a dissenting minority to most points.)
There are several commenters on this thread alone that seem to generally agree with me, for instance.
Well... I see, like, one person total who actually agrees in the end.
I don't see the relevance of this observation to the larger argument, though; and I doubt the parent comment was meant to be taken to mean you're *literally* the only person *ever* to think this way, in any case.
Information is valuable, Alex. Casinos and lotteries are legal and produce nothing useful (at least not compared to, say, video games). Meanwhile, prediction markets produce information that anyone can benefit from without participating. In this sense, it's better than the stock market.
Consider today's high-bullshit environment of talking heads on TV spouting nonsense. My dad once sent me a conservative newsletter that linked to InfoWars playing a recording of an anonymous UK doctor telling someone on the phone that the government was about to stop the rollout of all Covid vaccines for safety reasons.
If there was a prediction market for this claim, the market would say that's not going to happen. It'll be cheap to buy shares in "UK government will stop the rollout of all Covid vaccines" but anyone who is a big enough sucker to buy it will lose.
I wonder if this is a potentially healthy thing, because people who live in crazytown normally stay there forever, until they are an old man, like my dad who is literally risking his life for ideas like this (and like my uncle, who died "with" Covid). If, before the pandemic started, my dad actually placed bets on the things his hyper-partisan news sources were telling him, he would lose a lot of money, which maybe, just maybe, would make him lose confidence in his hyper-partisan news. Granted, the death of his brother didn't change his mind, so this is a long shot.
Edit: meanwhile, the rest of us can just stand back and use the output of prediction markets to help us plan for the future, all without risking a dime.
I mostly agree with what you have said on other comments. I just don't expect to participate in this discussion to be a good use of my time, most of the commenters are so convinced of their position that the seem to be blind to the arguments that you are raising. They don't actually engage with them, they just talk past them.
If you asked me, I'd say that prediction markets would create good predictions as long as they don't influence real world behavior. Once this happens, they stop being "prediction markets" and start being "self-fulfilling prophecy machines". It seems pretty obvious that having a lot of money riding on an outcome would make you want to make that outcome happen. It's a feedback loop between "predictions inform policy" and "policy causes things to happen, fulfilling the predictions" (not to mention that the metrics used for the resolutions are also capable of being influenced).
At this point, the markets no longer work as something that makes predictions; instead it's a place to buy the new reality that you want. And the worst part is, a defender can always say "But look! What they predicted was what happened! The prediction worked!" -- missing the entire point.
I appreciate your chiming in to represent agreement with me. I felt awfully alone this! Although, yeah, I don't know if it's worth the effort .. but maybe there is something to be said for demonstrating the thought-bubble-ness in such a stark way (to lurkers or something)
Why do you imagine that forecasting future human conditions, social preferences, etc. is something we want less of? What makes you believe that would be a better world?
That's an unfair reading of my point. Forecasting things in the abstract is fine. Prediction markets, one of the many ways to forecast things, seem problematic to me for the reasons discussed elsewhere in this thread.
Hardly, I don't mean anything related to Marxism. But yes, of course I have other issues with how the economy is organized. That doesn't detract from the prediction that the hypothetical world in which prediction markets are a big deal is a less good one to live in.
Eh, surely prediction markets on top of the existing system add nothing of value. (Being a niche enthusiast past-time is one thing, but I don't think they could possibly survive having actual real world influence and attention without getting gamed to death by wealthy actors and insider knowledge. And yes, I've seen the usual explanations why that couldn't happen, they're not convincing.)
But what if they replaced the existing system? Surely rewarding people for accurately predicting the future would get beneficial on net once decoupled from giving them means to affect the future.
If you see it as gambling, then it sounds bad. If you see it as a job of gathering accurate information that other people or institutions care enough to pay for, then it's hard to think of a more useful thing we could have had these last couple of years.
Like, as a "gambler", you scout for questions that currently aren't well answered, research, improve on the answer in a way that cuts some of the bs, and earn your reward.
What do you mean by "gambling" and why do you think it's bad? From my perspective casinos are bad mostly because their customers predictably loose money, so I would say if someone has a justified belief that they will win on average they're not gambling, they're just planning under uncertainty (as we all must).
Day trading is gambling in this sense, but only because retail day traders don't know anything special. The few people who can discover unknown facts with any reliability (Renaissance Technologies comes to mind) are the ones who make huge amounts of money.
In a world where prediction markets are a major feature of society then the same applies to them. If you went to bet on them, you would just be a gambler, but the people who win more then they lose are precisely the ones who aren't gambling.
I don't see a world where lots of people are gambling in a giant system where most of the profits are captured by wealthy / connected / advantaged agents ... as a desirable one, compared to one where it's not happening. Referring to day-trading here. If you don't see that as less good, I guess we are not going to be able to see eye-to-eye, but perhaps you can at least see how, aesthetically, a society like ours would be displeasing to someone compared to an alternative that doesn't have day-trading in it?
It's true that wealthier people tend to have better investing opportunities (though not so much in the public stock market, I suspect) and they get much higher absolute returns even when their rate of return is the same as non-wealthy people.
I am not wealthy, but the stock market system has benefited me: my index funds are way up, and I sold some. Might there be a crash? Yes, but even if there's a crash, it is unlikely that I would lose money.
The system is fundamentally different from a casino because average returns are positive (because it's a positive-sum game, not zero-sum), so I wonder if your objection is religious in nature? My former church prohibited "gambling", but did not seem to treat retirement investment accounts as gambling.
Feel free to search for 'bank run' in that rather long article. Basically, bank runs based on sheer panic basically never happened. When runs happened in history, people had good reasons for them.
First: I don't worry about bank run only. It's just simple and clean case for a bigger problem of self-fulfilling prophecy.
Second: of course people had good reasons for panic. But if bank fails without panic? Do we know? How can we be sure about it?
Let's use math exam as example:
If somebody told me that I would fail my math exam I can just miss it and fail automatically.
Ok, I may go to exam, but I'll be nervous (because of prediction) and make some mistakes in calculations... and fail.
If I wasn't told about fail - I could be less nervous and pass.
And how react my teacher on prediction of my failure...
Of course if I was really good at math - my mistake only change my grade a little and other knowledge allow me to pass. Or may be I event won't notice prediction as I don't care about predictions I'll cut of my finger while cutting nails.
So in some way predictions could work as "probability amplifications".. and this looks like reducing number of ways things could advance, limit possibilities to predicted. I don't like this cut of possibilities, not failures itself.
Of course there is also way to reduce failures with predictions... if I was told that I would fail exam beforehand - I could learn more... BUT this is definitely not result author of prediction want. So he at least motivated to manipulate with time of prediction publication... and give "prediction market" properties of "probability amplificator"
> But if bank fails without panic? Do we know? How can we be sure about it?
I don't understand. Those banks that experienced runs had pretty bad balance sheets. And we can look into the historical record to see what has happened in various times and places.
The classic free banking way that banks used historically to shore up trust in themselves was to get and advertise a thick equity cushion and to be open with what was on their balance sheets.
I'm not a bank expert and I haven't seen these balance sheets. I doubt that each of failed banks would fail whatever would happened...
Maybe some of them had some factors that can't be seen through balance sheets. Maybe some of them could be just lucky enough to survive... Not a lot. I think it's something like 10% at most for all cases. But with bank run 10% turned to 0% and 90% became 100%. That's what I'm talking about with phrase "probability amplification" (or may be it should be called "high probability amplification").
I think for being human, being conscience it's important to account these low probabilities. High probabilities are most about "survive" and "stay same", while low probabilities are more about "find new". And I think surviving is not enough...
I think it plays out like the long tail of publicly traded products we have access to in the market today. There are many financially productive assets but they're very, very thinly traded.
I don't know who would pay money for that worldview. The value would be in how you'd change those liquidity challenges which, in my view, are deeply regulatory.
I don't think "gambling on your ability to predict the future" is necessarily a bad thing. Trying to predict an uncertain future is part of the human condition. Businesses try to predict if their products will sell, politicians try to predict if their policies will be popular or not, ordinary people make life decisions about where to live or what career path to take. In all of these situations you already have money (or things more important than money) riding on your ability to predict the future, a market is just a way to predict more accurately and pay people who put in the work to make good predictions.
The drawback is that this money will mainly come from the people who are *bad* at predictions. You could argue this exploitative, in the same sense that the lottery or other casino games exploit people who don't understand probability.
But we already legalize gambling, and I think I'd rather people gamble on their ability to predict the future than on their ability to predict the path of a roulette ball - at least the first game isn't explicitly rigged against you. It might even be subsidized, in which case the house is *losing* money.
Is the only problem "gamblers"? Are we capable of keeping the gamblers out of wall-street? Gamblers already have more influence on national decision making than you think. I think accepting that there's going to be some gambling involved and trying to improve it by giving it some more structure and transparency isn't a bad idea if you're afraid of gamblers. I'm more scared of gamblers in the dark than gamblers in the light. Or do you have specific concerns about the (type of) aggregation over gamblers?
IMO, the reason prediction markets would be useful is that you could use the information they surface to be more effective at doing a variety of things, including making better policy, business, and aid decisions. So these predictions would actually help us make the world a better place.
From what you're writing, it sounds like you're caught up in the connotations of gambling and/or making money. I think it's vastly more important that the output is useful.
An an analogy, some people think debt is dirty or even morally wrong. But debt can be used to buy productive assets, send a kid to school, or start a business. It helps people improve their lives. There are definitely abuses and mistakes made at the margin, but overall it's pretty useful.
That's my take on prediction markets too. If you find the mechanism distasteful, that's fine, but to me it's not the main point by any means.
We need it to be legal (and high-volume-allowed) in part so that big hedge funds and the like can do superforecasting for insane profits. Making it illegal-but-accessible through darknet-style crypto schemes doesn't help, if when Goldman Sachs wants to do it, the government fines *them* or otherwise prevents it.
Getting firms into the prediction-for-profit business is a big part of how we get these more useful and accurate in the long run.
I think if we're currently at Stage 1, there are enough crypto whales to get us to Stage 2, and Stage 2 will be impressive enough that it'll be an easier case to legalize what you're thinking of, which would be Stage 3 and (I agree) better than Stage 2.
I find your model of the shortest path to policy change kind of unexpected. I have a tiny bit of relevant experience, but you think about these things very carefully, so I don't know, the gap in our models weirds me out a little.
Shrug, first principles I guess. What's the key question, something like, what's the shortest path to legal for-pay prediction markets in the US?
What are the right foundational questions to help answer that?
1. How are most US policies made?
2. How are the policies most like the one you want made? (caveat: avoid salience, how are boring similar policies made)
3. Under what conditions to administrative agencies become more permissive (more strict)?
Do you have strong views on those?
People who I would expect to have useful insights here, in approximate order from least to most helpful: law professors, practicing administrative lawyers, lobbyists, admin lawyers who have specifically sued the CFTC, represented the CFTC, CFTC employees who currently work on rulemaking, former CFTC employees who worked on RM but quit out of frustration at some broken process they could no longer stand.
(Every administrative agency has its own weird quirks, and sisyphean battle it fights over and over. They're all pretty obvious to everyone who has worked there, but I wouldn't expect, say, law professors to typically know too many of those stories.)
Maybe this is all very entry-level to you, not really sure. Apologies if so. Happy to try to add more context or look into some of these questions in more detail if you're curious though.
I think this is a very important point. You want major institutions trying to arbitrage, not just people who use the dark web. If we had that, then prediction markets would be one of the most important sources of knowledge we could have although it would be regarded as gambling by many.
One of the biggest reasons a decentralized prediction market hasn't happened yet is that deciding how a prediction resolves is very hard to do with just a smart contract. What is the source of truth (the oracle) that the code can look at the make the closing decision? A foundational step to building decentralized markets is building the oracles.
I think resolution in prediction markets is a much, much bigger impediment to scale than anyone has yet realized. Two obvious issues. (1) Malfeasance. Imagine a prediction market that has a $10M or $100M investment. What scale of arbitrage would incent attacks on the resolution mechanism? If some group has managed to acquire a potential $10M payout that is hidden by an anonymized distribution mechanism (think DDOS), then it’s easily worth $1M in effort (bribes, spoofing, etc.) to try to cause the lucrative resolution. And a Kleros-style adjudication cannot be sequestered, by construction. Just post a bounty payable in crypto with authenticated (also via blockchain) proof of collusive vote. (2) Subjectivity. Not every question can be resolved via an appeal to an authority, such as a stock price. And it’s turtles all the way down: there’s no way to create a resolvability mechanism for a proposed prediction that doesn’t rely on some authority. Crowdsourcing is its own epistemic filter. The crowd can be wrong about its prediction, so any crowd (non-authority) similarly can be wrong about its resolution. One of the reasons humans rely so much on authority is that it removes a lot of epistemic burden in life—it’s just easier for the referee to say which coin face landed up.
2 seems self-resolving. If a question has a subjective answer, and such questions have paid out in an unpredictable or counterintuitive way in the past, serious persons will not bet on them. Perhaps you mean to say that all predictions generally have a subjective element that makes them vulnerable to this attack. I doubt it, but it still solves itself, by having everyone conclude that prediction markets are BS. I think commodity futures already refutes the general accusation, so why not run the experiment and see how many more subjectivity-proof questions there are? But then we run into your first objection, which I find more substantial. But again the commodity futures markets refute the most general form of your claim. Maybe commodity futures are unique in this respect, but what evidence do we have so far?
I certainly agree that if subjective-resolution predictions tend not to work in practice then they will not work in practice! My point was more abstract. All predictions require an authority to adjudicate for resolution—the race track announces the winning horse—even in the sense of authorizing who tabulates a crowdsourced mechanism if one exists, like elections. In fact, much current sturm-und-drang in American politics is about the dawning realization that there are ambiguities in our federal elections around which authorities control tabulation, and how they are in turn crowdsourced and/or authorized, and all that is with an "objective" timed measure: most legal votes. If one imagines high value subjective prediction markets involving huge numbers of participants, I hypothesize that this *recursive* subjectivity could be fatal. The difference with commodity markets is that at the end of the day they are contracts to provide atoms, and humans have millennia of experience adjudicating the alleged failure to provide contractual atoms when it occurs. Habeas corpus and so forth.
“ All predictions require an authority to adjudicate for resolution” except, apparently, commodity futures contracts, stock options, and stock purchases. If there are 3 exceptions, there can be more.
Thanks for the convo. I'm quite enjoying it. You're right that one can certainly have bilateral exchanges and contracts that are arbitrary. But that creates substantial risks for one or both parties, and disputes about resolution are then adjudicated by the legal system. Your examples, though, don't require *epistemological* resolution, or at least that seems like a very odd situation. If I trade USD for pork bellies to be delivered on a certain date, there isn't a lot of definitional wiggle room on the dollars, the pork, its quantity, or the date. Similarly for stock transactions for stocks that are listed on an exchange, we're unlikely to disagree on whether the stock I transferred is for the correct company. In contrast, a pure prediction market is a predication about possible future states of the world where there is no a priori requirement for an authority to resolve which future state in fact occurred. One partial solution is to make such a requirement—define the authority—but then, per your earlier point, you may increase opportunities for malfeasance.
So you’re afraid they will not fail immediately, but first gain high value, then fail catastrophically? If the subjective resolution mechanism is insecure, why would an attacker wait so long?
I haven't thought this through (obviously!) far enough to say anything about possible trajectories. I was trying to point out, contra Scott, that I don't see how you can have a stable multi-billion dollar prediction exchange. Your point here is reasonable too. Maybe any market that gets to 10X fails, where X is the cost of a sophisticated attack, because you can steadily make a 2X or 3X return from such attacks until that market fails.
Upon further reading, Kleros has mechanisms to address the forms of malfeasance I raised. The epistemological problem still pertains though. But here's an intriguing piece on blockchain and epistemology. Still investigating...
Legalizing prediction markets is easy. Just figure out how the Vegas casinos can have a lucrative monopoly on the industry. Their lobbyists will take care of the rest. That's exactly how sports betting got legalized -- albeit with ridiculous rates of "vig."
Alternatively, all the autists who care about prediction markets should crowdsource a plan for political lobbying. I'd start with libertarian Senator Rand Paul, and then figure out who is on the committees overseeing the Commodities Board and how to persuade them intellectually and/or with a combination of political carrots and sticks.
Would genuinely pay to listen to this, Scott, and I think a lot of people will too. Balaji is to the crypto community a lot like you are to the rationalist community. I think it would be a public good to have that conversation /pitch
Being the student in a conversation rather than a debater can be even more valuable. Someone should ask the "stupid" questions that are on everyone's minds.
It's so bizarre to think that I'm about to write this sympathy-for-the-regulator comment, but ...
In a recent subscriber-only thread, I asked you about the concern about people using futures markets, including prediction markets, to profit from causing harm when events aren't exogenous (they can short something and then actively damage that thing). I mentioned that a futures trader told me that the supposed solution to this in existing regulated financial markets is that regulators will sometimes investigate how someone profited from a specific short, and have indicia that they use that maybe work.
I recall that you answered that it seemed like the legal system was able to deal with this and that we didn't see some of the extreme cases, so it seemed like normal laws had kept this kind of behavior in check, and that the same might work for prediction markets with real money.
One thing I'm not sure of in that answer: is it more "normal laws" like "people who commit arson or murder are likely to get caught by the police, so people are unlikely to risk doing those crimes in order to profit from a short" or more "normal laws" like "people who profit from a short after murdering someone or burning something down are likely to get caught by the financial regulators, so people are unlikely to risk doing that"?
That is, do we think that people don't profit from shorting stuff and damaging it because they don't want to risk doing the damage, or because they don't want to risk getting the suspicious profit?
If it's more the former, then prediction markets shouldn't matter much because people are already being deterred from causing many relevant kinds of harm.
If it's the latter, then the regulation in the markets might matter a lot, because people who are currently afraid to short companies' stock in regular financial markets and then do something bad to the company may see ways to get away with it in a more unregulated and anonymous market.
(This also includes insiders: insiders may be reluctant to misuse their confidential knowledge, or use their positions for sabotage, if they know that financial market regulators may catch them. If they do either thing in a not-very-regulated real-money futures market, maybe they know that no regulator is likely to catch them, so the risk of disloyal behavior by insiders could go up a lot.)
To put this a different way, is it possible that the CFTC is saying not "we want power for no real reason because we are so hidebound and averse to change" (or not only that), but something like "if these markets get big, all kinds of people will be able to use them to profit a whole lot from doing bad stuff, and we are the ones who would be called upon to catch them doing that, and we know we don't have the resources and capabilities to do that"?
Of course, this is no justification at all for banning prediction markets in things where neither side of the question can be made more likely by causing harm or damage. And it's no justification at all for banning them in things where it's clearly impossible for people participating in the market to influence the outcome.
This doesn't seem any worse than the rest of crypto - you can already short a crypto token and assassinate their lead programmer. Or sports betting - sometimes there are scandals where people try to throw a game, but it gets dealt with at the level of casinos or the sports league or sometimes the federal government.
Prediction markets are only trying to be unregulated and anonymous in order to escape these kinds of bans. If they were legal, the CFTC could just ask them to report suspicious transactions. Probably this is what they're doing with Kalshi, but I feel like part of Kalshi's solution is "hire lots of really good lobbyists", and I would like this step to be skippable.
Anyway, since Polymarket is still operating outside the US I guess we'll see whether this kind of thing happens.
From my understanding, Kalshi has pretty strict rules / real-time surveillance systems and reporting requirements to combat insider trading. They're mandated to by law in the same way any other regulated exchange is - it's the same reason they have all the KYC stuff.
Polymarket had a blatant Tesla insider win big, 60k I believe, by betting Tesla would publicly buy Bitcoin shortly before they did. Arguably the point of Polymarket is to allow stuff like that as clearly the insider operated with additional information that steered the prediction towards a more realistic value, but Regulators are not used to allowing that sort of stuff.
I'm not clear if that would be allowed on Kalshi in order to allow the best prediction, or if they would report it to the CFTC to prevent insider trading. Isn't the point of a prediction market to allow people with the best information to drive the price to the most efficient possibility?
Interesting! I didn't mean to put trading on insider information in exactly the same category as sabotage; I realize that there are significant disputes about how bad insider trading is and whether it should actually be illegal. But as you said, regulators (and other people) are not used to being comfortable with it.
You could also analogize insiders betting on their employers' actions to sports team members betting on their own teams' performance, something that is widely forbidden because the incentive to corruption is so clear. (Not so much about "insider information" as about the incentive to throw games.) But I realize I don't know exactly what rules I think ought to apply to either situation.
Whether or not insider trading should be illegal, if it's allowed it will drive sensible people away. No point in making a good-faith prediction about something if you're likely to be betting against insiders.
I think people with dreams of unregulated free prediction markets should remember would _really_ get rich out of this: politicians.
Across history and across different countries insider trading was defined and regulated in different ways.
You could use these differences to investigate your thesis that it would drive sensible people away.
As far as I can tell, in practice this hasn't happened.
Compare also the case: when Warren Buffett announces that he bought a stock, it goes up.
So he does the following trade:
First, he decides that he wants to buy a stock.
Second, he buys the stock.
Third, he announces that he bought the stock.
At step two he had non-public information that he knew would make the stock go up when published. And he traded on it. The poor devil who was his counter-party in that trade and sold to Mr Buffett surely felt cheated?
Would your solution be to require Mr Buffett to announce all his trades before he makes them?
In your example Buffet would not be considered to have performed insider trading as he was not an insider and did not trade based off of nonpublic information about the underlying asset that was held in trust by an insider.
It's insider trading to sell a stock short because you are the company's chief of security and you know the factory blew up, but the market didn't. It's not insider trading to sell a stock short and then blow up the factory as an unrelated party, though there are obviously other legal challenges.
> then do something bad to the company may see ways to get away with it in a more unregulated and anonymous market
Maybe someone already said this, but this would be all the more reason for regulators to embrace a market, so they can guide its development and keep the liquidity in one nice place.
I miss Polymarket. I found it fun, even if I did terribly at it. I turned 50$ into 9$.
Everything about your piece feels accurate to my experience. I went to Polymarket because it was available and added weight to my predictions in the form of money. I won't go to Metaculus because there's no real incentive to be right over imaginary internet points. I won't go to Kalshi because signing up looks like a chore.
I think "easy ways to buy drugs" was probably a socially valuable consequence of crypto. The Silk Road was a more legitimate and trustworthy market for drugs than the street dealers it supplanted. It had an escrow system, a higher degree of quality assurance, and vendor reviews which could be verified through multiple sources. I don't have any data, and I think it would be a difficult question to study, but I strongly suspect it had a net positive effect.
I have actually wondered about that, especially with regard to the negative externalities of street corner dealers, who might not actually be if favor of free trade and instead use violence to achieve a lucrative monopoly.
With darknet markets, it could be that willingness to commit excessive violence over the low end drug trade might not be the big competitive edge any more.
I am unsure how big a deal violence among dealers was before, though. "The Wire" might not exactly be a documentary. [0] cites 13% of the US murders 2007-2012 as gang-related. Now I don't know if there are any non-gang murderous drug organisations, or if drug market share is even among the top reasons for gang killings, so YMMV.
OTOH, drug lords would have to run their darknet fulfillment centers pretty horribly to do worse than street corners, externality-wise.
From what I can tell, "The Wire" has more validation for its authenticity than just about any other crime show. I thought it did an impressive job of outlining the dynamics of the drug trade and its enforcement, and it helped to illustrate a lot of the motivations driving the people involved on each side. But it had to condense all of that into one coherent story, and that ends up distorting aspects relating to the frequency of crime and whatnot.
Interestingly, one of the things Ross Ulbricht, the creator of the Silk Road, was initially charged with was a supposed failed murder-for-hire scheme to silence a former moderator threatening to expose him - the kind of murder that simply would not happen were it not for our draconian drug laws. But lo and behold, that charge was dismissed with prejudice *after* he was convicted in another trial in which they presented evidence of this questionable murder-for-hire charge. Very fishy trial all around. Poor Ross took a big one for the team.
> the creator of the Silk Road, was initially charged with was a supposed failed murder-for-hire scheme to silence a former moderator threatening to expose him - the kind of murder that simply would not happen were it not for our draconian drug laws
Errrrghhghhghhh . . .
I'm generally on-board with making drug- and sex-crimes less chaotic and violent, but if you can't see why "I wouldn't have to murder the guy if this were legal" is a really bad argument, I understand why there's no real chance of the advocates for this ever succeeding.
> in which they presented evidence of this questionable murder-for-hire charge
Not very questionable. The Feds fucked up the case, and the appropriate consequence is that they don't get to prosecute, but there's no reason for a normal person to think he didn't hire a hitman.
Policy makers prefer things to be legible. If we know how many people are buying drugs or sex, we can come up with good harm-reduction practices.
Politicians hate things that are legible. "Clear evidence that 5000 people using drugs" is a way to lose re-election. "No one knows how many people are using drugs" is something you can bluff your way through.
Funnily enough though, this is precisely harder rather than easier to do nowadays.
I guess the promise is that once you can decouple crypto from any sort of "real" money it will become easier. Since it's no longer BTC tumbling, it's actually anonymous things coins like Monero.
But right now Scott rightfully points out that government violence has more or less stopped crypto dead in it's tracks (though I don't think lack of sc prediction markets is a sign of this, just a sign that arbitration is too fuzzy).
I mean it depends on what you're in the market for. You've always been able to find the normal stuff on street corners or by knowing the right people, and even back in 2013 that was easier than learning how to use the Tor network, buy BTC with cash, pseudo-anonymously tumble it between wallets, and then praying to god your "package" doesn't end get delivered to you by a fed. Silk Road (and its modern successors with which I'm not familiar) just make it easier to find the more rare and obscure drugs, even if it's not exactly easy. Good luck finding 25I-NBOMe on the street, not to mention being confident that that's what you're actually getting. Dark web drug marketplaces will always be easier than nothing when you have no other connection in the first place.
I do wonder how dark web drug marketplace sales volumes have changed over the years.
On the subject of prediction market design, I was thinking recently about Kelly bets and how doing that math yourself is an unnecessary inconvenience for prediction markets to require. Anyone have any thoughts on how valid/unoriginal this is?
The Kelly bet is the optimal bet to make based on your confidence and edge, but the Kelly bet is denominated as a fraction of your net worth (or more realistically, investment pool). Yet prediction markets in practice require you to section off a fixed piece of your investment cash and leave it in escrow until the prediction is resolved. A professional forecaster would obviously rather have a prediction market where they could demonitate bets as a percentage of their net worth, where they could leave their pool invested in equities while also pledging it to bets, and where they could make leveraged bets on a greater balance than their net worth.
And that doesn't seem like it should be impossible? It basically requires a frictionless autotrading system. If you plug in your perceived real probability, or even better your buy and sell cutoffs, then the computer can calculate your edge and thus your bet. And then so long as all bets resolve in a well-ordered manner, your net worth is always a known value at the resolution of each bet.
Turning those perceived odds and net worth numbers into prices is trickier. You'd need something which profitably divests participants as the resolution becomes apparent and trends towards their prediction. But you'd also need something which doesn't blow up unrelated markets when a participant loses somewhere else. It's fine if unrelated markets are somewhat affected, because the participant's new, lower net worth does, in fact, give their opinion lower weight.
Anyone know if an existing algorithm handles that kind of aggregation?
This seems like it _could_ be a feature instead of a bug, if handled right. The Kelly bet changes over time, which if taken literally means you should move money into and out of the market. In particular, it says that at the moment you win, you should have no money left in the market. That sounds right to me, if you have a market algorithm which extracts your profit as you get closer to winning. Although it wouldn't work to have a market which consumes your entire net worth as you lose, so it can't be that simple.
But yes, coming up with the aggregation algorithm that works here is equivalent to coming up with a continually-adjusting version of the Kelly criterion that allows you to react instantly to new information and new market odds.
> coming up with the aggregation algorithm that works here is equivalent to coming up with a continually-adjusting version of the Kelly criterion that allows you to react instantly to new information and new market odds.
Let me know if you come up with or find a way to do this. I'd be very interested.
Seems you answered your own question re: prediction markets: if prediction markets are really more accurate - that's bad from a narrative control and population control perspective.
Equally crypto: You can't live on Crypto without the ability to convert to fiat. The conversion to fiat means you can't avoid the KYC/AML and the banksters.
So Bored Apes is really the purest crypto: collective nerd art as I've been saying all along - value via scarcity and perceived value, and nothing more or less.
>My favorite commentary on this decision is Nuno Sempere’s The American Empire Has Alzheimers. He lists various bad decisions the US has made, from Vietnam to the bungled withdrawal from Afghanistan last year.
Putting aside the question of whether POTUS' comments should be seen as predictions, I would have found the linked bit far more persuasive if there was any attempt made to show how prediction markets performed on the kind of high-profile political embarassments in question. The fall of Kabul to Taliban forces seems like it would be the perfect opportunity - anyone have a link to market performance on an appropriate question?
I dunno, at least since 2012 or so, I thought it blindingly obvious that the regime in Kabul would not survive a minute without being propped up by American bayonets.
The Afghanistan Papers merely confirmed what anyone even sort of paying attention already knew.
As it was, the regime collapsed before the Americans had actually finished pulling out. I am sorry if my predictions misled anyone and I apologize.
> There’s going to be **no circumstance** where you see people being lifted off the roof of an embassy in the — of the United States from Afghanistan. [...] the likelihood there’s going to be the Taliban overrunning everything and owning the whole country is highly unlikely
To answer the second part of your comment, yeah I analyzed this in several forecasting platforms (no prediction markets, though), here: https://forecasting.substack.com/p/postmortem-the-fall-of-kabul . That is my one paywalled substack post, so a money quote is:
> But superforecaster consensus only assigned a 6.5% to the Afghan government “losing control of at least half of Kabul” before September 2021. Personally, during this July, I was assigning probabilities between 13 and 20% on the question "Will the US fully evacuate or lose control of its embassy in Kabul, Afghanistan, before 1 December 2021?"
Biden just sounded so confident, that many, included myself were fooled (but we were never at 0%, and we were never below a probability where you just don't plan for the eventuality). Like, getting this wrong really, really hurt him (https://projects.fivethirtyeight.com/biden-approval-rating/). For the bowels of Christ, he had been a senator when the Vietnam withdrawal happened.
> Biden just sounded so confident, that many, included myself were fooled
I don't know how prevalent it is (the article wasn't available to me), but the claim that decentralized forecasters were misled by the errors of institutional ones is not a terribly satisfying explanation. Most charitably, it acknowledges that the actionable information was disproportionally held by institutional actors; at worst, it outlines a systematic bias in this evaluation of predictions markets.
This bias will not be systematic. Sure, maybe I was naïve being surprised by cluelessness or lying which was so blatant, but I (or others) will not be making that mistake in the future again.
> But superforecaster consensus only assigned a 6.5% to the Afghan government “losing control of at least half of Kabul” before September 2021.
This isn't a market and doesn't answer my question (Are superforcasters supposed to representative of markets, or expert opinion?), but if it is supposed to be a stand-in for markets and dates to within a month, it's not filling me with confidence.
Antoine above links a Metaculus question that's a decent first approximation, but even there between the quite long time horizon and late creation of the market (the situation in late July was notably different from early July) it's only at 60%. For something people now claim was "blindingly obvious"!
> Biden just sounded so confident, that many, included myself were fooled (but we were never at 0%, and we were never below a probability where you just don't plan for the eventuality).
This feels like it's making the category error of taking war propaganda at face value. When POTUS goes on screen and tells you that everything is going to be fine, your prior shift should be negligible. When the State Department is telling all American civilians to leave ASAP in April and doubles down in June, that should tell you more.
>For the bowels of Christ, he had been a senator when the Vietnam withdrawal happened.
Critically, this tells you nothing without knowing how officials message in comparable circumstance. This might be a good example of what Bounded Distrust was discussing with the parsing of things presented for reasons other than to inform the audience.
Yeah, easy to say in hindsight, but US diplomats were renewed for one year contracts ~one month before the Taliban ran over. I.e., the whole point of hindsight bias is that when you look backwards, you only remember confirmatory information because you don't want to think you're an idiot.
I have no interest in dueling anecdotes about what one's subjective probability ought to have been at the time. I have *negative* interest in retrospective self-report of said subjective probability. If you want to make a compelling argument that prediction markets have a role in national policy, showing how policy is currently based upon assessments that underperform specific clear predictions is table stakes. Not having those predictions at hand is a fatal flaw. As in, the argument is dead without them.
How much faith one should put in elected officials' pronouncements is a related, but distinguishable question. I continue to argue that significant updates based on mere words is foolish. Make people show their work.
Was about to mock that but then it turned out I mocked myself by recalling the pushes against private wallets.
Think a good solution would be a crowdfunded ad campaign against „hosted“ „wallets“. Do the Facebook-thing to the rest of the misbirths.
Only missing piece is to figure out how to profit from that, then it should happen automatically. EDIT: Shorting is the boring default solution and would require lawyers, rat holes or proper oracles.
Now another trouble could be the cysts running the simulation outlawing advertisements against themselves, to protect their users or because racism hesitancy or something like that. Unfortunately crypto is not quite ready to bear it’s own social media. But I‘m sure the proper incentives can have angry nerds come up with deliciously sinister schemes. EDIT 2: One idea would be rewarding sharing of ads I mean funny may mays with tokens. Have fun paying out the ass just to ban like a quarter of your 15-25 male userbase (my guess what the archetypical target audience for something like that would be).
It's not clear to me how to solve the on-ramp problem without something like coinbase. and probably most nontechnical users' coins are safer in coinbase than they are on their hard drive
If prediction markets are so effective, why not use them as a sort of substitute UBI?
Each unemployed citizen gets a very basic income together with an non-transferable amount that can only be used to buy shares on an electronic prediction market addressing questions of societal importance, and which can be cashed out. Something like lottery tickets, but playing a game of skill, not chance, and more potentially useful than poker.
Not only does this give people something to do and potentially gives society a better predictive capability, skilled players can make serious bank and it also allows society to scout for real-world talent from among consistent winners.
This is ~equivalent to legalizing prediction markets+giving people an UBI separately; just make many 50% bets in a random direction (or just many random bets, period) and get the profits out.
Possibly. Although you'd think that the possibility of something better than a subsistence living (coupled with a quick and concrete payoff) would motivate some people to go to library or something.
If you accept Scott's view, "who will win prediction markets" depends on if Manifold can land crypto/fiat faster than Kalshi or any of the crypto markets land "anyone creates their own markets". This framing is quite good for Manifold! Crypto is central to our 3 month roadmap, whereas none of the other prediction markets seem to believe in "anyone creates your own market". (Scott mentioned that this mechanism is prime for any other market to steal -- and I actually agree! It would be great to have more competition on this front.)
Some reasons Scott might be wrong:
a. Reputation or fun is a sufficient motivator, so Real Money is not necessary. This is something we as a team are interested in, since it means we can skip crypto shenanigans and just focus on a good web2 product -- and looking at advanced F2P economies, there's reason to think that people may want to earn in-game currency on its own merits. (I'm personally a bit skeptical though.)
b. "Create your own markets" is not something that traders actually need; traders prefer to trust platforms over creators as a schelling point, or fragmentation in markets leads to insufficient liquidity on a per-market basis. Aka a long tail of niche content doesn't work for markets (unlike blogs, songs, or books) because markets rely on network effects to be valuable, whereas other content consumption works in single-player mode.
c. Overall, trading on predictions is too niche, as something that grey-tribe people like but not everyone. I face this a lot when trying to explain Manifold Markets, or the whole concept of prediction markets, to any of my friends and family. "Isn't this just gambling?" they ask. However, the amount of liquidity in stock markets suggests that not everyone needs to participate for this to be valuable; just interested parties willing to put money on the line.
I'd place <20% credence on b and c -- otherwise I wouldn't be building Manifold! -- but would definitely love to hear other estimates.
Is there a reason Manifold Markets isn't taking the european/technically literate american only approach and allowing real money?
Also, to your point on genuinely decentralized black market alternatives, that misses the point entirely. Nobody (I don't) really wants a black market alternative crypto prediction market, they want a squeaky clean mainstream one that does have the sort of institutional wall street, think tank, academic attraction that can make it actually important. The big money and influential people simply won't, and if they manager other people's money often legally can't, show up to a prediction market that is not heavily regulated and ideally has a board full of people like them. In that regards, I think that Kalshi spreading its wings and scaling up dramatically is the best bet by far
The three of us founders are based in America, and there's a bit of regulatory concern, which is why we think crypto is more promising. But I'm personally very much in favor of allowing real money!
Interestingly: https://versusgame.com/app/game is highly-funded startup that looks like a prediction market if you squint a bit; I talked to one of the funders and their approach to the whole regulatory issue seems to be "eh, it's a gray area"
Wow, I'm surprised I haven't heard of them yet. They look pretty well developed but potentially geared a bit towards minors' interests, which might be an issue. Having mainstream media entertainers on board early seems like a good way to push beyond the more rationalist/academic/nerd focus of most prediction markets
Yup! I think of Versusgame as "Tiktok for prediction markets" (where Manifold is "Twitter for prediction markets"). It's a great strategy for getting a casual audience familiar with betting on outcomes, but their model also doesn't do as well at producing meaningful, useful forecasts. E.g. all their bets are currently fixed at 50/50 odds.
I have never experienced worse ui on something that could be so simple in my life.
Edit : Looks like they give a flat +190 to both sides of every bet, even pretty heavily weighted ones. Thanks for the tip. I put 100 +190 on a heavily favored bet. The website's gimmick is that it is a matchmaking service and you play against somebody else, however it looks like my bet was called within a minute by a new account with no other bets or history, so they may be burning VC money on faking activity by taking low odds
I'd be very curious to hear what ends up happening, if you'd like to share. I put $10 on "Joe Biden is not impeached by Thursday Feb 10" yesterday, which was then cancelled and refunded today. This has made me even more suspicious than I was before.
I agree here - financial regulators have a habit of quashing innovation if people try to do it in an unregulated manner, that's what's happened to all the previous prediction markets. See: Intrade. The fact that they're allowing it in a systematic manner is the only way prediction markets will go mainstream + be able to attract the sort of institutional investment (and thereby research) dollars that make a prediction market truly accurate.
Brilliant article, Scott! I'm glad to see your vision for prediction markets is so expansive and includes personal topics like whether a date will succeed! If it weren't for the regulators we could be so much further along. Nevertheless, I think we can eventually reach this vision!
While real money is a great motivator, I do think play money markets will work one day, whether or not we succeed with Manifold Markets. Virtual currencies in places like Roblox or Second Life ultimately can become just as scarce and valuable. In other words, we can escape the US legal system through virtual worlds which have the freedom to set their own rules.
But I hope that you needn't build a virtual world to make a currency valuable just so you can create some legal prediction markets. Our hypothesis so far with Manifold is that an ecosystem with enough market creators and traders would bring that sense of value to our play money.
If you have a critical mass of traders (even if a minority) that are trading to win, then even play money markets become accurate. With accurate markets, people tune in, and create their own markets. Then the play money has value in how it changes forecasts that people are sharing. It's a chicken and egg game, and once it's started, maybe it will fulfill your prediction market vision.
The pathway is: accurate markets leads to more attention paid to the markets, which means the currency has the power to change the forecasts that people see and act on.
So, if you can use the currency to increase the forecasted odds that Congress person X will win, or decrease the forecasted chance that the Cybertruck will release this year, that's a kind of power that has value, as long as people are paying attention to the forecasts.
Do people participate in prediction markets because they want to make the market resemble their predictions? That seems like a really weak motivation compared to profit.
There are a couple of important points that Scott seems to have missed here.
1. Decentralized services don't really have to make money, in the same way Ping, BitTorrent, Sip or HTTP (the protocols) don't make money. After all, if the service is decentralized, there's nobody who could make money from it, it's just a specification, or, in the case of smart contracts, just code.
Once written, specifications (and a smart contract is essentially a specification that a computer understands) don't really need money to continue existing. If someone takes the time and effort to develop such a market, it's here to stay and it doesn't have to be profitable to anyone, except the players of course. That's the beauty of blockchain-based solutions.
2. Crypto, in itself, isn't really more regulated than it once was. It's as easy to send your Bitcoin to someone else as it was in 2010, or even easier. What changed is the process to convert your crypto to other, non-crypto assets, assets that government can (directly or indirectly) control. If you want to interact with the Fiat currency system, you need to interface with payment card processors, banks, wire transfer companies (think Swift) and so on. All those companies have real offices to search and real people to arrest, so they have to follow government rules, which often require them to ban you if you don't do so too. It would be much simpler for a crypto company to operate illegally if they didn't need those connections, though that street goes both ways. After all, if you're structured in a way that's hard for governments to crack down on, you can get up to other shady behaviors, including stealing all the money you're currently holding and running away with it. Darknet markets are a perfect example of what often goes wrong in these situations. This is a self-perpetuating loop, if crypto isn't popular enough, you need to interact with Fiat, which governments can regulate, which makes crypto less enticing. If crypto becomes popular enough, though, the need to interact with fiat suddenly lessens, which makes crypto easier to use, which makes it more popular, and that basically leads to a state of crypto domination.
3. I don't think the internet freedom situation is as dire as you make it to be. It's all a matter of friction and a matter of incentives. In Poland where I live, everybody and their dad once knew how to use BitTorrent and burn pirate DVDs. Even if they didn't, they knew someone who did, or, at worst, knew someone who knew someone. The need was there, it was so much better to torrent than it was to buy CDs, iTunes Store wasn't really a thing here, so people overcame the friction to learn. The main reason people stopped using it is not that it became more difficult, but that people just don't need it any more. The centralized platforms (like Netflix) have caught up, and are now easy enough to use to justify their cost.
I read somewhere that approximately 30% of people in Russia or China know how to use a VPN, and that would be consistent with the anecdotal evidence I've heard. In most of those places, though, the VPN users aren't really interested in political activism and world news, porn, Youtube and WhatsApp are often much more important.
Maybe the best thing that could ever happen to internet freedom is social media companies cracking down on anti-vaxxers, conspiracy theories and other such movements. If they do it with enough force and at the right moment, the number of people who believe in those will be big enough to warrant a better, decentralized solution, and people are willing to go a long way for their faith.
4. With that said, there are a few very important trends that endanger internet freedoms. The first one is the trend for maximum security and cryptographic signatures everywhere. It's most evident on smartphones, where running unauthorized apps is much more difficult than it was on Windows approximately 20 years ago, but computers aren't immune either. Windows warns you if you're trying to run apps that Microsoft hasn't signed, although it's still possible to run them if you know what you're doing. Installing an unauthorized operating system is also more difficult, SecureBoot requires every OS to be signed with a private key of your computer manufacturer. Those checks can still be disabled on most computers, although Microsoft is tightening their OEM policies concerning this issue. The web was always a safe haven from such shenanigans, but that ended with the universal push to HTTPS everywhere. Browsers now warn you whenever you try to enter sensitive data on a website that doesn't have a valid TLS certificate, and those can only be issued by a small number of entities, which are easy to regulate. They aren't regulated yet, not in that way at least, but once governments see the opportunity to do so, I don't think they'll pass it up. This system isn't fully airtight yet, it's still pretty easy to install unauthorized software at almost every layer, but the number of holes we still have is shrinking with every year, until eventually none remain. Even now, the most popular platforms of all, which are the mobile operating systems, make it pretty difficult. Sure, there are always jailbreaks, but with the multi-million-dollar exploit market on one side and newer, much better security systems (and particularly memory-safe languages like Rust) on the other, those are also becoming more difficult to discover, even without the risk of government action.
A second important trend is the inability for most end-users to accept internet connections. NATs are one reason for this, the pool of IPV4 addresses is small, therefore IP addresses are expensive, so ISPs often try to assign one address to multiple users. The exact same thing is done by most home routers, users usually have at most 1 public IP address, but much more than 1 device. Because of how the internet is structured, this means that users are able to make outgoing connections to other hosts, but are often prevented from accepting incoming ones. This is fine for connecting to big sites like Facebook, after all, it's enough if one side is allowed to connect and the other is allowed to accept, but it's much more problematic when cryptocurrencies are concerned. If two users need to connect to each other directly, but none of them can accept connections, there's a need for a central server
Another reason for this trend is the move to mobile. Laptops and PCs are less popular than they once were (though the pandemic has reversed that trend somewhat). Those devices often limit what apps can do in the background, which basically makes it impossible for a smartphone to actively participate in a blockchain at all times. This is done for good reasons, battery life being the main one, but it does have internet freedom implications.
5. In the end, I think smart people will always find a way, and if I'm understanding this correctly, that's what we need for prediction markets to succeed. Once a decentralized solution is found, people will use it and get rich. At first, we don't need average Joe Shmoes on the platform, predicting the next 9/11, the next Trump win and the next pandemic, with millions won or lost, will probably get a service noticed anyway, and the might set us on the path of legalization.
A protocol doesn't need to make money, but it needs to be possible for people to turn a profit via that protocol or people simply won't use it. The fact that the code exists is no guarantee that people will run it.
A decentralized protocol on Ethereum "makes money" from transaction costs each time you move money in or out of a contract. This puts limits on how quickly and accurately the markets can move because if the potential profit is too small it'll get eaten by transaction costs.
(That, or it restricts market play to people with lots and lots of money, for whom fixed transaction costs are a small percentage of the profit.)
Thinking of the “scratch-and-win as oddly-shaped savings strategy”: could you let people purchase initial reputation or whatever, and periodically draw a lottery winner from the reputational pool?
One way to understand cryptocurrency is to look into the divide between 'bitcoin maximalists' and literally everyone else in cryptocurrency. That makes phrases like this:
> the crypto infrastructure, crypto social norms, and crypto user base
Sound like someone describing 'internet social norms', or 'the internet' user base. Bitcoin maximalists see nakamoto consensus as a fundamental technological breakthrough, and everything else, even ethereum, as a ponzi scheme and scam. So when you write a pharagraph like this:
> > You’ll try to use Coinbase to send your crypto the prediction market, and it will warn you that this is a Non-Preferred Site that isn’t a Coinbase Partner and they’ll be informing the IRS of this transaction so don’t try anything funny.
The outcome you are describing was obvious to bitcoin maximalists a long time ago. Bitcoiners have the lightning network, and a culture around self custody of our coins. Bitcoiners have deployed satellites running bitcoin full nodes, and work on projects assuming governments will eventually try to ban private ownership. Meanwhile, 'crypto' projects include companies raising a million dollars from venture capital firms and having CEO's.
I think you're right to be skeptical of 'crypto' projects, but not bitcoin.
What's the difference between Bitcoin and other projects that means you should think of them differently? My impression was that other projects either were boring copies of Bitcoin (in which case they're the same) or have technological improvements on Bitcoin (in which case they're potentially better).
Nakamoto Consensus was a solution to a problem that people had been wanting to solve for decades. Anyone saying they can improve on it, without building on nakamoto consensus, should be taken with a huge amount of skepticism. Ideas like proof of stake have been around for decades. Then you add in the massive financial incentive to claim you have something new … you should expect tons of scams.
Secondly, The anonymous founder means nobody can actually control it, that’s a huge deal as well. Same with having it run for a year with not having any market value. That “immaculate conception” is now totally impossible to replicate.
As far as improvements - Bitcoin has indeed improved since it’s original release. For example, segregated witness (in 2017) enabled the lightning network which means small (<1 BTC) transactions cost less than a cent and take less than a second. The lightning network powers remittances in El Salvador, and will likely lead to adoption elsewhere, boosting GDP for some of these countries by close to 10%, given the current fees on remittances and how much of these economies relies on money going back.
To answer your question (why no prediction markets yet?) Building anything truly decentralized is really, really, really hard. Calling your startup “decentralized, we have a crypto” is both easy and rewarded with gobs of cash.
I do think these decentralized markets will come, but it’ll take a few years and they likely will be built on top of the lightning network. I would love if you could do a “more than you wanted to know” on bitcoin maximalism. Would love to see what you come up with.
I don't get it, isn't it hard to build anything on top of Bitcoin since it's just transactions? And Ethereum solves that with the smart contracts? (I am very ignorant in this space)
Conservative developer culture, limited focus on the Bitcoin blockchain as a form of non-sovereign money as opposed to a general application platform like Ethereum and pretty much every other prominent public blockchain-style system that has followed it. The latter attracts VCs funding "dapp development" (which to date has basically been centralized application development with various trappings of decentralization in attempts to dodge regulators, for the most part); VCs like this because they couldn't really figure out how to invest in "Bitcoin companies" for huge profits, but I think it's mostly theater and due to the way that generalized smart contract development in the style of Ethereum allows for every "dapp" to make itself censorable in whatever ways its developers (and/or their investors, or the regulators in the countries they want to operate in...) desire, not particularly different from tech investment in general other than the hype premium (which again, VCs like). The "technological improvements" of these newer-generation platforms are improvements from the perspective of fueling VC-backed dapp development, but not so much in the non-sovereign money department. Bitcoin is interesting here because non-sovereign digital money presumably has returns to scale in terms of utility / is probably a largely natural monopoly good, and as the longest-running example of a project focused more narrowly on this goal, has various advantages (first mover, market share, mind share, etc.). Bitcoin developers have also been thinking about the upgrade path for a while / necessity of layer 2, etc., and while the updates may roll out more slowly than the newest Ethereum feature, there is typically a great deal of thought behind them when they do.
This is a good summary: bitcoin changes very, very slowly. The people involved care about decentralization more than anything else, by far. Other projects have people leading them, and would be far easier for governments to control.
[Epistemic status: I am a bitcoin maximalist with >half of my net worth in bitcoin, so I may be biased in that direction]
Boring copies of bitcoin, where someone literally copied and pasted the entire source code, are very different from bitcoin because they do not have the same network effects and leaderless decentralization.
It's kinda like Bob created a "boring copy of the federal reserve bank" by creating an excel spreadsheet with numbers to indicate how many Bob Credits each of his friends has on deposit. Yes, ultimately, deep down, bank balances are just a spreadsheet, and deep down a blockchain is ultimately just a decentralized tamper-proof spreadsheet. But the essence of banking is networks and trust, so copying the spreadsheet doesn't even get you 1% of the way to copying the bank. Likewise, copying Bitcoin's source code doesn't even get you 1% of the way to copying Bitcoin.
Most altcoins have an identifiable leader with far too much power to push protocol changes, and this is a point of weakness in their decentralization, which governments may take advantage of. Satoshi did bitcoin a favor by never revealing his identity and leaving the project as soon as it was starting to get media attention.
"This DAO is gonna be managed now by me Directly. The circus needs to stop now and we need to gather with serious proposals and structure to move forward."
>"This DAO is gonna be managed now by me Directly. The circus needs to stop now and we need to gather with serious proposals and structure to move forward."
Not surprised this is an actual quote from a defi developer. It's a great example of decentralization-in-code being basically fake because they don't have decentralization in the social structure.
With some fields having such poor replication numbers, I think it would be good to pay professors who publish research partially in binary prediction options which pay $1 if the study replicates and $0 if it doesn't. The professor wouldn't have the ability to sell the options for a certain number of years.
People can often intuit how likely something is to replicate and people are often searching for counter-intuitive and cool findings. When you can p-hack, you get a perverse situation in which people publish a bunch of counter-intuitive findings and you get poor replication in the field. But we want to have genuine counter-intuitive findings. A professor who publishes a counterintuitive finding, would see the value of his prediction options plummet to near zero. But he could buy more of his options if he is confident in his research.
Yeah, I thought https://www.replicationmarkets.com/ was a great experiment in using a prediction tournament to get percentages on how likely different papers were to replicate. Sadly, they don't seem to be operating anymore...
>The professor wouldn't have the ability to sell the options for a certain number of years.
I mean, if a professor tried to sell me those in his own work I'd only pay 5 cents, because the very fact that he's selling them implies that replication is unlikely (the 5 cents is for the replication getting P < 0.05 by chance as well; if the criterion's set at P < 0.01 then I'd pay 1 cent and so on). So I'm not sure why this rule would be necessary unless you're assuming that a Greater Fool exists.
I think that rule is because there's a third option - nobody tries to replicate the study, maybe because it's hard or complicated or just not an exciting enough result to draw further study. In which case the professor might be stuck with tokens that don't pay out even though the professor is confident that his results will replicate. Allowing the professor to sell the token before allows them to capture some of the value from it before the attempted replication is finished.
Not about prediction markets, but related to Parrhesia's proposal.
What would happen if researchers were financially rewarded according to each study's citation impact (i.e. using article-level metrics), but only after a sufficient number of independent replications with sufficient sample size have also been published?
If researchers were rewarded only for citation impact, then they would have an incentive for statistical misconduct. If researchers were rewarded only for publishing replicable research, then they would have an incentive to publish boring things of the 'water is wet' type. My suggestion is meant to incentivize research that could bring about surprising (or as you say, 'counterintuitive') results, yet without incentivizing statistical misconduct.
Citations from people at the researchers' own institution and at the institution where the researcher earned their PhD could both be excluded from the tally, to reduce collusion. Citations from *other fields* might be double-counted, as they would probably indicate that the research is important. (Also, collusion would be harder to organize.)
To balance out what gets published, there could also be a rule that a certain share of a researcher's studies have to be replications. When that share is met, then the researcher's original studies are eligible for the reward.
Manifold could be improved with the policy that if enough people object to the resolution of a question, it gets escalated to an arbitrator (but the objectors lose a little money if the arbitrator decides against them)
I'm in favor of something like this, though we'd have to think through exactly how it would work (who arbitrates? what is "enough people?" where does the payback come from?). Note that this policy is much easier in the web2, play money version than in a crypto version (where reversing a resolution may be much more difficult, because the winners could have already spent the crypto).
Random ideas: we could hold the creator fees in escrow; or set up a communal pot for reversed resolutions; or insure particular markets against bad-faith resolutions up to a specified amount (scaling up based on the past reputation of the creator)
1. All payouts are held for 24 hours after resolution is declared.
2. Losing bettors have 24 hours to object by paying a small amount (which helps pay for the arbitrator).
3. If bettors representing ~5% of the losing sides of the contract object, then the payout hold is extended and it goes the arbitrator, who can overrule the market-creator.
4. If the objectors win, they get their arbitration fee back and the market-creator loses any commission he would have made. (and perhaps is subject to further sanctions in cases of clear malice)
A quick note on the trivial inconvenience and censorship thing. Sadly since the original article https://www.lesswrong.com/posts/reitXJgJXFzKpdKyd/beware-trivial-inconveniences was written places like China have become a lot more aggressive and effective at blocking VPNs. So it's no longer the case that basically every middle class person can get one.
The concept of trivial inconveniences is probably one of the most useful things I picked up from early LW. Very helpful to structure your life around avoiding them and keeping them in mind when you want people to do things.
This is exactly the sort of thing that the administrative state makes more illegible, regardless of whatever fiction we tell with notice-and-comment rule making. I work in a heavily regulated industry and have occasionally had to interact with the small handful of people who deal directly with the regulators, and I am amazed at how little actual effort goes into having expert rules and how much goes into keeping things as static as possible. I get that there are good reasons for not letting things change too much too fast (Chesterton's fence), but no one *ever* seems to want to let things grow with little regulation. If someone is looking for a book review topic, I would be very interested in any sort of deep dive into how much (or, I suspect, little) things have changed with regards to the thirst for regulation from early internet to present day COMPETES Act regulation.
More on crypto pessimism (not fully related, but curious to hear people's thoughts): why does everyone (or at least every crypto fiend) say that "Crypto cannot be stopped"? The most regulation that Scott's post discusses consists of forcing non-savvy people to "let the IRS know". But as far as I understand, although a government may be hard pressed to stop the actual network on which (proof-of-stake-based) crypto is run, it's, technically speaking, trivial to stop crypto from being used in anything like an economically emancipatory way just by banning major retailers from accepting it as I understand China has already done. The American and other governments have a vast interest in not allowing other currencies from circumventing their monetary policies, their tax laws, their money laundering laws, their sanctioning policies, etc. etc. (the power of printing currency in particular, while effectively a regressive tax, is arguably vaulable for emergency spending needed for financial crises, wars, pandemics, etc.). Even if it'd be politically expensive to stop crypto, in my mind doing so can be easily justified. It would simply require a sustained campaign of political messaging and dropping spooky messages from the Fed/regulators to let all the big players get out with their profits and (potentially) not stand in the way... Best case scenario is crypto as a movement forces banks to lower their transaction fees before it's banned completely. I'm just not seeing the whole "it's unstoppable!!!!" libertarian dream from ever being realized through cryptocurrency (maybe encrypted communications is as good as it gets).
I don't think the Chinese crypto ban actually stops any savvy Chinese people from using crypto to buy things from foreign websites, or cash. Trivial inconveniences created by bans can certainly put a big dent in usage, but the option will still be there and the existence of that alternative will in some small way push governments towards being less oppressive. Transaction costs of exiting the system are the limit on how oppressive the oppressor can be.
Maybe, but if the US government prohibited Amazon, Tesla, Walmart, major realtors, healthcare providers, banks, other large service providers, etc. from accepting crypto, I'm not sure it'd help if I could still order smaller items from some foreign eCommerce site. Even if one could still buy many needed goods and services from an online black market,
a) could this scale to a large portion of the population, e.g., could a covert, illegal version of Amazon exist at a meaningful scale that couldn't easily be detected, targeted, and shut down by a motivated government? If a solution can't scale to even 10% let alone 95% of the population, can it have that much of an impact? Even buying fiat with crypto could likely be heavily curtailed, e.g., where would the liquidity come from if governments are able to track payments and prevent large exchanges from obtaining significant amounts of fiat?
b) could even an individual (forget the whole population) ever really be meaningfully "liberated" if they have to keep most of their net worth and consumption (for e.g., house payments, car payments, healthcare premiums, other major expenditures that won't be moving to foreign sites) sunk into the non-private, centralized federal system?
Alice has lots of crypto but needs cash to spend on fancy clothes and restaurants.
Bob has lots of cash but wants to convert to crypto to avoid inflation or confiscatory policies.
Alice and Bob just have to find each other and make a deal. How many millions of drug deals happen every day in spite of the laws? Now imagine you could instantly teleport drugs anywhere on earth. That's crypto.
Isn't the problem with this is that you get a knock on a door from a guy in a suit asking how you can afford to spend so much money given your official income? Also if this starts to annoy the government too much they can just make everyone go cashless.
The government only finds out at scale for categories of possessions that get registered with the government (cars, houses). They don’t have any data on Alice’s fashion collection.
A cashless CBDC economy couldn’t totally eliminate these exchanges. They’d have a record of who paid whom but not what it was for. So Bob pays Alice $1000/week in CBDC and if anybody asks it’s for programming lessons.
How did Alice find Bob (or vice versa) rather than Freddie the Fed who advertises cash-for-crypto and then, when called on to deliver the cash, shows up at your physical doorstep with a warrant and says "now that we know you're trading in extremely sketchy if not outright illegal crypto, let's take a close look at your finances and how much of it is going to disappear into civil forfeiture"?
idk, probably same way Alice finds her weed dealer. I've never bought illegal drugs so that wouldn't be my area of expertise, but it probably doesn't involve advertising "I WANT WEED" on craigslist.
Government doesn't need to do a darn thing to prevent cryptocurrency from becoming dominant. The largest single expense of any reasonable well-off person is taxes. Something like 25% of the entire economic output of the country passes through government hands, as taxes on the inbound leg.
All government needs to do (and already does) is say "you have to pay your taxes in US dollars" and shazam everybody needs to amass a big pile of dollars every year to pay the tax bill, and since everybody of any economic influence has taxes to pay, the dollars have value to everybody, and people will trade to acquire them.
That's all there is to it, as far as I can tell, any other hopeful aspirations founder on that plain rock. So long as the Federal Government declines to accept tax payments in anything other than USD the latter will be the defining currency of the United States, and everything (including crypto) will only have genuine value if it can be, and only to the extent it can be, converted to dollars.
If taxes alone were sufficient for the fiat currency to remain the preferred/dominant currency, no third world countries would ever have hyperinflation and widespread usage of outsider currencies like USD and BTC. This argument proves too much.
No, not taxes alone of course. You also have to have a government that doesn't try to inflate its debt away by printing money like crazy. I'm of the Friedman persuasion, that inflation is always a monetary phenomenon, which means it is always within the control of the government that runs (or does not run) the printing press.
If you meant to say taxes were not sufficient for a fiat currency to hold its value *even as* the government deliberately tries to inflate its debt away (or commit some other form of monetary fraud for temporary benefit) by printing money -- well, yeah. But isn't that rather a truism?
Even if the economic theory is well understood by someone, that doesn't guarantee that the US government won't ignore it.
Have you seen what the US has done with money-printing lately? Monthly CPI inflation is now 7% annualized. It's been going up and up since last summer, all while media figures like NPR's Planet Money were saying "this is only temporary". That's with the establishment candidate in charge. Now imagine we elect someone more like Chavez.
The money-printing could get a lot worse here. Bitcoin is a nice backup plan.
I'm surprised by the pessimism about Kalshi. It's true that having lots of questions with real prediction markets is better than having only a few such questions, but having only a few is much, much better than none! It's not just "war in Afghanistan" level stuff: there's also several "how much Covid will there be in X place at Y time" questions, which, while they aren't so useful to people not in X, are still very nice to have for stuff like wedding planning.
One possible way to get around gambling regulations would be to develop "charity prediction markets", where people are required to distribute their winnings to nonprofits:
I see this as being a middle ground between metaculus' "internet points" approach and real money markets. I hope that these could catalyze the transition to real money markets.
Oh, this is quite an interesting idea! There's a pretty big overlap between prediction market enthusiasts and EA folks, as far as I can tell. If a charity prediction market is indeed a legal way of operating a prediction market, then it could be a great fit for Manifold.
>Manifold figures out some kind of weird crypto thing that isn’t real money from a legal perspective, but is real money from a “people really want it and will put a lot of effort into getting it” perspective.
Perhaps they can tie it to some sort of pseudo currency like airline miles points or some in-game MMO currency. Doubtless won't be wildly effective, but if they can pair it with people who're doing it for completely imaginary points already, they might get somewhere.
Yup, pseudo-currencies are one avenue we're exploring! One idea I liked for a pseudo-currency was for online subscription credits -- e.g. you could buy M$ 1000 for USD $10, trade on prediction markets, and then redeem M$ 1000 for one month of ACX supporter. Other possibilities for cashing out include the "Chuck E Cheese" style of paying out in physical merch.
Make a deal with Microsoft-Activision-Blizzard so that M$ is redeemable for WoW gold. That would make it have real value without running afoul of the regulators. They're not treating in-game currencies like cryptocurrencies (yet), but there's no meaningful difference.
It would be hilarious if the IRS tried to start taxing people on the WoW gold they earn from quests, on the basis of the (correct) argument that WoW gold is equivalent to a (centralized) crypto, after some LocalBitcoins-like site starts offering exchanges between WoW gold and every other kind of crypto.
Good question. I’m quite embedded in this world — I’m the author of the first blog post about Bitcoin and a founder of Zcash. There is an arms race between innovators and regulators, to be sure, but this kind of oppressive regulation just increases the profit margins of a future successful innovator, so the innovation side is going to win eventually. That’s because the regulators don’t know the trick of co-opting the movement by providing a more convenient alternative and funneling all the users into it. Instead they’re just flailing around trying to bully everyone into stopping this newfangled weirdness and going back to being part of the boomer society that they know and love. And control.
So why haven’t the innovators already won? It’s just been too early so far (ie the first decade). Everything was too early a few years ago: technology, product design, user awareness, organizational structure (which is critical as your post above observes), etc. It looks to me like the first successful experiments and the accompanying social learning cycle is now in effect, so I predict that in five years there will be a prediction market with all of your wishlist items (assuming they turn out to be good) and with deep liquidity, huge numbers of users, and more.
P.S. omg not Monero. Zcash is the real deal. I’m not just saying this because I’m a founder of Zcash — causality flows in the other direction. I became a founder of Zcash because I knew Monero would never stand the test of time.
It seems like the three "prediction markets will strike big" criteria would be filled best by a system which entirely chain-based, with no privileged market-resolution oracles sitting in NYC offices for the CFTC to raid, and with no particular limitations on who can launch new market questions. Something like this exists, namely Augur; I don't know if Augur's particular design is how I would have built it ("include a special coin we can ICO" seems to have been a key design constraint) but it sounds broadly workable, and they launched over a year ago. Why hasn't this taken off?
It is too expensive for regular people to use. This is a solvable problem in theory, but requires engineering solutions that are on the bleeding edge and incredibly difficult to solve at the level of complexity that is Augur (e.g., zero knowledge proof systems).
Re: REP, unlike 99.9% of tokens on Ethereum, REP actually is needed to keep the system honest. It isn't just a rent seeking token, and you can't design a trustless resolution system without it.
Appreciate the discussion Scott and others are having here. There are definitely costs to the route we’ve gone at Kalshi–as you mention--but we’re really confident there are huge benefits to come (which hopefully justify the time and crazy effort we spent doing the regulatory grunt-work to make legal PMs a reality). You're right regulation is not fun at all! Regulation isn’t just for its own sake. The protection and safeguards offered by CFTC oversight could be the difference and what brings risk-averse institutions and individuals with large amounts of capital into the fold, which would allow PMs to properly blossom. Our current position limits don’t support that, but you can expect those to incrementally change over time.
If the US is the North Korea of prediction markets, Kalshi’s designation by the CFTC was the first step towards liberalization (what’s the equivalent here? Giving up their nukes? Free markets?). We might be the first, but I really doubt we’ll be the last.
Yeah regulation has been the bane of prediction markets for decades, I think it's really great for the space that someone's been able to crack the code - hopefully with regulation we can build a forecasting apparatus that isn't constrained by feeling illegal or being tiny
Meditations on Moloch (italics replaced with *asterisks*):
>In the links post before last, I wrote:
>>The latest development in the brave new post-Bitcoin world is crypto-equity. At this point I’ve gone from wanting to praise these inventors as bold libertarian heroes to wanting to drag them in front of a blackboard and making them write a hundred times “I WILL NOT CALL UP THAT WHICH I CANNOT PUT DOWN”
>A couple people asked me what I meant, and I didn’t have the background then to explain. Well, this post is the background. People are using the *contingent* stupidity of our current government to replace lots of human interaction with mechanisms that cannot be coordinated even in principle. I totally understand why all these things are good right now when most of what our government does is stupid and unnecessary. But there is going to come a time when – after one too many bioweapon or nanotech or nuclear incidents – we, as a civilization, are going to wish we hadn’t established untraceable and unstoppable ways of selling products.
Have you changed your mind again? (The only other option I can see is that a substantial fraction of this current post was an angry mistake.)
Prediction markets are, in some sense, as much about incentivizing action as they are about prediction. Has anyone tried starting up a prediction market that's presented as "bounties with a complicated resolution and payoff mechanism"? Anyone can either "add to the bounty" (bet on a lower probability) or "stake a claim on the bounty" (bet on a higher probability). It seems like this should get around the claim that it's "gambling" or "futures trading", but maybe means that you'll need to police the market for antisocial "bounties"?
I think it would be hard to make that claim believable for most predictions - if you set up a market to predict the chances of war in Ukraine, can you really claim with a straight face that you're placing a bounty to encourage Russia to invade?
Also, yes, an unrestricted prediction market and an assassination market are basically the same thing, assuming the market has enough money in it to cover the assassin's expenses.
> if you set up a market to predict the chances of war in Ukraine, can you really claim with a straight face that you're placing a bounty to encourage Russia to invade?
Yes. (Or to discourage, as the case may be.) But chances are the amount of money in the prediction market will be negligible relative to the expected gains/losses of invading, and hence the bounty will fail to actually influence reality. (If I place a $1 bounty on Russia invading Ukraine, nobody cares. If I place a trillion dollar bounty on Russia invading Ukraine, then suddenly governments care.)
Maybe I should rephrase that: Do you think you can tell a judge "yes, this website is actually intended to influence Russia's willingness to go to war by an unmeasurably small amount, and the fact that it can also be used for illegal gambling is just an unfortunate side effect" and have them believe you?
IANAL, but my hope is that there's a way to set things up so that judges will accept it. Here are some ideas:
1. It's not about "influence by an unmeasurably small amount", it's about "socially coordinate influence so that if enough people want it, the influence happens". Croudsourced bounties, not ineffective bounties.
2. Perhaps the website can rely on terms of service such as "you cannot use the website in this way if you live in the US"?
3. I think a case can be made that creating shares of outcome X and selling them is an act of placing a bounty, while buying shares can either be seen as agreeing to act towards making a bountied action happen, or as betting / gambling. This suggests the following setup: anyone can create a share of outcome X that pays $1 upon X and is worthless otherwise, by giving $1 to the platform to hold in escrow(?). The creator designates the resolution mechanism (if a market for X already exists, they can just copy the most popular resolver). If at any point X is judged to not have happened / not be able to happen, the money held in escrow is refunded. Additionally, users can buy shares that are being offered. This action comes with strong language that you should only buy shares if either (a) you plan on making the outcome happen and are buying them as up-front payment that is only redeemable in case you succeed, or (b) you are living in a location that allows gambling. Insofar as this is a US company, the business model should be set up carefully to make money only from the parts that are not gambling.
(I wonder if it's possible to set this all up in a decentralized way?)
I do think this model looks somewhat different than gambling. It seems to me that the closest model in gambling is that, in addition to bounties, it allows US citizens to be the house in gambling *that can only be taken part of in places where gambling is legal*. (Is it legal for me to run, invest in, or consult for an overseas gambling platform that forbids US citizens from gambling in it?)
Yeah, I always imagined that crypto's "success" is going to stem from boring uses like Debit Cards, tickets, and online shopping, plus some Business 2 Business stuff where the giant companies find some use for blockchain. At the end of the day, most people can't risk having their money tied up in anything that isn't safe/boring.
I'm not sure that crypto can offer what you want. Let's distingush two possibilities.
1) Crypto allows for a few people who are willing to go to a lot of trouble to evade regulation (and thus take the risk that regulation won't protect them) are able to place bets on prediction markets from the US.
This doesn't seem even as good as non-US based prediction markets. At least in that case major firms and rich investors are going to have some willingness to participate since they can count on reasonable regulation in the host country to protect them.
2) Someone creates a crypto system that's both extremely easy to use and so resistant to regulation that people can invest substantial sums (in the 100s of thousands at least) and somehow evade US regulation.
I'm not even sure 2 is possible in a system that is sufficiently reliable for people to trust with large amounts of money. As all the various smart contract exploits show there is considerable risk involved in a system in which you can't appeal to any body to arbitrate disputes in a way that aligns with prior expectations and that itself becomes a barrier to use. But let's suppose that it is possible.
At that point I don't see how you avoid all the really bad uses of crypto (paid assassinations disguised as death pools) from becoming enough of a problem that the government cracks down hardcore (or at least it becomes socially unacceptable to participate).
I mean, sure, the government might put priority on catching murders etc.. but, at the end of the day, there is some amount of money that they are willing to spend on murder investigations. At the point where the prediction market has large enough transactions that the government can make money confiscating/fining those involved in the prediction market they'll probably start doing that eventually if they can. So, for the prediction market to be safe and easy to use for relatively large transactions in cases where the government only has to prove it's civil case by the preponderance of the evidence I don't see how you aren't in a scenario where you've effectively made the opsec so easy that every person who wants to off their spouse is able to do it.
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Look, I agree that you could potentially make a market that's enough of a pain for the government to bother enforcing things against that they won't bother as long as it doesn't do anything too crazy. But, the problem with that system, is that it's always going to be precarious and the larger the system gets the more likely someone in government decides to go after it. I don't see how this then doesn't itself become just as problematic an issue limiting liquidity as banning it's use inside the US.
I’m rather embarrassed at this point for still not understanding the appeal of prediction markets. I get why they’re effective at making predictions. I just don’t know how they attract enough people with both money and insight.
This probably has a lot to do with a personal aversion to gambling. I just don’t have the money or the desire to gamble on anything, ever. Are people into prediction markets having fun the way people in Las Vegas are having fun?
There are already "superforecasters" even without prediction markets. Are they making predictions to have fun? I don't know. But I would like to see their predictions aggregated, and that's what a prediction market provides to the general public who is not participating. Prediction markets should also create an incentive for more people to become interested in quality forecasting.
Today we have lots of people like my best friend's father who love casino gambling and are experts at various casino strategies. To win in prediction markets, you need to have a good understanding of the real world instead of casino games. Insofar as prediction markets encourage people to understand the real world better, they are a better way to exploit the human urge to gamble than casinos, state lotteries and sports betting.
(Prediction markets will be worse for the median participant than ordinary investing, but at least prediction markets, unlike investments, have the virtue of creating useful public knowledge.)
Prediction markets are gambling markets. There's nothing wrong with saying "put your money where your mouth is", but financial markets, like insurance markets, are about funding investments and protecting assets from risks intrinsic to an enterprise. There was already a prediction market for the outcome in Afghanistan. How many businesses were investing in that country? How many investors were buying shares of enterprises within that country? Who was making loans? All of those who weren't but could have were making predictions and placing bets, usually elsewhere. I get the impression that most investors understood the game well, as did everyone else who didn't open a McDonald's in Kabul or the like.
Sure, it might have fun putting a few bucks down as a bet predicting the rather obvious outcome, but anyone who had dealings in the area knew what was going to happen. Biden probably did too, but politicians often cannot say what they know. I may think Nixon was an asshole and made a lot of bad decisions, but it's a stretch to think he actually believed South Vietnam was going to fight off the North Vietnamese and Vietcong. It didn't take a prediction market. It's just with 50K Americans dead, the nation divided over the war and the draft, and so many voters having been sold Cold War religion, saying the obvious wasn't going to happen.
Maybe we should just legalize gambling in the US and let companies like Ladbrokes - is that really their name? - lad broke (s) - who the hell names gambling a company "lad broke"? - make book on whatever the hell. There would be no need for cryptocurrency and the government could tax the winners.
And yet it seems that an awful lot of people *didn't* know. No doubt lots of people made private predictions of one for reason or another about Afghanistan, but because they all happen privately there's no way for other people to find out about them, and there's no mechanism to collate different people's views into a coherent whole, so even if you knew what one person really thought you wouldn't know if you should believe them.
A prediction market in Afghanistan-outcomes would give you a common-knowledge prediction anyone could look up, that actually directly addresses the question of "what's going to happen" rather then getting there through reasoning about other things.
i've come to grudgingly admit that prediction markets are probably better than my own fanciful ideas for internet tools. that is, prediction markets partially replace [and likely outperform] two full pillars of my idea [trust aggregation, and memetic/reason chains/structures]. [but i guess my ideas are meant to be useful in a bunch of other ways as well that cannot be replicated by prediciton markets]
but the third pillar is matching and alignment, and you're inclusion of it [you use dating compatibility as an example] is what prompted me to make this comment. prediction markets seem like a terribly inefficient way of doing that. what if the prediction is that you're a bad match? then you have to ask about the next person. and the next. and the next.
prediction markets don't seem like a good way of *finding* people who you will match with. and, i think for most people, that's like half the difficulty.
i was very happy to see someone in the ACX + + grants is trying to re-create the model that OkCupid used. It is the best example i've seen so far [though it was always limited to dating, and yes the questions were often unanswerable].
Until we can solve double spend problems without constantly ramping up how much electricity we have to burn to validate a transaction, I think it's extremely irresponsible to do anything on the blockchain, even ignoring all the other problems with crypto (see the Line Goes Up video essay for that, it's truly outstanding). I'm not even sure solving the double spend problem is possible to do without something equivalently expensive/wasteful to burning crazy amounts of electricity. Proof of stake as currently theorized doesn't actually work at all.
Prediction markets built essentially entirely on crypto have been demonstrated and employed to some degree - e.g. Gnosis, Augur. There were a variety of resolution mechanisms employed, including some fancy reputation-weighted oracles as well as various "invalid" resolution schemes.
When they were active I remember seeing a bit of volume and diversity on the posted question. Recently the projects have been floundering - likely due to the high gas costs on Ethereum. I think a semi-uncensorable crypto prediction market is inevitable, but it first requires solving major technical challenges in scaling smart contract execution. Then some significant work has to be spent on the user experience such that it's reasonable for someone to interact with these smart contracts directly from a personal device (with some reasonable security). This is assuming you don't believe smart contract platforms have inherently spiraling gas costs due to the profit mechanisms in DeFi.
I don't think it's unreasonable to consider crypto now much like the dot com boom. There's a lot of stuff that doesn't make sense with current tech or adoption, but that doesn't mean it won't eventually make sense. E.g. pets dot com boomed and blew up, but not because the idea was inherently bad. Rather, the ideas were being pursued with too much investment before there was the tech and adoption (internet users) to make it work.
Prediction markets as you describe would be perfect money laundering vehicles. Create a market asking "At midnight, will <50/50 event that you can control> occur?", bet the dirty money on "No", bet an equal amount of clean money on "Yes", make "Yes" happen at midnight. Dirty losses turn into clean winnings. Sure, there will be leakage from others betting, but if the event is supposedly 50/50, the leakage should be small.
In general, all forms of betting can be used for money laundering quite easily. The classic method is to exchange the dirty money for chips at a casino, play for a few minutes, then cash them all back out as clean winnings. Highly obfuscated and anonymized betting like the sort of prediction markets you want are even better for the job. That's why all forms of betting are tightly controlled.
I don't think that it is worthwhile asking how to evade regulation to create good prediction markets. This is not a mistake of governments; stopping money laundering has real value to society, especially if you have an existential risk mindset and value controlling tail risks over maximizing expected value. Instead, the question should be what sort of regulation is needed for a safe form of prediction markets to exist. Work with government, not against it. (Same for crypto, though I'm more skeptical it has any value in a socially safe form.)
+1. I can see arguments for legalizing gambling in a "people are gonna do it anyway and at least markets are doing something socially valuable with it," but "we should bypass money laundering laws to make it happen" is a bit of a tougher sell for me.
What on Earth does AML regulation have to do with existential risk? You don't have to launder any money to do AI capabilities research, or to cook up new plagues, and restrictions on nuclear weapons research is focused on the nuclear material rather then the funding. What x-risk is being improved by AML?
I'm referring purely to a mindset that favors reducing tail risks over maximizing expected value.
However, I do also believe that anti-money laundering controls can help with certain existential or major sub-existential risks like bioterrorism or intentionally hostile AGI research. It's not sufficient or necessary, but it may be helpful.
(Now that I think about it, in my original post, it isn't even necessary for the 50/50 event to be controlled by you. If you put equal amounts of money on both sides of a truly fair bet, you'll launder it eventually.)
I just want to address the subject of crypto currencies and governments.
I believe that the government of the United States, and those of other major powers, will eventually ban crypto currencies.
The right and power to issue currency, declare it to be legal tender, and to license and regulate intermediaries in the currency markets (banks) is one of the most important sets of powers and privileges of the modern (Westphalian) states.
The first modern banking system was created by the Dutch republic in the early 17th Century with the creation of the Bank of Amsterdam, which propelled the rise of a tiny country into a world spanning power.
!n 1688, the Whig grandees of England conducted a coup d'etat called the Glorious Revolution. Their chosen instrument in that drama was James II's nephew, William of Orange and his wife, James II's daughter Mary (family quarrel). William had been the Stadtholder of the Dutch Republic (more like a president than a king). One of the things that William brought to England with him, was the technology of central banking. He chartered the bank of England with the express intention of financing the construction of a navy. The magic worked, England (then the UK) became a world power, faced down and defeated its ancient enemy France, and constructed the largest Empire in History.
England's redheaded step-child, the United States came to the banking game late. The genius Hamilton understood the importance of a banking system and tried to create a bank of the United States. His political enemies, the Planter Aristocracy opposed him partly out of sheer bloody-mindedness and partly out of their addiction to an Arcadian fantasy. They did not want to see the United States become a commercial republic. The tension was resolved by the Civil War.
In order to finance the Civil War, the United Sates created the system of national banks which were authorized to issue circulating currency notes, and suppressed private issuance of circulating currency. The system was not a true central banking system. Within 50 years it was supplemented by the creation of the Federal Reserve System, which was just in time to finance the conduct of World War I, World War II, and World War III (the Cold War). It also enabled the Federal Government to create a welfare state that could undertake the massive redistribution of income necessary to pacify the urban lumpen proletariat.
Crypto was invented by hackers committed to a romantic anarchist view of the internet. They wanted to replace the existing financial system with an system that is completely decentralized and unregulated by national authorities.
The conflict is stark, if crypto and its cousin de-fi (decentralized finance) take over, the Fed is out of business, the US government cannot collect taxes, issue bonds, and cannot finance the welfare state or the military.
The US Government will not voluntarily fade away. No existing political faction of any size wants to so thoroughly geld the Federal Government. Right wing utopians may want to abolish welfare, turn Social Security into a savings program, and replace public schools with vouchers, but they are not clamoring to defund the police, or the Army, Navy, and Air Force. Left wing utopians might be desirous of those ends but they treasure the welfare state and want to see it expand mightily.
The conclusion is inevitable. Crypto will be regulated, taxed, and blocked from the banking system. It will be relegated to being what it was a few years ago, a gambling game for hackers of little interest to anyone else.
Come. The US government decided long ago it doesn't even need to bother banning private ownership of gold, which was the magic "cryptocurrency" of the 70s, the last time people were really pissed off about government (mis)handling of economics. They don't need to ban gold. In fact, the USG got *into* the gold business itself, and you can buy investment quality gold coins from the US Mint today. They make a small helpful profit pandering to the people who believe (and have believed for going on 110 years) that Any Day Now the value of the dollar is going to evaporate poof! and anybody who's got a few kg of gold tucked away will be sitting pretty.
Not apposite. The ownership restrictions were imposed as part of the Federal Governments confiscation program. They were not required in order to demonetize gold. That has been done in many places at many time without ownership bans.
Two major differences between gold and crypto that create problems for domestic authorities that are not relevant to gold. First is that crypto is international and many of the people and systems that run it are beyond the jurisdiction legal and practical of domestic authorities. Rules intended to prevent, hacking, money laundering, fraud, and theft may not be enforceable. Second, gold is a thing the existence of which is not dependent on human opinion or action. Crypto is a constellation of computer systems created and run by human beings. Gold cannot plot, scheme, hack, steal, or defraud. Only humans can commit crimes and hostile acts.
Think of crypto as the peas hidden under the cups in the street game.
You have a valid point, but the conclusion may be exactly opposite. Crypto is not the libertarian utopia imagined and the US government will co-op it, if they haven't already.
a) Every transaction chain of custody is traceable and can be seized if ever transferred to an exchange within US jurisdiction. That's apparently how they recovered most of the Colonial Pipeline ransom.
b) There is already a movement to blacklist tainted funds. Exchanges may refuse transactions that are even partially traceable to hackers, mined with non-renewable energy sources, or associated with other unapproved activities. The ultimate weapon in cancel culture.
c) US agencies invest so much money in hacking that it's impossible to believe they aren't working on this. I doubt there is a full backdoor in the main blockchains yet but other vulnerabilities are probably exploited already - compromised wallet software, exchanges, hardware, and the spy-like power of the FAANG companies.
These advantages from a Federal perspective make it more likely they will ban cash and banking outside their jurisdiction than ban crypto.
You forget the installed base. There is still a strong market for Cobol programmers. In the case of Money and banking the installed base is Chase Manhattan, Bank of America, Citibank, Wells Fargo ... They not only represent trillions of dollars of assets, billions of dollars of investments, millions of employees, and thousands of offices in every corner of the country. They also wield tremendous political power. They aren't going anywhere. They will adopt that technology they feel will help their bottoms lines, but they will not disrupt anything.
Crypto, at least in its present form demands far too from its users. Take this for an example: "Lost Passwords Lock Millionaires Out of Their Bitcoin Fortunes: Bitcoin owners are getting rich because the cryptocurrency has soared. But what happens when you can’t tap that wealth because you forgot the password to your digital wallet?" By Nathaniel Popper, Jan. 14, 2021 | https://www.nytimes.com/2021/01/12/technology/bitcoin-passwords-wallets-fortunes.html
The losers in that article are all young technologists. The article made smile. Now, imagine an economy wide use of that technology. Imagine the password loser is an 82 year old widow who lives on social security, whose life savings allow her to buy cat food for her sole companion, a little cute cat. Now imagine her bank telling her tough kazoobies, no password, no money. Now imagine her being interviewed by Channel 6's Six on Your Side team. Imagine them interviewing a bank officer. Imagine seeing him sweat and shake like a robber was holding a Glock to his head.
Dolly back. Crypto will never be a widely used tool in the banking system. Bank on it.
Human beings are not a technological problem. Either technology accommodates their strengths and weaknesses or it dies. Crypto is user hostile not user friendly. It is doomed.
Stripped of the novel terminology and the hypothesis of some emergent wisdom to be gained by integrating over sufficient ignorance, you're just talking about online bookies, and gambling indeed has a long history of concerning social side effects, which is why it's been regulated up the wazoo since forever, at least in the United States. The idea that this is going to change any time soon strikes me as a priori dubious.
Mostly questions at this point but maybe helpful for discussion:
Would prediction markets still be banned in the US if it were organizations participating instead of single natural persons?
Related: Can we look at / turn to private financial markets instead of more tightly regulated public markets for inspiration?
Could "vertical" prediction markets (e.g. only foreign policy, only science) help get faster and greater acceptance for prediction markets? (Could sports betting be an inspiration for how to or not go about it? [Edit: answer seems an obvious yes])
Could initiatives such as xprize be part of a solution? (E.g. by providing liquidity to markets based on the outcome of their prizes or by opening a prize for "building a prediction market")
Not a useful response to your questions, just a thought: Would predictions made by an organization effectively communicate the wisdom of crowds? There might be systematic bias toward socially desirable predictions, if a group of employees have to agree on their prediction before submitting it. Also, some hunches are harder to express in words than they are to act on.
Or did you mean a single decision-maker, but using an organization's resources to try to make a profit for that organization? Even then, there might be a lot of undesirable media commentary: 'How can Institution X and Charity Y predict such a thing?' (For 'How can' read 'How dare'.)
Well I was thinking about a kind of abstraction layer from individuals. How the organizations then come to their predictions will probably also be something which will evolve to an optimum. Similar to different optimal decision making processes for businesses, charities, etc.
And from what I understand, the best predictors are groups of experts. wisdom of the crowd would ultimately rather depict/ define "the market", which should not be smarter than the best groups of experts. that would be my expectation :)
Why (not only) prediction markets are evil: "Will the pope/POTUS/Putin be killed till end of year by a drone attack?" - What about if any of the Scott A.s instead? DON'T! - Put-option can be just as bad: Imagine a sports-club with traded shares. Then someone buys put warrants, then bombs the team bus. Oh: no need to imagine, Sergej Wenergold did it in 2014: https://en.wikipedia.org/wiki/Borussia_Dortmund_team_bus_bombing (my pet-theory: inspired by GTAV)
I get prediction markets being cool and even informative - and that there must be skin/money in the game - but not so sure I want those markets to be BIG.
"Will Biden still be president at 1.1.23"/"Will Cheney win"/"Will X be nominee of D/R in Y" can all be solved in a similar manner. :/ Without Crypto only a misguided person would do - but hey, no lack of those. Sergej W. got just 14 years, should be out after 2/3.
Assuming that prediction markets are fully legalized, what would prevent them from developing the exact same pathologies as the stock markets have done ? In fact, what prevents all of the existing financial instruments from being immediately applied to prediction markets ?
For one thing, the proliferation of financial instruments such as e.g. CDOs, that have nothing to do with prediction, and everything to do with financial speculation. Another pathology is high-frequency trading, which represents more than 2/3 of the entire trading volume (IIRC), and mostly consists of trying to spoof the slower agents (such as e.g. humans).
Are the weird strong-markups meant to be a hidden message?
<p>So: Polymarket got fined $1.4 million, and was ordered to make its real-money markets inaccessible to US-based traders (the rest of the world is still fine). It’s <strong>v</strong>ery <strong>p</strong>oor <strong>n</strong>ews to hear that a <strong>v</strong>illanous <strong>p</strong>olitical <strong>n</strong>onentity blocked this <strong>v</strong>ital <strong>p</strong>rediction <strong>n</strong>exus, and I guess we Americans have no other options besides accepting that we’re <strong>v</strong>astly <strong>p</strong>oorer <strong>n</strong>ow. </p>
VPNs (virtual private networks) are often used to access websites that are only available in other countries by making your traffic appear to be coming from somewhere else.
"most people think crypto only has another 0 - 2 doublings left in it; after everyone who’s going to invest invests, what then?"
Perhaps after that 0 - 2 doublings, cryptoasset systems will need to create actual value instead of relying on market activity to make a token's price go up. Current incentives are stacked against long-term value. Why build long-term value when you could just stick a dog picture on your token and call it a day?
And there are projects out there building things with long-term value if you look hard and long enough. They just get drowned out by the pump and dump garbage.
There are some dangers involved in unregulated prediction markets, mostly giving people bad incentives. The problem is well known, here are some classic examples:
1. Henry would like to see Thomas dead. Henry can go onto a betting market and bet a large sum at even money that Thomas - a healthy 50 year old - will live out the year. Reginald and Hugh take up the bet, and after taking the appropriate steps to ensure Thomas' death, they win their bet and Henry "loses".
2. Lester would like to win contracts in the state where Spiro is governor. He offers to bet 5% of the value of the contracts that his company will not win some tender. Spiro is sure Lester is wrong and takes the other side of the bet, and takes steps to ensure that Lester's firm does indeed win the tender.
3. Osama is capable of carrying out a terror attach in midtown Manhattan, but doesn't have any particular political interest in doing so. But the CIA is interested in predicting attacks like this, and starts an exchange. Most people understand that Osama has nothing to gain by making an attach in Manhattan so the odds are steep against. Osama is willing to bet that an attack actually will take place.
In general, there is a good reason that regulations require that anything that could be considered "insurance" is given only to an agent with an insurable interest. These contracts would fall afoul of that requirement. Reginald and Hugh don't stand to lose from Thomas death, Spiro has nothing to lose if Lester's firm wins a tender, Osama doesn't have anything to lose from a terror attack etc.
Prediction market question: I don't think the average prediction market player can make money (am I wrong?), so I don't think they will be able to devote a substantial amount of time to research in support of predictions. Is this a problem?
If you can't make money on a prediction market in expectation, that's a sign you should be trusting it over your apriori judgment of whatever the market is estimating. So it's good for people like those you described for getting clarity.
Only making money by doing lots of research is how thoughtful predictions get folded into the estimates. If prediction markets have high liquidity (such that being 1% more right about a question can net you a lot of money), then big players (smart, or lots of resources) will try hard to answer questions better, thus improving the accuracy.
But the "big players" who do the bulk of the high-quality predicting are only funded by the weaker players who lose a lot. This seems like a precarious situation - the weaker players will surely realise they're not succeeding and exit at some point, right? How does the market get funded if the weaker players leave?
Hmm, how about the 'weaker player' with unique knowledge? But to me the winners are those sitting on the sidelines and still gaining knowledge from the market.
The fact that there's not yet too much real money is probably why they have not yet been flooded by corruption. Right now the big corruption money is in stuff like the good old LIBOR manipulation. But if nonregulared/decentralized prediction markets become a zillion-dollar industry, what incentive has someone who can affect important public decisions to place bets against the market's expectation (and possibly common sense)?
A couple dumb newbie questions about prediction markets:
* is the current stock market a good or bad example of a prediction market? I ask because theoretically the price of an asset is supposed to predict the income stream you get from owning that asset. But in practice, because you can make money by guessing what other investors will do in the short term, regardless of how the asset does long term, it gives rise to a bunch of anti-inductive behavior. Stuff like bubbles, momentum and technical trading, etc. Most serious institutional traders seeking alpha these days (ie, hedge funds), don’t think in terms of asset fundamentals and haven’t for decades, and I don’t think the stock market provides accurate predictions about things external to itself for the most part. Are there structural flaws in the stock market that prediction markets fix? Or would we expect the same dynamics to manifest at scale if there were enough market participants incentivized by real money?
* what’s the case for thinking that micro-prediction-markets (questions of interest to only a few people) will yield accurate predictions? I thought the usefulness of prediction markets was premised on the market having a lot of liquidity and attracting a lot of serious players doing dedicated research. Wouldn’t that mean that a market with fewer, higher-profile questions would yield more accurate predictions than a market with many predictions (splitting investor attention span?). I suppose if the diversity of questions were repetitive, big firms could build a general algorithm (predict the weather at any specific date in any specific location) and then participate automatically across all questions of that type, but who would be the counter-parties that would lose money to them? There needs to be a pool of dumb money willing to play each question to create profit opportunity. Also, for things with more non-public information — will this couple’s date succeed —I can imagine big firms would be hesitant to try to use a general algorithm when they are up against that couple’s friends; not sure general “dating science” would be enough of an edge to trade on versus insiders
1. Hmm, unlike stocks, prediction markets typically have a fixed or near-term endpoint like "will X happen before Jan. 1, 2024?" Certainly someone *could* do "metaprediction": "I think that in the next month or two, more people will expect X to happen than they do now, so the price will go up soon, so I will buy now and sell soon" ... but this strategy sounds at least as difficult to do correctly as betting on the outcome directly, so I doubt it's a good strategy. But ... to be sure about this, we need healthy prediction markets in order to observe how well they work!
2. I think in Scott's case specifically, he is surrounded by lots of smart fans who would be willing to bet on predictions if prediction markets existed, so the predictions would be pretty good actually (compare this with Scott simply asking his readers: that would probably work too, but nobody outside his audience can provide a prediction, and some of his readers would be annoyed because they did not sign up for ACX to hear Scott ask "dear readers, do you think Alameda County, California, will permit indoor gatherings of 50 people on January 8th 2022?").
In cases where there are few, and less savvy, participants, I think the prediction market wouldn't work well right away ... but after the less savvy participants lose some money and quit, the remaining participants are more savvy and are likely to push the price in the correct direction.
A certain amount of interest and liquidity will be required, but I don't think it's a large amount. I seem to recall Metaculus saying that they found the first 10 predictions were typically enough to give a good prediction. But I can't find the page that said so now. I'm not sure if "will Alameda County permit indoor gatherings" would attract 10 bets; it probably depends on how popular the market is.
Can I propose a different reason? Because Wall Street and tech are basically evil blood octopi searching every corner of the globe for money, wouldn't prediction markets basically create Tomorrow Never Dies-esque incentives to influence geopolitics in a way where hedge funds, tech companies, and I-banks can literally profit off war and incentivize war through overt and clandestine means? Why can't google spy on gmail user holdings and then use that info to game prediction markets? Isn't a big prediction market just an additional profit opportunity for the collection of deeply nefarious tech and finance actors to essentially make everyone worse off in order to solidify the wealth of their SF and NY enclaves?
Suppose, like in Scott's example, a prediction market was strongly predicting that large gatherings would be banned in a specific town on a specific day. The mayor of the town saw this, bet on gatherings being allowed, and then used her authority to allow gatherings, thereby making a ton of money. My question for prediction market advocates is whether this is a legitimate use of the market, and if not, how could this sort of thing possibly be prevented.
That sounds like the kind of thing that would get a politician in trouble (if there were a transparency law to expose their behavior).
I think the more common situation is "insider trading" where someone has special knowledge that X will happen (or not) and therefore bets on it happening (or not). I suppose this could harm other market participants indirectly -- not so much the ones that already bought in, since X was going to happen anyway, but the ones without special knowledge who buy not-X afterward thinking "wow not-X got cheaper, it's time to buy!" But at the same time, "insider trading" in a PM is beneficial because it communicates factual information to the public.
I kinda feel like a business model that revolves around very technically worded payout functions or has to result to "caveat emptor" is something the government really should be regulating quite strictly. Imagine if Polymarket2 was regularly running billions of dollars in predictions with either "what we say goes, so we decide who gets paid" (and all the resulting legal headaches of that stance) or "caveat emptor, you're on your own!"
It would quickly become a site filled with scammers. That, and lots of money laundering.
Small markets, especially with no real money in them, can avoid that problem. Once markets get big enough, there's no way to avoid opportunists trying to scam some easy money. Intentionally worded and misleading markets would be the least of the concerns.
"What I really wanted last year (and would have subsidized!) was a market about whether Alameda County, California, would permit indoor gatherings of 50 people on January 8th 2022 (ie would I be forced to cancel my wedding). But I also would have appreciated the ability to put a few questions to prediction markets before starting my psychiatry practice, or my grants program, or any of a dozen other things I did. A friend has gone further, and half-jokingly said they want to create conditional prediction markets about whether they’re compatible with various women in our friend group, to be paid out six months after the first date."
And there's the problem: what does somebody in Malaysia or Ireland or Kiribati know (or care) about Californian weddings or will Joe get a date?
For questions like that, you need local knowledge which means smaller which means the entire problem of "it can only be a toy". For a large userbase, you either get (1) everybody and anybody can bet on it, which means prediction markets will become gambling sites, or (2) big institutional investors gobble up the majority of bids, as with the stock market:
I don't believe in the magic of prediction markets finding the One Weird Trick to solving the problem of [honking great social problem of governance that has bedevilled society for millennia]. If the idea is Very Smart And Knowledgable People will put money on "yes this is the cure for cancer" and an awful lot of them do so, therefore we may believe that rubbing snails on your warts is the cure, then the big institutions will hire those Very Smart And Knowledgable People to work for them so they can make money for the big institution. And that's going to deform the entire principle of the market, because the impetus will be not "is this bid correct?" but "is this bid profitable?".
It sounds too much like bookies' sites for people who don't use a bookies, and I don't see the appeal of it past that: make money out of being very smart about your guesses as to 'will it rain in southern California?'
EDIT: I may be a tiny bit biased in my appraisal of these since I remember all the Very Smart And Knowledgable People being hugely enthused over Andrew Yang running for mayor of New York, while an average idiot like me could see that, poll or no poll, he hadn't a snowball in Hell's chance of winning and that the eventual winner would be one of the candidates with experience in local government plus local to New York (minority status a bonus). If you can't work out that the candidate that appeals to *you*, Very Smart And Knowledgable Person, is not necessarily that candidate that will appeal to the Average Joe, then how do I trust you can figure out what the mass of Average Joes will end up doing, in your predictions?
Perhaps the reason our elites are outlawing prediction markets is because they don't want the public to see how often their own predictions fail. After all, if important skills like "being right" or "accurately analyzing situations" were prerequisites for leadership, we might rightly question whether our current leadership caste deserves to be in power.
"It’s very poor news to hear that a villanous political nonentity blocked this vital prediction nexus, and I guess we Americans have no other options besides accepting that we’re vastly poorer now."
I feel like a lot of the push back on prediction markets is 'rich people will do bad stuff with their money' and a common response is that rich people could do mostly the same bad thing now, and they are not. I think this interacts in an interesting way with https://slatestarcodex.com/2019/09/18/too-much-dark-money-in-almonds/ but I am not smart enough to write something up exploring the relationship between these ideas.
If you could only share a single article about prediction markets with a high-profile politician (who has no familiarity with the rationalist community), what article would it be? Asking because there's a plausible chance such a scenario could pop up in the future, and it would be nice to have a single link I can push for maximum effect.
I guess what I don’t really get about these prediction market ideas is if one ever did get critical mass wouldn’t it become small-p politicized and unreliable - pretty much like meme stocks?
"Optimistically, the brilliant coders will need something else to do, and someone will try creating things like genuinely decentralized, impossible-to-shut-down prediction markets. I feel like this should be possible, but I also don’t understand why it hasn’t happened already. Maybe the technical challenges are too hard."
Does anyone know why this hasn't been done? Or can anyone give me a primer on the technical challenges in crypto prediction markets? I'm a comp sci major taking a distributed systems class and think the space would make for an interesting final project.
I liked Polymarket but it has three big issues for me:
1. It's complicated and expensive getting crypto into their system. DeFi is intriguing but way to complex for mainstream.
2. They claim you are in control of your own wallet but it's not that simple. The private key they provide doesn't actually have your funds and you have to use their interface to withdraw.
3. "The markets listed here are for informational purposes only. We take no profits from them" sounds like a bunch of bullshit to avoid any responsibility. Kalshi's legal mumbo jumbo (https://kalshi.com/regulatory/rulebook) is actually an interesting contrast. A bunch of it concerns insider trading and the recordkeeping necessary to make compliance auditable. Polymarket is very opaque in comparison.
Polymarket's crypto-infrastructure is actually open enough that anyone can theoretically make bets, or even new markets, without access to their front end. There is a user-created command line interface (polymarket-trading). If you're willing to fund it, I think you can find the talent amongst the Discord crowd to create an alternate front end with a proper GUI.
So, I've been curious why a prediction market can't just ape the tricks of exploitative video-game designers in order to get around the CFTC's bout of petulance.
- You can buy "gems" from the market platform that aren't redeemable (at least in the US) for cash.
- "Gems" can be traded between users or buy positions on various questions in the prediction market.
- The markets themselves work just like you'd expect, but operate entirely in gems.
- There's another company that operates outside of US that offers a spread on gems, pinning them to the euro somehow.
Within the US, gems wouldn't be redeemable for anything outside the game. Presumably placing them into the same class of "not-dosh" that gift-cards, airline rewards points, and WoW gold all inhabit.
Outside the US, there would be a legal way to arbitrage "gems" back into real money, one that would inevitably lead to an emergent, deniable, secondary market to allow US users to get a monetary reward from their predictions.
It would be easy enough to wrap this all up in a veneer of crypto shenanigans if needed.
This seems like an obvious idea to anyone familiar with video game monetization strategies, a demographic with enough relevant overlap that there's no way it hasn't been considered. Given that there doesn't seem to be a market implementing this, I'm assuming the idea isn't viable for legal or economic reasons. Does anyone know why it's not viable?
Video-game gems are not supposed to be traded for money and companies selling them take actual steps to combat it.
Also, video-game gems tend to be useful for something in game, so there is demand/consumption.
So there is no real demand for anyone to buy them (unlike gift-cards, airline rewards points, and WoW gold) so it will not appear on its own. And setting up such buyer on your own just adds minor concealment and additional charges.
And Polymarket demonstrates limited worth of veneer of crypto shenanigans.
Prediction tournaments with prizes could serve as a substitute for prediction markets. Here's one idea how to do them:
Everyone is allowed to create tournaments with as many or as few questions as they prefer. They can also offer a prize that is distributed among the predictors based on how informative their predictions turn out to be. Past performance affects the weight a predictor is given, and so it also affects the portion of the prize money they will get. If you have a good track record and also provide informative predictions in the current tournament, you'll get the most money.
Past performance can't be computed over all tournaments since that makes gaming the system possible: Ask thousands of vague questions and resolve them in your favour. Enter federations: they're comprised of users and other federations and everyone is allowed to form them. When creating a tournament, you can choose which federations are included when computing the past performance of a predictor. You'd only include federations whose members are known to ask meaningful questions and resolve them fairly.
I am updating my priors to "Scott sometimes dog-whistles stuff, but when he does so it's with really obvious hints that would stand out like bold letters in an otherwise normal paragraph."
Related: Brett Deveraux is pessimistic about crypto for exactly the reason that happened here, the state can still go after the real-world parts of whatever crypto operation you're running: https://acoup.blog/2022/02/04/fireside-friday-february-4-2022/ Even if you're as decentralised as it gets, you still have to convert your magic money into the kind of money your landlord accepts as rent at some point.
Maybe also related: most commercial providers are also very poor news if you're doing something illegal enough that the state actually cares about it. Generally they will advertise privacy, but because they also have CEOs and offices and servers, and don't like the police turning up for those any more than the next guy, they'll hand over your data more easily than you think.
I think you are overly optimistic about a few brilliant coders being able to hide a decentralized market from the government. In the ACOUP blog, ancient historian Bret Devereaux basically sums it up: https://acoup.blog/2022/02/04/fireside-friday-february-4-2022/.
Sorry if this is a rookie comment, but I'm a pretty casual Alexander reader and I'm new to a lot of these issues. Can someone steelman the value of prediction markets a little better than "they outperform CIA analysts?" Based on my understanding of history, the CIA has long offered a weird mix of operational skill, incompetent long-term decision making and strategic idiocy. Is there more to recommend prediction markets? With so many confounding factors affecting outcomes, how do you differentiate between a better-than-average-on-his-own-merits predictor and an worse-than-average predictor that has a long lucky streak?
Creating the ability for anyone to understand the world better and make better decisions (even if they don't participate in the market) isn't reason enough?
> how do you differentiate between a better-than-average-on-his-own-merits predictor and an worse-than-average predictor that has a long lucky streak?
The law of large numbers. Prediction markets aggregate all the predictions, and no one cares about the track record of individual predictors. If one guy is very lucky, the effect on prices will usually be negligible.
I find it somewhat peculiar that you seem unaware about the abuse potential of this, and the tech history surrounding that.
Back in the old days, when "crypto" was still about encryption technology, and when people considered David Chaum's Digicash as the proverbial example of a digital currency, roughly 13 years before Bitcoin, in 1995 a crypto anarchist named Jim Bell posted an extensive multi part essay named "Assassination Politics" to the then leading crypto anarchist mailing list. In it he described in great detail how an assumed anonymous digital currency and an assumed legal prediction market could be combined to essentially create a crowdfunded assassination market without ever using the word.
Problem was, of course, he did not consider that a cautionary tale. He was intrigued by the possibility, even outright giddy, and wrote at length about what great thing it would be if a few hundred thousand nobodies could wipe out a public figure who had aggrieved them.
What followed was a sordid tale that you might have seen before. Some mid level bureaucrats in the IRS and law enforcement decided to rid the world of the man and started to harass him. Harassment was answered with counter harassment, and after a spiral of escalations, Bell ended up spending the better part of the next 17 years in jail, for founded but trumped up charges of tax evasion, intimidation and stalking (among other things Bell reacted to federal agents surveilling him 24/7 for months by doing (some of) the same to them).
Why do I bring this up? Well, I had assumed that by now this thing would have entered public awareness enough for everyone to at least see some of the dangers of "prediction markets".
Basically, any prediction market with enough funding at some point has a tendency to transfer from prediction to effect. What prevents a participant who "predicted" your Alameda question to bribe or blackmail a decision maker to make his "prediction" come true in order to cash in on the result? "Na, they would never do that" doesn't really cut it.
> An assassination market is a prediction market where any party can place a bet (using anonymous electronic money and pseudonymous remailers) on the date of death of a given individual, and collect a payoff if they "guess" the date accurately. This would incentivise assassination of individuals because the assassin, knowing when the action would take place, could profit by making an accurate bet on the time of the subject's death. Because the payoff is for accurately picking the date rather than performing the action of the assassin, it is substantially more difficult to assign criminal liability for the assassination.
Okay, so prediction markets should not allow bets like "JFK will die on November 22, 1963" and too much anonymity in the system is potentially problematic. I don't think Scott would argue prediction markets shouldn't have rules.
> President Biden said there was “no circumstance where you see people being lifted off the roof of an embassy” barely a month before we saw exactly that.
Are you sure about that? I was under the impression that we *didn't* see people being lifted off the roof of an embassy and would be curious if there is any evidence that it did happen.
The helicopter passes by a building as it lands. The blog linked in the post above includes a picture misleadingly shows it passing by the building as if it's going to land on the roof, which it does not do, so that "we saw exactly that" is false.
That said, there were indeed a bunch of helicopters shuttling people out of the embassy at the 11th hour, so there was likely a similar sense of urgency, though not nearly so visually dramatic as the image would have us believe.
With sufficient liquidity, the CCP would lose so much money so fast doing that that bribery would be cheaper. That's one of the intended features of a prediction market.
There's some kind of "liquidity to influence" ratio that's important here. If the liquidity-to-influence ratio gets too low (for a specific question on a specific market) then market manipulation becomes worthwhile, for certain interested parties.
I am concerned that the more we talk about prediction markets, the quicker we get to the point where their influence exceeds their liquidity, and then silly things start to happen.
Was there ever a real culture with a true anti-censorship ethos? Every culture has its taboo topics, which nobody but a few weirdos even think to question, an activity which is by definition very low status. Censorship becomes a hot topic only when there's a culture war with more than one legitimate pretender to societal dominance, an unstable state of affairs.
I think you significantly overestimate the competence and coherence of the "powers that be."
What makes you think so? and what evidence, if any, would make you think otherwise?
Sorry, fixed.
"A few smart people will know ways around this." Outlaw something, only outlaws will use it, or those using it will be deemed to be outlaws. Such a waste. Other countries may be smart enough to make better policy choices.
That is usually the point of outlawing something, yes.
I don't think "real money" will be a key feature for prediction markets to go mainstream -- it will need to be a reputation-based system.
You're well aware of the "why would I invest money on something that is 99% likely to happen but will not resolve for 5 years" problem. There are also all the problems of poker sites - the few people that make money are subsidized by a large amount of financial losers. And losing money predicting the future is less fun than poker. And third -- you want an ecosystem where the top predictors more than double their "money" every year - which is possible with fake money but not real money.
I could 100% believe this. Prediction markets as some analogue to competitive programming -- most people pop in just long enough to flex that they've got big brains and get hired by a big corp that wants those skills and pays good money, plus a smaller contingent who just like it enough to do it regardless of the rewards
I'm skeptical of reputation based systems for a few reasons.
First of all, this kind of reputation just isn't that valuable. I'm a well-known public commentator who makes money by commenting on important issues, everyone knows I use Metaculus, and nobody has ever asked me what my Metaculus reputation is! What hope is there for reputations to provide incentives for anyone else?
Second, because it's hard to do right. Metaculus' system incentivizes making lots of thoughtless predictions; if there was any incentive to care about it, people would game it to the point of uselessness. Partly this reinforces my first point (nobody cares), but Metaculus is usually impressively competent and if even they are getting this wrong I think it's tough. Lots of reputation systems are naturally vulnerable to the "create a new account, get your 100 free reputation points, then lose a bet against your normal account that gives them all your reputation" attack. Other systems are vulnerable to "create a new account, get your 100 free reputation points, stake them all on a long-shot bet, repeat if you lose, finally one time you'll win and have a reputational fortune" attack. And none of them let you do the thing where you (someone who has never used the site before) are very very sure the site is wrong and willing to invest a lot of risk into correcting it. If the site is real money, you can invest your life savings into this; if it's reputation only, you can only invest your 100 free reputation points.
What is your metaculus reputation?
I'm "Level 5", but that's completely meaningless without you knowing how many predictions I've made or how much time I've spent on the site, which is both a cause of the problem (people rightly don't care about Metaculus reputations) and an effect of it (if Metaculus thought people would care, they would provide a usable number)
I don't buy argument that Metaculus would have done it if people cared. How do they know if they haven't seriously tried it?
People should care about prediction track records.
An election prediction of someone who got say 12 out of 14 last elections right is worth listening to more than some random forecaster. Or maybe even a collection of random forecasters.
One problem is that they could influence a prediction too much and create group think. So some kind of extra reward would have to be offered for being contrarian to top forecasters.
Prediction track records require context, though. Maybe predicting the outcome of 12 out of the last 14 elections was trivially easy.
Yeah. I've gotten tons of Metaculus points by predicting stuff like "99% chance no new US civil war before July 2021".
Yeah there should be a difficulty measure on predictions. I don't like the current system Metaculus has.
Reputation doesn't work because being an excellent forecaster isn't adequately cool - not in the way that being a poker shark or even a Scrabble champ is cool.
If high reputation on a major prediction market site signified to the world that you're a sexy Nostradamus, the Farseerr dating app would follow, people would put links to their scores in their twitter bios, and all the rest of it.
No, but sufficiently high reputation combined with verification of 1 account per person could be valuable for $
Point isn't to have yet another election prediction method. Point is to generalize this to the point where you put on your facebook a "will I look better with a beard as decided by hotornot.com", subsidize it with $100 and get an answer.
I get why some people are so gung-ho about this. It means significantly less uncertaintly overall in all areas of life. There are (as of yet theoretical) ways to trade long term bets, so you can make money now from betting if we'll get a man to Europa in 30 years.
So yeah, Scott is right to be disappointed that more people seem to be working on rounding corners in facebook windows than working on this.
What is your track record? Metaculus is 12% underconfident on (exactly) 1000 questions. I couldn't beat metaculus with my 17% underconfidence (on way less questions). This information is more important than your level, since track record tells us more about the *quality* of your predictions, not the quantity. (You can find it under your profile)
Some of those issues have straightforward solutions (if the average Joe gets 100 reputation points for free, perhaps Joe can pay to start with 10000 points, and Barack Obama would get 5 million points for free).
Other issues may well be impossible to solve. The "stake everything on a longshot bet" issue happens on other forms of reputation as well; if you remember Bill Mitchell from 2016 he built quite a reputation by making one bet on "every piece of evidence proves Trump will win in 2016".
I don't think you should be able to pay for more points, since then you can buy your way to a good reputation, and reputation doesn't accurately track how good you are at predicting.
Also, either you buy points for money at a 1:1 ratio, or you do some weird complicated function. If it's the weird complicated function, I bet it's game-able; if it's 1:1, then it's basically money, so why not call it that?
It would certainly be weird and gameable -- not necessarily gameable to get real money, but gameable to get reputation points.
On the other hand, you probably want "people who are good at gaming systems" to participate in your prediction market, so that's not necessarily a bad thing.
Yeah, but then it's still not telling us anything useful.
If the initial allocations are unfair or random, that's fine because they'll end up distributed rationally. Just make sure there's exactly one "initial" event.
You could get around the gambling/unregulated futures issues by making the payout solely upside -- i.e., no losing for bad predictions but only rewards for correct predictions. It's not 100% ideal. But like stock traders competing for a bonus from their firm, there should be a powerful incentive to be right if serious money is at stake.
Better predictions should be worth enough to someone with an interest in the predicted events to be worth funding the upside payments. Perhaps a billionaire like Elon Musk could fund the venture in return for getting first use of the information before releasing it to the public. A billionaire with a known network for predicting the future ought to be able to figure out how to monetize that reputational asset.
If there's only an upside, that incentivizes making a trillion accounts and spamming the site with completely random predictions.
at least regarding the "free point attacks" you list: that's why you don't do reputation with "points", you do reputation with reputation. because a person's reputation is what it is.
as for incentives: no one on the internet wants to shut up. they apparently don't need any incentives.
How do we measure reputation, then? If I want to quickly know whether [blogger] is any good at predictions, what tells me? "Ask around about his reputation" is obviously worthless here, but I see no other way.
Additionally, without some measure like points or money, a lot of the neat features we want — the ones we get from it being a prediction *market* — don't work.
yes, measuring reputation involves finding out how other people evaluate the person in question. that's reputation. but i'm not sure what is "obviously worthless" in your example (people find value in asking about reputations every day), or what particular "neat features" you are referring to.
When I first heard about this, I immediately noticed a conflict-theory explanation for why Metaculus would do this. I don't have proof, and it could be wrong - if someone has proof that it's wrong, please tell me. But my suspicion is this:
[Metaculus is known to have its own proprietary prediction-aggregation software, which presumably has its own, hidden, reputation system or something similar to one. The Metaculus principals, I posit, make money from the Metaculus predictions, either directly via investments/prediction markets or via selling them to third parties. The open reputation system, I posit, is there solely to incentivise people to feed data into Metaculus, and is designed around that goal rather than the goal of letting people actually figure out whose predictions matter (that's what their proprietary system is for, which is for paying customers/Metaculus principals). The useless data is no problem for them, I posit, because their actual aggregation software filters it out when making Metaculus predictions.]
Anybody can look at Metaculus's average prediction on any question, so I don't think this is right.
Unless they've changed things, the community prediction isn't the same thing as the secret-sauce Metaculus prediction.
What hope is there for reputations to provide incentives for anyone else? On the one hand, reputation systems will always be crude metrics. On the other hand, so will money. On the gripping hand: Stackoverflow. Incentivizing quality over quantity is a harder problem, however.
I work for Metaculus and wanted to share my perspective on Scott's point about reputation and incentivizing lots of off-the-cuff predictions. For us, there's a difference between 'community' forecasting and 'competitive' forecasting—and we want to encourage both! We support more casual community forecasting where learning and fun are more the focus because fostering and supporting a sizable, engaged forecasting community is part of our overall mission to promote the forecasting mindset in the world. We want Metaculus to be a place to learn, to build forecasting skill, and to connect with interesting, bright people.
Tournaments, though, are where iron sharpens iron: If someone is highly-ranked on a tournament leaderboard and wins prize money, it's because they outperformed other forecasters and contributed a lot of information with their forecasts! We only very recently introduced the current incarnation of Metaculus tournament scoring, with more upgrades on the way. These, combined with our other plans to build out our reputation system more broadly, are going to make the competitive side of Metaculus much stronger.
Also, it's not quite right to say that no one cares about people’s Metaculus reputation: Two organizations that we know of with quite high bars for hiring have incorporated Metaculus track records into their recruiting processes, and we're currently in conversations with a third.
How PeerBet.io legal ?
I’d bet my whole life’s reputation on real money markets being more effective
> You're well aware of the "why would I invest money on something that is 99% likely to happen but will not resolve for 5 years" problem
This is solved in principle; bet S&P 500 shares rather than dollars, or put the money into something which produces yield (easy to do in crypto).
Also kind of in practice by https://hedgehog-markets.medium.com/
It's possible in principle to combine that with smart contracts using e.g. the mirror protocol. (This is not an endorsement, and I haven't audited their system, and there might be some gaping holes in it)
https://cryptobriefing.com/mirror-protocol-now-offers-access-to-sp-500-index/
I wonder if you can create composable prediction markets by allowing bets in any currency, including other bets. (And shorts of other bets, and other bets in a specific currency...)
edit: Hang on, this is just a bad reinvention of hedging maybe. Otoh, maybe you can do nonlinear combinations that way? I don't know enough about economy to see what that gives you. Conditional probabilities?
If you have a market for "will X happen" and the currency is units of "will Y happen" then the price is P(X^Y) which you can divide by P(Y) to get P(X|Y).
I don't think this adds anything new. I'd rather denominate everything in shares of SPY so that the long-term stuff isn't prohibitively expensive in opportunity cost.
I disagree, I suspect people who lose money on prediction markets will blame something external and go back in with even wilder swings to try and earn their money back. There are definitely people like that who seem to be subsidizing me on Kalshi.
I'm not sure people realize how many of us hold "gambling is repulsive" as a first principle. I'm not saying I think gambling should be illegal. But when I see someone buying a lottery ticket, playing poker or otherwise gambling, I definitely feel the same kind of feeling I do when I am at the store and standing next to someone who smells strongly of urine. I don't think urine dude is a BAD person, necessarily, but clearly he's got a problem and I have every reason to hope he starts bathing and changing his clothes.
Oh, yeah, it drives me crazy when I tell people I'm on a forecasting site and when I explain it they're like, "oh so you gamble?" If I try and explain it to them I still get "well there's an element of chance."
How PeerBet.io legal ?
Was there a prediction on how quickly regulatory capture would be used to stifle competition and innovation?
Have prediction markets or super forecasters had any luck in predicting the direction of stocks, the success of a startup, etc? This seems like a way to make profit off good predictions outside of the prediction markets themselves
There is a private superforecaster site to do this, but if I recall correctly, its too early to tell the results.
Which one? Open Judgement?
I think it's called the New York Stock Exchange.
What’s private about NYSE?
I think the point of prediction markets is to apply the 'wisdom of successful investors' to questions other than "what should this company be worth"?
Perhaps, but applying it to something like company worth that can be used to make money can increase the mainstream awareness/popularity of prediction markets and maybe even lead to regulatory changes
The stock market, including futures and options, is already a prediction market for the direction of stocks. Any subset of individual opinions would just amount to a smaller, inferior prediction market.
"Price is a signal." (Adam Smith, circa 1776)
"I need a prediction summarizing the wisdom of millions about what economic activities are worth investing in. If only there was some kind of....hmm...well, let's say signal." (generic investor-activist, circa 2022)
+1
The problem with this is that we care about things that are not economic activities. And structuring things as "Will X happen" is much easier than structuring them as "Will X happen and then also have the effect on the stock market than I expect".
Meh. Things that have zero to very little economic impact are ethereal abstractions of interest to almost nobody. "Economic impact" is just another way to say "people have to spend money (= the saved hours of their working life) to avoid evil consequences" or "people are able to reap greater rewards for the same work (or no work at all!) because of these good consequences." That covers nearly every form of good and bad luck, which is why economic cost or benefit is pretty much the catch-all measure of broad social impact.
Let's rephrase to say we care about things that have economic relevance but cannot be neatly captured by stock movements. The Covid pandemic, an invasion of the Ukraine, adoption of a new technology, should I save for college for my kid or assume college won't be a norm any longer, etc. The things we want to make decisions on are both far broader and far more specific than what stock can measure.
I think a secondary prediction market for public corporations could be interesting and useful if it was based on one or more measurable values like "Net Profit" or "Brand recall in the annual survey from XXXX research company" or even "P/E ratio of the listed stock".
The stock markets are prediction markets based on some measurable metrics for the underlying companies, but also based on memes, short interest, futures markets, potential future growth, potential exposure to liability, and game theory re: everyone else's thoughts on those things.
It is infamously difficult for stock pickers to outperform a well-diversified buy-and-hold portfolio over time because there are so many of these factors baked into the price, and because that game theory piece plays such a big role. It would be really cool to see if people are better at predicting future corporate performance when the concrete statistics are divorced from the rest of what fuels speculation.
You may have a point about certain sub-micro bets that are below the level of stock price that the market sets. Some of that is covered by individual analysts, of course. But they have loads of conflicts and incentives to not stray too far from consensus. Medium-term earnings could be an informative betting pool.
Hi Scott, the link to the CFTC decision is [broken, details omitted in edit]. Feel free to delete this if fixed.
Here's the CFTC press release https://www.cftc.gov/PressRoom/PressReleases/8478-22 - has a sidebar that links to an identical filename, though when you click it you won't get an ordinary file, just a download, which probably accounts for it. For the closest thing to a clickable link you can right-click and select 'copy link', which gets you https://www.cftc.gov/media/6891/enfblockratizeorder010322/download
Sorry, fixed.
It's probably not a good idea to let people know much about the file structure of Scott's machine. Can that bit still be edited?
I thought about it, but that file path is what you'd get by default for a particular, very popular OS/browser combination, so it leaks less than you might think. Nevertheless, it's not worth arguing about and I'm fine getting rid of it; deleted.
(remember also that every subscriber got a Substack tracking link that resolves to that same path...)
How do you structure a prediction market subsidy so that it encourages more/better forecasting?
I think the usual way to subsidize a prediction market is providing liquidity. Without liquidity, what happens is that you, for example, want to buy the YES token at 60% probability, but there is no-one to do the other side of this trade. I think if someone provides liquidity to a market, they need to lock up capital in it, but at the end they will get it all back.
You create a prediction market with an Automated Market Maker for each forecaster you invite to your very exclusive platform. This makes it profitable for each to participate and, to a first approximation, forces them to collaborate.
I think this is far too negative / absolute on the US regulatory piece. If the conditions for making it work are satisfied elsewhere and it begins to attract real money / real volume, the US will grudgingly accept it for fear of losing out on the position as the financial capital of the planet. I strongly doubt the CFTC wanted to accept bitcoin futures but eventually they had no choice; I expect you get that here eventually.
I don't think our government actually cares that much about competition. It's very complacent, and no regulator is going to lose their job because we got invaded by a more competitive government.
No, but regulators will lose their jobs if stakeholders are sufficiently aggressive in lobbying and they prove intransigent. I guarantee the high-frequency market making firms would love to enter to this business if it gets sufficiently large; right now, it's just a curiosity.
There's less money spent on politics (advertising + lobbying) than almonds.
https://slatestarcodex.com/2019/09/18/too-much-dark-money-in-almonds/
There doesn't seem to be any lobby actually in favor of the Census changing their practices to inject fake data for "privacy" (they claim they're required to do this, even though the same law didn't require it before) and this would break a whole lot of things that depend on accurate Census data.
https://www.slowboring.com/p/census-data
They just make decisions for no real reason that benefits anybody.
Am I the only person around here who thinks prediction markets are a really bad idea and ideally should not exist? Like, I don't want to live in a world where (a) making money by gambling on your ability to predict the future accurately is a common thing or (b) where decisions are being made by [edit: I mean 'based on the predictions of'] an anonymous mass of gamblers trying to predict the future. Those both seem independently shitty. And prediction markets do not seem like the only solution to the problem of forecasting being difficult and hard to calibrate or scale.
"Bets are a tax on bullshit", ie, betting isn't the only way to do forecasting well, but it's a way to sort out good forecasting for self-serving bullshit. We want our forecasts to be well-correlated with ground reality, not whatever ulterior motives the forecaster might have, and "prediction markets" or "explicitly pay superforecasters based on performance" are the only two that I've heard that work, and the latter is both hard to scale and more-or-less "making money by gambling on your ability to predict the future" anyway.
Liars would be against bullshit detectors ==> spooky opposition
Prediction markets are repeatedly shown to be the most accurate way to predict the future. There's alpha in being able to predict the future better than others, whether we like it or not.
I'm not saying they won't work, I'm saying they seem bad for society and I don't want them to be a thing.
Why? Without meaning the question prejudicially, honestly why? Is it connected with your statement about "where decisions are being made by an anonymous mass of gamblers" - but these markets of prediction bets aren't making the decisions, they're predicting the decisions. Or are you asserting a dynamic I'm not seeing here?
I mentioned above that I don't like either side of it. Quick explanations are:
* I don't like the idea of a society where a lot of people spend a lot of brainpower gambling on the future because that's just stupid, and also, it has all sorts of weird side effects like incentivizing things to happen for money instead of, like, because we want them to happen because they're good.
* I don't like the idea of decisions being made by [or, yes, I meant based on the forecasts of] anonymous hoards of gamblers, because, again, it conflates financial interests with everything else that matters, and I want to see society being driven more by leadership and decision making and less by mindlessly trusting data that comes out of machines.
Not to mention the immense conflict of interest that starts to arise once money is coupled to outcomes because, after all, the money can also start trying to influence those outcomes. It's not like there hasn't been cheating in literally every thing that anyone ever gambled on. But now, yay, you can gamble on _everything_, how fun.
I don't see why anybody would _want_ this. It is vaguely appealing in a technocratic sense: how cool, we can build a system that predicts things whose inputs are money and time. But I can't imagine a world where it is implemented not being worse for it.
I guess I'm confused, in that you seem to believe that decisions are in any way not connected to financial incentives now, but leaving that cynicism aside, do you think that if we have prediction markets people will "decide things based on the forecasts of"? That's not how prediction markets work, and if they started to, wouldn't that just break prediction markets, since who's going to bet on something which will be decided in a way that's dependent on the bet? That's more like voting shares than prediction markets, which also happens, but is already a mechanism in our society.
" it has all sorts of weird side effects like incentivizing things to happen for money instead of, like, because we want them to happen because they're good." Evidence? Again, this ties to your contention that prediction markets are determinant. What is the evidence for that?
Maybe I'm misunderstanding a large chunk of how prediction markets function.
I think if prediction markets become a major part of our societal discourse, i.e. like the stock market, then yes I do think government officials and other decision makers will be influenced by those predictions. And since those predictions are financial in nature, it means the decisions by those people will be influenced by financial incentives.
I feel like the whole point of prediction markets is that they are a social machine for producing good predictions; if the only point of that was "just to know, for fun" then they would not be very interesting to anybody. The point, I've assumed, is to get them big enough that their predictions are _accurate_, because they're aggregating over all the knowledge in the market, and then, ideally, use those predictions for something (such as corporate- or government- decision-making).
But maybe _I'm_ missing a large chunk of how prediction markets function and just assuming that is the unstated goal of the whole project. I've certainly just sorta assumed this is where everyone's coming from.
It seems to me like you're drastically overestimating the quality of the decisions that emerge from "leadership and [human] decision making" in the absence of hard data.
Personally -- and this is maybe a kooky take that I couldn't convince anyone of, it's just a feeling really -- I think people dramatically underestimate the quality of _good_ leadership, because there is so little of it around to see as example.
Would you also abolish the stock markets and commodity futures markets?
Not abolish, but yeah massively reform, probably. They seem pretty fucked.
We have had plenty of societies driven by leadership and decision making. Unfortunately these have been totalitarian. Democracy is effectively a prediction market, as the voters gamble on which party will be the best option. This leads to inconsistent leadership and tends to leave decision making in the hands of individuals. It is clear however that democracies out perform totalitarian models on just about every useful metric. Perhaps that hoard of gamblers are going to have better ideas than the leaders and decision makers, whose qualifications for such roles are not actually testable.
Strongly disagree with the analogy between democracy and prediction markets, because voters pay nothing individually for being wrong. The feedback loop is much weaker in democracy than in prediction markets.
> We have had plenty of societies driven by leadership and decision making. Unfortunately these have been totalitarian.
This seems very incorrect. All societies are driven by leadership and decision-making. The quality and degree of those things (and the moral compass of the leaders) varies, but it is absurd to say that having leadership means having totalitarianism.
>"I don't like the idea of a society where a lot of people spend a lot of brainpower gambling on the future"
1. We already live in that society due to the existence of stock markets. The countries that allow stock markets to exist are a lot better off than the countries that don't.
2. Whether or not prediction markets are allowed, people will spend lots of time reading and writing speculation about the future, such as in newspaper op-eds. Prediction markets will make all that speculation much more accountable and accurate.
3. Without prediction markets, media elites can use their platforms to make false predictions with impunity and dishonestly twist politics towards the preferences of their class. The truth is more egalitarian than media ownership structure. Prediction markets are a powerful way to speak truth to power.
"I don't like the idea of a society where a lot of people spend a lot of brainpower gambling on the future"
that's what all decision-making is, though
concerns about whether money is a good way to do that is another matter...
One objection I could think of is the fact that one might not want to base policy on something so easily manipulated by spending cash. (Not that other stuff we base policy on, like academic opinions, can also be manipulated by spending cash.)
Suppose an evil version of Scott would like indoor gatherings to be permitted at a certain place and time. The obvious way to do this would be to spend cash on the question "will bad stuff happen if we allow indoor gatherings?", lowering the odds as estimated by the market by, say 10%.
Ideally, a superforcaster would notice this gap and invest in the opposite side, but practically, there are some limitations. Perhaps the market takes a long time to resolve, and the ROI is not worth it. (Are leveraged prediction markets a thing?)
This becomes especially bad in case of self-fulfilling prophecies, because then even the financial punishment might not apply.
Suppose both the Afghan government (as of 2021) and the Taliban are firm believers in prediction markets. Someone willing to influence the outcome might simply place a huge bet on their favorite side, knowing that the other side will most likely not fight to much against terrible odds.
(I would argue that in that case, the natural equilibrium would not be that the prediction market is trusted 100%, but less, so that a prediction would not easily become self-fulfilling. In general, it is not clear to me that such feedback loops do not appear. If you ran a prediction market on the outcome of a Keynesian beauty contest, and the judges knew about the market prediction, they might very well go along with them.)
I guess I see your point, but this seems like way more expensive than just buying politicians, especially when the very act of gaming it this way would (I predict... see what I did there?) get priced in to the market itself. If a prediction market were skewing this way, I'm genuinely wondering if it wouldn't be evident, and takers on the other side of the bet would be hard to find, at the proposed odds.
Again, I'm really not fluent in prediction markets, but these critiques seem (perhaps naively) to be self-correcting, or at least pushing directly against what such markets are supposed to do... and if that happens, they'd cease to be relevant quickly. At least that's my sense of it.
Plausible deniability if anti-corruption laws become more strict?
A tax on lying is better than no tax on lying. The latter is what we currently have in the media without prediction markets. If you want to lie the country into a war in Iraq, you don't even need to spend a zillion dollars manipulating prediction markets! You just need to know the right people at major newspapers.
If there are huge, liquid prediction markets, and you "know the right people at major newspapers", then wouldn't you place your bets, proceed as before, with the same outcome?
...except that since you would gain a zillion dollars, you didn't need any other motivation than money, such as ideology, loyalty, whatever.
Another way to phrase it is, if there is a tax on lying, which incents people to lie less, why would they respond by conforming their speech to reality rather than vice versa? Cf. Karl Rove's famous quote "when we act, we create our own reality."
As we see with existing markets, if the market isn't doing what you want it to, it's very easy to convince people it's being manipulated by a conspiracy of traders.
"Prediction markets are repeatedly shown to be the most accurate way to predict the future."
Where has this been repeatedly shown?
In prediction markets?
No, seriously, I want to know the answer to this question. Have prediction markets so far produced surprising odds for events, contra public opinion, *and been proven right* reliably?
And just to be clear, I asked the question in hope of a serious answer one way or another - not that I object to Carl P offering a snarky answer in the meantime.
Huh. So if I want to know whether Apophis will hit the Earth sometime in the 2100s, or whether a new nasty COVID variant will emerge, I'm best off getting a load of people to bet on the outcome and taking note of where the odds fall? That's great news. It's sure a lot easier than trying to integrate Newton's equations or sequencing a crapton of viral RNA.
It's not the problem of generating knowledge/predictions that you're trying to solve via prediction markets. It's the problem of _aggregating_ knowledge/predictions in a way that you have a good sense for which knowledge/prediction you can have faith in.
Right now, it's hard to say which expert has put how much work into their prediction, and whether they're making the prediction to be right or to score political points or reputation points or whatever other points. However, the expert knows. If they back up their opinion with a bet made with their money, conditional on their prediction being right, you have a sense for their degree of confidence. In a market, over time, the aggregation of such bets should give you the best predictions. That's (my understanding of) the theory of it. Which is pretty sound. The doubt lies in whether it can be executed well, and Scott has outlined some of those doubts. I have some others, but nothing necessarily insurmountable.
That makes absolutely no sense at all to me. By definition the expert's opinion is unusual, and *not* widely shared, indeed differs non-trivially from the conventional wisdom. That's what makes him an expert, right? That's what distinguishes him from Joe Sixpack. The two key differences between my opinion and that of a dermatologist on whether this lump is cancer or not is that (1) my opinion, if I'm average, will hew closely to folk wisdom, and be widely shared, and (2) her opinion will be much more correct.
Which means, to the extent there is any difference between the truth and folk wisdom, that is, to the extent a problem is genuinely inherently difficult to solve (and we're not talking about wholly different issues of obfuscation or deceit) the massed conventional wisdom will almost always be wrong or correct only in hindsight (i.e. useless).
Garbage in, garbage out, as they say. You can't average out the ignorance or idiocy of the uninformed and thereby sift out rare kernels of insight and awareness, because unfortunately unlike noise human error does not average away.
I think you don't understand the concept of prediction markets. Please note that I also don't understand it very well, but I'll try and explain nonetheless. Averaging predictions out is not how the aggregation of prediction markets happens. It happens (in theory) by someone betting on their prediction, against other predictions, with better predictions making more money. So people are incentivised to make predictions better than others. Let's say you're an expert on asteroids hitting Earth. Let's say someone starts a prediction market on the question of 'when will the next 50m asteroid hit Earth'. Let's say Joe onepack through hundredpack put down 100$ each at some random distribution. An expert who knows much more can bet a very large sum of money against all of them and clean up. This implies that you would see large amounts being bet on the 'best' prediction. Of course a real world market would have several differences, but that, as I understand it, is the basic model. Please know that I have never explored or read about prediction markets. This is simply me knowing about the existence of this concept and reasoning from first principles. There may be several things I'm missing or wrong about
So then what? In hindsight we can say "oh Expert Jane actually knew what she was talking about, and by betting 100:1 against the conventional wisdom she totally cleaned up." How is that useful? It doesn't do us a lick of good *before* the predicted event, because all we can observe is "gee the market is giving 100:1 odds against Jane's prediction coming true, must be stupid." *After* the event we can say gee, that Jane must really know something about asteroids, maybe we should just ask her next time. But *that* is no different than the process by which we judge expertise already, assessing post facto what fraction of an expert's past predictions came true.
And of course, neither of these things helps us at all identifying the expert who can correctly predict whether a new COVID emerges, or put a number on AI risk, because neither of these things has anything to do with Jane's specialty, and she's as likely to be wrong as the rest of us.
As I said, the only place where I can see a market being of use in uncovering the truth is when you have dominant shibboleths to which one can pay lip service and/or give actual service. Take the threat of rising sea levels, for example. Someone can pay tremendous lip service to the fear that this is imminent, but if we examine the price of coastal real estate, and whether those who profess fear of rising sea levels are buyers or sellers in that market, we can penetrate the social fog and find out what people *really* think -- since words are cheap, but $1 million mortgages require real commitment.
So if the goal here is to examine questions where there's lots of social obfuscation and mutual bullshittery -- elections are the obvious example -- then sure, a market will discern the truth faster than any other method. But if you are trying to answer substantive questions where social bullshittery is a trivial factor -- I can't think of any social shibboleths that would cause most people to lie publically about their underlying believes in AI risk or the probability of an asteroid hitting the Earth -- then I don't see how a market is of any use at all.
Well, if all you have is money, that's indeed the best strategy.
Than someone on the other side can invest in understanding Newton's equations or sequencing RNA, and make money off that market.
The predictions in prediction markets don't come from a vacuum.
Check what finance people call 'alternative data' for an example. Basically, hedge funds are paying folks to go out and count the number of cars in Walmart's parking lots, so that the funds have an edge in betting on Walmart's future share price.
That only works if you can identify that the solution will come from Newton's equations or RNA, that is, you're just dividing up who does the grunt work, but you have presupposed an understanding of the correct solution method.
As a contrast, suppose it's the 10th century, and the conventional wisdom is that the best way to determine whether the skies will fall is carefully charting the course of the planets through the Zodiac and consulting the ancient works of Hermes Trimegistus, as translated by certain Coptic scribes. Or the way to figure out whether a new virulent disease will emerge is to slaughter chickens and study the entrails. You could spend all your money on this research, draw a conclusion and act on it -- and that would not work out very well.
So what you've done here is *assume* the existence of, and recognition of, the correct approach to a solution. But if you've already done that, why do you need a prediction market? You *know* how to find the answer, you don't need to make probabilistic bets to find the answer, you can just hire someone to crunch the numbers, and that is indeed the most efficient use of your money.
If you can't make that assumption -- if you not only don't know the answer to a question, you also don't know how to find it out -- then what good does the prediction market do? You can discover what most people think the answer is, for whatever random reason, but if they're on average no smarter than you (which seems like a good a priori assumption), then you won't get out any more information than you already have. The exception would be if you are yourself unusually poorly informed (so the conventional wisdom has something to teach you), or unusually deceived.
> So what you've done here is *assume* the existence of, and recognition of, the correct approach to a solution. But if you've already done that, why do you need a prediction market? You *know* how to find the answer, you don't need to make probabilistic bets to find the answer, you can just hire someone to crunch the numbers, and that is indeed the most efficient use of your money.
You are making a pretty big leap here.
Yes, in order for prediction markets to work well, someone has to have a clue. But I don't need to know that person nor how they do it. Which stands in stark contrast with your suggestion of finding a person to hire and telling them what to do.
Depends what you mean by "work" doesn't it? If you are trying to answer a question in time for your answer to be actionable, then I don't see how the prediction market helps -- since it only identifies the best expert *after* his prediction comes true. If you are trying to identify an expert for future use, i.e. Joe answered these 3 questions correctly in the past, so we can just ask him the 4th on the same category and ignore everyone else -- well, OK, but I don't see how using the prediction market to identify the expert differs in any meaningful way from the customary way of identifying experts we've been using for the past umpty hundred years, which is comparing their previous predictions to actual outcomes.
And even then, we do nothing about the traditional problems of identifying experts, which is (1) deciding the kind of prior events that are close enough to our event of interest to let us start sorting expert predictions, and (2) deciding whether the prior prediction actually came true or not. Both these things are easy if we're talking about commonplace frequent events with objective outcomes, like finding a good plumber or the best person to do heart bypass surgery.
But if we want to know the right expert to assess AI risk, what are the prior events and predictions thereof that are relevant? Who knows? Nothing like the event of interest has ever happened before, and don't even have a good objective definition that would let us say precisely whether or when the event has taken place. So even if we knew the predictions of every person who knows anything about computers, cognitive science, biology, or metaphysics, and the complete history of the world down to the last detail, I don't see how we could decide which expert to trust with the prediction. And if we can't do it with arbitrary data, what good does the prediction market do?
Yes. Just as, if I want to get some flour to bake some bread, I'm best off getting a load of people to bet on how much flour will be wanted and growing and milling that much and shipping it to those places. It's a lot easier than actually growing the wheat and milling it myself.
I don't see how your analogy is analogous. Whether a substance is "flour" or not is an objective fact, so it's easy to establish a market that exchanges flour for money, because both can be confirmed to be what they purport to be, and buyer and seller can assess their value accurately before agreeing to the exchange.
A prediction market is not comparable. What the buyer wants is a true prediction, but there is no way to know ahead of time whether a given prediction is true, so there's no way to evaluate the value of that prediction. The only thing you *can* know is how many people believe it's true. That is only of value if (1) all I really care about is what people think is true, e.g. I'm a politician running for office, a demagogue, a marketer, professional gambler, social psychologist doing research, et cetera, or (2) it's a very reasonable assumption that what most people think is true is actually true, which pretty much by definition rules out the answers to difficult questions that require expertise.
Whether a substance is flour or not is an objective fact that is easy to ascertain afterwards, and similarly, whether a prediction is true or not is an objective fact that is easy to ascertain afterwards. I suppose it's true that in the case of flour in particular, it can be relatively easy to verify its correctness in advance as well, but there are plenty of other goods where it's hard to verify that they do what is claimed until afterwards.
But if the suppliers of these goods don't get their payments until after the goods have been used and tested, then the ones that stay in business will tend to be the reliable ones, and that gives me confidence in advance that they are producing decently good ones. And that's exactly how it works in a prediction market - the suppliers of predictions don't get their payments until after the question has been settled, and so the ones that remain as frequent participants in the market will tend to be the reliable ones, because those are the ones for whom being in the market tends to make them money.
So then your market is only useful if there is repeated business, that is, if the same (or very closely related) questions get asked over and over again. And I agree *that* works, but then this just an ordinary market in consultancy, and those already exist widely.
If I want to buy a house, for example, I want to hire someone to predict the price-to-value of a given piece of property, so I find a real estate agent with a great reputation, and because the market is relatively efficient I will usually find that his services cost the most so I can use his price as a proxy for his value. Very helpful!
But I would be an idiot to hire even the very best real estate agent to give me the odds of a brain operation fixing my gullibility. Expertise does not generalize -- which is why I need not pay attention to what Matt Damon thinks about space policy even though he's an expert in playing an astronaut in movies.
So the only way to find an expert in Subject Foo is to have plenty of opportunities for decisions about Foo to be made by consultants, which means plenty of clients need those decisions and will pay for them. But then the consultants and clients naturally find each other and shazam I have my market.
What then is the value in layering *on top of that* existing direct market an additional side-betting market in which 3rd parties bet on whether a given consultant-client relationship works out? It can't accelerate the discovery, because the discovery relies on external events that can't be hurried or slowed no matter how many bets are placed. It can't by itself encourage pairing, because the pairing relies on the existence of clients, who don't give a damn about what 3rd parties think of the value of the information. *I* don't care when I hire a realtor that I am providing some information to the person who may or may not hire that realtor in the future, and that fact plays no role at all in my decision to hire him. Why would it? I'm not an altruist, and it doesn't do *me* any good.
I suppose it could function as a weird form of advertising, so people can discover that consultants exist for a given type of decision. But I fail to see why ordinary advertising wouldn't work even better. Why waste money running a betting parlor to make people aware of horse races, when you could just buy an ad on Google?
Well, something like what you describe actually does happen in agricultural futures markets.
Farmers will check futures prices to decide what to plant. Millers will check futures prices to make business decisions (eg build a second mill?)
What's your opinion on the stock market?
Generally opposed but it's tricky. I like the idea that most people can be exposed to economic growth via something more direct and lucrative than a savings account (otherwise they are at the mercy of whoever is willing to expose them, like sketchy fund managers). But I don't like that we basically have a giant state-run casino as one of the principle institutions of our society, or that such a large part of the economy is organized around it. If we didn't have one I don't think anybody would be arguing that we should, but instead it's so normalized that nobody questions it. And of course I hate the existence of high-frequency trading and all the other sorts of financial industries that just get to, apparently, freely skim money off of the whole thing, and would love to see them all regulated out of existence (but that is probably not very contentious).
To have an instrument that allows members of the public invest in Henry Ford's factories seems beneficial to me.
I have no firm opinion on HFT, leverages, derivatives or short selling providing a benefit to society.
The problem is that in practice the stock has nothing to do with Henry Ford's factories. The concept of the stockholders owning the company could be abolished and in practice little would change, because people don't buy stocks to own a piece of the company.
The stocks have value because of the company.
Without the aspect of fractional ownership of a real company, a stock would just be another ponzi shitcoin like SHIB.
A well known principle of value investing espoused by Buffett etc is that you should buy the stock if and only if buying the entire company at that price and hodling it forever would be a good deal.
In the short term stock prices may get divorced from reality.
In the long term they are still effectively divorced from reality, because while people may sell stocks of a failing company and buy stocks of a succeeding company, they are not actually seeing anything from the success or failure of the companies.
Yeah, I agree with that, and said so in the post you're replying to. But being able to invest in businesses or economic sectors in the abstract, and having a highly liquid day-trading market with lots of transaction costs and, well, grift, is not a necessary implication of it.
Transaction costs have been going down steadily over the last few centuries.
Those much maligned high frequency traders are another way transaction costs have continued to decrease recently.
Being able to invest in the abstract is exactly that: an abstraction built on top of more concrete investing. Index-based ETFs are a fabulous achievement of modern finance.
No, they only seem that way. "Passive investing" is not a thing you would see in a sound financial system.
I'd agree with you Alex. When you start asking questions which pierce the veil of the priesthood of economics, it becomes a taboo question akin to telling a 15th century catholic priest that Jesus wasn't real.
A central bank which controls the money is not a law of nature as it goes around printing trillions for some and nothing for others as it sets interest rates for the entire economy. A stock market and shareholder capitalism is not a law of nature either and it is a choice to allow it to exist. Private equity has been terrible as corporate raiders destroyed functional business in legalised theft. They'd take out massive loans, buy a company, then use the company they bought to pay back those loans, then loot the company and fire everyone. Why is that legal?
Why does this practice exist for a few wall street insiders to fire hundreds of workers from some small factory in a state they've never been to in an industry they know nothing about? Money makes them gods above any law with the ability to show up and order everyone else to do things. How is this good?
I've long questioned the validity of a stock market. It makes sense to me for the original person who started the company to receive some reward, but by the time the stock moves to the second owner, the third, the hundredth person down the line...that person 'owning' that company is of no benefit to anyone and had no moral validity to an asset they didn't help create.
I'd be more inclined to only have employee owned or self-owned companies which use their profits to buy themselves. In this way VC money and even the founder are basically paid through an internal loan to get their 'just reward' for their risks, effort, or ingenuity in starting the business. This would be a lot more fair and valid and could lead to better choices for business to preserve themselves. Already such companies exist and they treat 'their' workers better because the workers are the 'they' making the choices.
I see our society as overrun by useless do-nothing conmen who have elevated ownership, rigged games, and their scheming into the fabric of society. The most successful con artists are those who founded central banks which were NOT POPULAR when they were implemented in the chaos of WW1.
Nowadays few even think to ask a question of what it would be like if we didn't have a central bank and how many of our economic 'models' of human behaviour and such would simply fall apart without the rules of the artificial rigged children's playground that is our so called 'free market'.
'Free' with set interest rates, money printing like crazy, and a handful of central figures who make choices about our partially-planned economy. If Jesus was around today he'd have to spend a long time throwing all these money changers out of the temples where their profane arts have become central to government. Where choices to take care of the poor come down to if they'll turn around to pay enough taxes or generate enough GDP to be worthwhile instead of valuing them as human beings who have souls.
As economic choices see forests and clean rivers and clean as as optional non-dollar items as conmen in cities high and drunk on power make choices to 'slow down the economy' and 'allow preposterously rigged games' where it is a 'moral imperative' to collect debts from third world nations taken out by the old dictator to buy guns to kill the people of that country who took over....they're on the hook for debts which bought the bullets to kill them. And the IMF and WB and US will crush them in other ways if they don't pay up or cede sovereignty to allow foreign companies to extract their wealth tax free.
So it is essential to ask important questions like...should stock markets be allowed to operate? Can we abolish the central bank? Can we limit mergers and acquisitions by questions of social value and market validity? Do 'lean' principles have a place in power grid management so that some for-profit company in California can give out bloated payments to executives and investors in the good times and fall over during bad times? Should certain things even be measured in money at all? Hard and important questions!
There are plenty of libertarians who will argue against central banking. I think it's more uncommon to say there are problems with how debts can be discharged via bankruptcy and that creates moral hazard (Megan McArdle is vocally in favor of our lenient approach to bankruptcy). But the way unpayable debts were resolved in pre-modern society was via things like slavery that aren't going to be brought back.
In earlier times (e.g. Babylon), debts were slashed regularly, e.g. every 4 years. Maybe not great for those not getting their money back. But there were other solutions for crooks. And society was regularly free of debt. Slavery was another thing, unrelated to debt
Could you link me to some evidence showing that these Jubilees actually happened? I couldn't find anything definitive in a quick search. Wikipedia for example is rather sparse.
They sound more like something some priest would have written-up, but that the merchants would quietly ignore.
Compare also to how Islam officially forbids interest, but clever business people found lots of ways around that.
Or see Wikipedia for some other ingenuity https://en.wikipedia.org/wiki/Put%E2%80%93call_parity
> In the 19th century, financier Russell Sage used put-call parity to create synthetic loans, which had higher interest rates than the usury laws of the time would have normally allowed.
https://en.wikipedia.org/wiki/Debt_bondage
Not "unrelated".
It is legal because it is only possible if the breakup value of a company is greater than its market value, which means those assets are being mismanaged. When the market price of the whole is less than the market price of the parts, that predicts bankruptcy one way or the other. Buying a profitable company and selling off all the assets is nearly guaranteed to lose money.
Somehow that argument never seems to convince any one. Alas.
> But I don't like that we basically have a giant state-run casino as one of the principle institutions of our society, [...]
Yes, I agree, we shouldn't have the government meddle in the stock market or other markets so much.
Btw, so called high frequency trading doesn't skim off any free money. What makes you think so?
I'm concerned about prediction markets at scale. Once everyone gets involved, including really big money, it shifts the incentive structure. For certain predictions where there isn't a lot of human input to the outcome it won't be a big problem.
But consider a question like "whether Alameda County, California, would permit indoor gatherings of 50 people on January 8th 2022". The outcome of that is 100% based on human decisions. If there's suddenly millions of dollars riding on the outcome, I have a hard time believing those who make the decision are going to be completely objective and unaffected by it. And I don't even mean in the sense of them taking bribes. I think just knowing what the market is predicting will play into their decision-making process.
In a sense I think large scale prediction markets will start having an affect on the outcomes of the things they are predicting. And that can start creating a real self-fulfilling prophecy aspect to it all.
And it's especially a concern if one of the outcomes is really harmful (whether a particular building or structure will still exist at a certain time, whether a particular person will still be alive at a certain time, whether a certain contagious disease will be widespread or not...).
I noted in another comment that this is already a concern for existing futures and insurance markets (that in a way are prediction markets about whether certain property will be valuable and whether certain undesirable events will occur to a particular person, place, or thing), but that it's allegedly solved by regulators investigating suspicious profits. If that's true, regulators might also want the ability to investigate suspicious profits in these markets in order to deter people from betting on very harmful outcomes and then bringing them about.
There are already millions of dollars riding on that outcome - every restaurant in the county might have to close! If you're not already worried about McDonalds doing something because of the megabucks they have on the line, why are you worried about prediction market investors?
I agree with gph, so, my answer to that is: I'm not worried _now_, but I see all of these people who are super into the idea of prediction markets and it sounds like they want a world where they are such a dominant institution that I would have to be worried. Akin to how I would suspect financial firms of doing sketchy things (cf the financial crisis but I'm sure there are myriad examples, mostly nonpublic) to defend their interests today.
>I'm not sure prediction markets would add an extra level of pressure beyond that.
I think they potentially would if they became as large and entrenched of an institution as the stock market
Edit: Just to add, I think lobbying and regulatory capture is a pretty big problem with our current system and if anything prediction markets will add to the problem in new and unforeseen ways. So the fact that McDonalds already has undue influence on the decision making process of government officials doesn't make me feel any better about prediction markets.
Presumably McDonald's interests include their long-term survival as a corporation, whereas the interest created by the prediction market is strictly directional with respect to the decision.
I guess the conclusion you're hinting at, and that Alex is worried about, is that creating big-money prediction markets on domain X would potentially spread the type of hard-to-pin-down corruption that is prevalent in the business world, due to stock markets, to domain X. This particular case is a bad example, since allowing or prohibiting indoor gatherings already has business implications. But what if we had prediction markets on, say, judicial outcomes?
Also, an anonymous prediction market would make insider trading (on anything) a LOT easier (and thus I am not surprised that Kalshi has firm rules about identity verification).
Stock and option markets are sort-of anonymous to the participants, but the relevant authorities are allowed to pierce the anonymity.
Wide-spread prediction markets would likely work similarly.
Well for starters, McDonald's is a giant company, every decision that they make involves many people, which means that while I don't trust them to be ethical, there are certain ethical boundaries which I don't expect them to cross. I trust them not to do anything unless their legal department says it's okay.
I have no such trust in the anonymous operator of some random bitcoin wallet. If there's money to be made by assassinating legislators then I don't think McDonald's would do it, but someone might.
"Well for starters, McDonald's is a giant company, every decision that they make involves many people...which means that while I don't trust them to be ethical, there are certain ethical boundaries which I don't expect them to cross." You don't think that executives at McDonald's or other major corporations might engage in corporate assassination? Do you think corporate, for-profit killings are limited to Le Carre novels and cyberpunk RPGs? Would that I had such faith in humanity.
Can you suggest anyone in particular that you'd murder if you were McDonald's?
The Hamburglar.
I think that the big thing is that, by financializing it, you make it more liquid, and often create people with big financial interests in something where no one had a ground level interest. For better or worse, McDonalds has interest in things that benefit them and/or their customers. But once you've put those things on a market where there are traders on both sides, now there could be a big money power who has interest in the opposite side of those things. There might not once have been someone who has an interest in seeing every venue closed on Jan. 8, 2022, but now there is, and they might try to make that happen, to win big on these contracts.
The big advantage that these non-financialized things have is that the incentives they have to change the world are at least incentives born out of someone's object level interest, and not a meta-level interest about winning a bet.
This is just another version of the standard shibboleth against the interaction of wealth creation/inequality and governance that I see often on the left. Wealth creation/concentration is bad because it affects the quality of government, so we must use the same government that we think is capable of being affected by wealth to prevent/solve it, regardless of the fact that wealth creation and concentration are enormously useful mechanisms for society.
What we actually need is good governance, not prevention of wealth creation or redistribution. If you have good governance, you are not being influenced by special interest groups like wealth. If you don't have good governance, redistribution does not create an absence of special interest groups. In many ways, it makes them worse, by making the government far more important in society. See any former/current socialist system for evidence - USSR, China, India, Venezuela.
Similarly with prediction markets. If you can aggregate predictions in significantly better ways than you can now, that would be an enormous good for society. Worrying about potential impacts on governance just means that you need to continue solving the problem of govt. (preventing insider trading, factoring in various perspectives and evidence in decision making etc.). Also I think worrying about prediction markets influencing decision makers is strange. That's what you want to happen.
Wealth concentration is not an enormously useful mechanism for society. And spurious right-wing notions of good governance and $1.50 can buy you a cup of coffee. I'll pass.
I think you are the only person. The whole economy and every price charged by anyone is already based on people putting their money where their mouths are and making educated predictions. A betting market doesn't make "decisions" about anything except the odds of the bet. But the crowdsourced information that is made public by this process is made available to **everyone,** who can use it if they choose to make their own, more accurate decisions. So it's actually a democratizing process that takes the advantages of expertise and inside information and levels the playing field by making this information available to the more ignorant masses.
This was somewhat my impression, as well.
Although your point in general is valid, you might want to really think about why you think "you are the only person." could possibly be true. It's probably best to assume that there are a diversity of opinions, even if they are hiding in the woodwork. (If there aren't a diversity of opinions.. maybe go somewhere else? That would be scary. imo this comment section has serious thought-bubble problems, but they're not so bad that there isn't a dissenting minority to most points.)
There are several commenters on this thread alone that seem to generally agree with me, for instance.
Well... I see, like, one person total who actually agrees in the end.
I don't see the relevance of this observation to the larger argument, though; and I doubt the parent comment was meant to be taken to mean you're *literally* the only person *ever* to think this way, in any case.
A few other people have chimed in, perhaps since you wrote this.
But the point in general, that the level of unanimity in support of prediction markets in here is kinda weird... stands, I think.
Information is valuable, Alex. Casinos and lotteries are legal and produce nothing useful (at least not compared to, say, video games). Meanwhile, prediction markets produce information that anyone can benefit from without participating. In this sense, it's better than the stock market.
Consider today's high-bullshit environment of talking heads on TV spouting nonsense. My dad once sent me a conservative newsletter that linked to InfoWars playing a recording of an anonymous UK doctor telling someone on the phone that the government was about to stop the rollout of all Covid vaccines for safety reasons.
If there was a prediction market for this claim, the market would say that's not going to happen. It'll be cheap to buy shares in "UK government will stop the rollout of all Covid vaccines" but anyone who is a big enough sucker to buy it will lose.
I wonder if this is a potentially healthy thing, because people who live in crazytown normally stay there forever, until they are an old man, like my dad who is literally risking his life for ideas like this (and like my uncle, who died "with" Covid). If, before the pandemic started, my dad actually placed bets on the things his hyper-partisan news sources were telling him, he would lose a lot of money, which maybe, just maybe, would make him lose confidence in his hyper-partisan news. Granted, the death of his brother didn't change his mind, so this is a long shot.
Edit: meanwhile, the rest of us can just stand back and use the output of prediction markets to help us plan for the future, all without risking a dime.
I mostly agree with what you have said on other comments. I just don't expect to participate in this discussion to be a good use of my time, most of the commenters are so convinced of their position that the seem to be blind to the arguments that you are raising. They don't actually engage with them, they just talk past them.
If you asked me, I'd say that prediction markets would create good predictions as long as they don't influence real world behavior. Once this happens, they stop being "prediction markets" and start being "self-fulfilling prophecy machines". It seems pretty obvious that having a lot of money riding on an outcome would make you want to make that outcome happen. It's a feedback loop between "predictions inform policy" and "policy causes things to happen, fulfilling the predictions" (not to mention that the metrics used for the resolutions are also capable of being influenced).
At this point, the markets no longer work as something that makes predictions; instead it's a place to buy the new reality that you want. And the worst part is, a defender can always say "But look! What they predicted was what happened! The prediction worked!" -- missing the entire point.
I appreciate your chiming in to represent agreement with me. I felt awfully alone this! Although, yeah, I don't know if it's worth the effort .. but maybe there is something to be said for demonstrating the thought-bubble-ness in such a stark way (to lurkers or something)
<quote>I don't want to live in a world where (a) making money by gambling on your ability to predict the future accurately is a common thing </quote>
is this much different from the world now? or for the last hundrd years?
No, not really, but prediction-market enthusiasts seem to like it and want more of it, whereas I want to see it dismantled and fixed.
Why do you imagine that forecasting future human conditions, social preferences, etc. is something we want less of? What makes you believe that would be a better world?
That's an unfair reading of my point. Forecasting things in the abstract is fine. Prediction markets, one of the many ways to forecast things, seem problematic to me for the reasons discussed elsewhere in this thread.
It sounds like we are getting to Marxism then. It sounds like your objections run much wider and deeper than prediction markets?
Hardly, I don't mean anything related to Marxism. But yes, of course I have other issues with how the economy is organized. That doesn't detract from the prediction that the hypothetical world in which prediction markets are a big deal is a less good one to live in.
Eh, surely prediction markets on top of the existing system add nothing of value. (Being a niche enthusiast past-time is one thing, but I don't think they could possibly survive having actual real world influence and attention without getting gamed to death by wealthy actors and insider knowledge. And yes, I've seen the usual explanations why that couldn't happen, they're not convincing.)
But what if they replaced the existing system? Surely rewarding people for accurately predicting the future would get beneficial on net once decoupled from giving them means to affect the future.
If you see it as gambling, then it sounds bad. If you see it as a job of gathering accurate information that other people or institutions care enough to pay for, then it's hard to think of a more useful thing we could have had these last couple of years.
Like, as a "gambler", you scout for questions that currently aren't well answered, research, improve on the answer in a way that cuts some of the bs, and earn your reward.
I feel like it is gambling about the same amount as day trading is gambling, which is, like, a lot?
What do you mean by "gambling" and why do you think it's bad? From my perspective casinos are bad mostly because their customers predictably loose money, so I would say if someone has a justified belief that they will win on average they're not gambling, they're just planning under uncertainty (as we all must).
Day trading is gambling in this sense, but only because retail day traders don't know anything special. The few people who can discover unknown facts with any reliability (Renaissance Technologies comes to mind) are the ones who make huge amounts of money.
In a world where prediction markets are a major feature of society then the same applies to them. If you went to bet on them, you would just be a gambler, but the people who win more then they lose are precisely the ones who aren't gambling.
I don't see a world where lots of people are gambling in a giant system where most of the profits are captured by wealthy / connected / advantaged agents ... as a desirable one, compared to one where it's not happening. Referring to day-trading here. If you don't see that as less good, I guess we are not going to be able to see eye-to-eye, but perhaps you can at least see how, aesthetically, a society like ours would be displeasing to someone compared to an alternative that doesn't have day-trading in it?
It's true that wealthier people tend to have better investing opportunities (though not so much in the public stock market, I suspect) and they get much higher absolute returns even when their rate of return is the same as non-wealthy people.
I am not wealthy, but the stock market system has benefited me: my index funds are way up, and I sold some. Might there be a crash? Yes, but even if there's a crash, it is unlikely that I would lose money.
The system is fundamentally different from a casino because average returns are positive (because it's a positive-sum game, not zero-sum), so I wonder if your objection is religious in nature? My former church prohibited "gambling", but did not seem to treat retirement investment accounts as gambling.
You're not the only one.
But I'm more afraid of self-fulfilling prophecies (like bank bankruptcy) and investing money to make prophecy real (to win more money).
> But I'm more afraid of self-fulfilling prophecies (like bank bankruptcy) and investing money to make prophecy real (to win more money).
The former was never much of a problem.
See https://www.cato.org/blog/defense-bank-deposits-open-letter-professor-omarova
Feel free to search for 'bank run' in that rather long article. Basically, bank runs based on sheer panic basically never happened. When runs happened in history, people had good reasons for them.
First: I don't worry about bank run only. It's just simple and clean case for a bigger problem of self-fulfilling prophecy.
Second: of course people had good reasons for panic. But if bank fails without panic? Do we know? How can we be sure about it?
Let's use math exam as example:
If somebody told me that I would fail my math exam I can just miss it and fail automatically.
Ok, I may go to exam, but I'll be nervous (because of prediction) and make some mistakes in calculations... and fail.
If I wasn't told about fail - I could be less nervous and pass.
And how react my teacher on prediction of my failure...
Of course if I was really good at math - my mistake only change my grade a little and other knowledge allow me to pass. Or may be I event won't notice prediction as I don't care about predictions I'll cut of my finger while cutting nails.
So in some way predictions could work as "probability amplifications".. and this looks like reducing number of ways things could advance, limit possibilities to predicted. I don't like this cut of possibilities, not failures itself.
Of course there is also way to reduce failures with predictions... if I was told that I would fail exam beforehand - I could learn more... BUT this is definitely not result author of prediction want. So he at least motivated to manipulate with time of prediction publication... and give "prediction market" properties of "probability amplificator"
> But if bank fails without panic? Do we know? How can we be sure about it?
I don't understand. Those banks that experienced runs had pretty bad balance sheets. And we can look into the historical record to see what has happened in various times and places.
The classic free banking way that banks used historically to shore up trust in themselves was to get and advertise a thick equity cushion and to be open with what was on their balance sheets.
I'm not a bank expert and I haven't seen these balance sheets. I doubt that each of failed banks would fail whatever would happened...
Maybe some of them had some factors that can't be seen through balance sheets. Maybe some of them could be just lucky enough to survive... Not a lot. I think it's something like 10% at most for all cases. But with bank run 10% turned to 0% and 90% became 100%. That's what I'm talking about with phrase "probability amplification" (or may be it should be called "high probability amplification").
I think for being human, being conscience it's important to account these low probabilities. High probabilities are most about "survive" and "stay same", while low probabilities are more about "find new". And I think surviving is not enough...
Yea I don’t love zero sum markets or derivatives at a philosophical level.
I also don’t love regulatory hellscapes either.
Even if the regulatory gloves came off, I don’t think this whole thing unfolds the way rationalists think it will.
Absolutely. But do you have any information about how it might pan out?
Because I think there are some people who would pay good money to have that kind of information..
I think it plays out like the long tail of publicly traded products we have access to in the market today. There are many financially productive assets but they're very, very thinly traded.
I don't know who would pay money for that worldview. The value would be in how you'd change those liquidity challenges which, in my view, are deeply regulatory.
I don't think "gambling on your ability to predict the future" is necessarily a bad thing. Trying to predict an uncertain future is part of the human condition. Businesses try to predict if their products will sell, politicians try to predict if their policies will be popular or not, ordinary people make life decisions about where to live or what career path to take. In all of these situations you already have money (or things more important than money) riding on your ability to predict the future, a market is just a way to predict more accurately and pay people who put in the work to make good predictions.
The drawback is that this money will mainly come from the people who are *bad* at predictions. You could argue this exploitative, in the same sense that the lottery or other casino games exploit people who don't understand probability.
But we already legalize gambling, and I think I'd rather people gamble on their ability to predict the future than on their ability to predict the path of a roulette ball - at least the first game isn't explicitly rigged against you. It might even be subsidized, in which case the house is *losing* money.
Is the only problem "gamblers"? Are we capable of keeping the gamblers out of wall-street? Gamblers already have more influence on national decision making than you think. I think accepting that there's going to be some gambling involved and trying to improve it by giving it some more structure and transparency isn't a bad idea if you're afraid of gamblers. I'm more scared of gamblers in the dark than gamblers in the light. Or do you have specific concerns about the (type of) aggregation over gamblers?
IMO, the reason prediction markets would be useful is that you could use the information they surface to be more effective at doing a variety of things, including making better policy, business, and aid decisions. So these predictions would actually help us make the world a better place.
From what you're writing, it sounds like you're caught up in the connotations of gambling and/or making money. I think it's vastly more important that the output is useful.
An an analogy, some people think debt is dirty or even morally wrong. But debt can be used to buy productive assets, send a kid to school, or start a business. It helps people improve their lives. There are definitely abuses and mistakes made at the margin, but overall it's pretty useful.
That's my take on prediction markets too. If you find the mechanism distasteful, that's fine, but to me it's not the main point by any means.
We need it to be legal (and high-volume-allowed) in part so that big hedge funds and the like can do superforecasting for insane profits. Making it illegal-but-accessible through darknet-style crypto schemes doesn't help, if when Goldman Sachs wants to do it, the government fines *them* or otherwise prevents it.
Getting firms into the prediction-for-profit business is a big part of how we get these more useful and accurate in the long run.
I think if we're currently at Stage 1, there are enough crypto whales to get us to Stage 2, and Stage 2 will be impressive enough that it'll be an easier case to legalize what you're thinking of, which would be Stage 3 and (I agree) better than Stage 2.
I find your model of the shortest path to policy change kind of unexpected. I have a tiny bit of relevant experience, but you think about these things very carefully, so I don't know, the gap in our models weirds me out a little.
Shrug, first principles I guess. What's the key question, something like, what's the shortest path to legal for-pay prediction markets in the US?
What are the right foundational questions to help answer that?
1. How are most US policies made?
2. How are the policies most like the one you want made? (caveat: avoid salience, how are boring similar policies made)
3. Under what conditions to administrative agencies become more permissive (more strict)?
Do you have strong views on those?
People who I would expect to have useful insights here, in approximate order from least to most helpful: law professors, practicing administrative lawyers, lobbyists, admin lawyers who have specifically sued the CFTC, represented the CFTC, CFTC employees who currently work on rulemaking, former CFTC employees who worked on RM but quit out of frustration at some broken process they could no longer stand.
(Every administrative agency has its own weird quirks, and sisyphean battle it fights over and over. They're all pretty obvious to everyone who has worked there, but I wouldn't expect, say, law professors to typically know too many of those stories.)
Maybe this is all very entry-level to you, not really sure. Apologies if so. Happy to try to add more context or look into some of these questions in more detail if you're curious though.
I think this is a very important point. You want major institutions trying to arbitrage, not just people who use the dark web. If we had that, then prediction markets would be one of the most important sources of knowledge we could have although it would be regarded as gambling by many.
Can Goldman Sachs create a wholly owned subsidiary incorporated in Switzerland or the Bahamas to trade on markets that are illegal in the U.S.?
There's two related things for them:
1) They want to stay within the law.
2) They want to stay on the good side of relevant governments, and not annoy them too much.
Point 2 limits a bit how many shenanigans they can do to get around point 1.
One of the biggest reasons a decentralized prediction market hasn't happened yet is that deciding how a prediction resolves is very hard to do with just a smart contract. What is the source of truth (the oracle) that the code can look at the make the closing decision? A foundational step to building decentralized markets is building the oracles.
Why not have the person who proposed it (= crypto key holder) resolve it? Why not use a decentralized court like Kleros?
I think resolution in prediction markets is a much, much bigger impediment to scale than anyone has yet realized. Two obvious issues. (1) Malfeasance. Imagine a prediction market that has a $10M or $100M investment. What scale of arbitrage would incent attacks on the resolution mechanism? If some group has managed to acquire a potential $10M payout that is hidden by an anonymized distribution mechanism (think DDOS), then it’s easily worth $1M in effort (bribes, spoofing, etc.) to try to cause the lucrative resolution. And a Kleros-style adjudication cannot be sequestered, by construction. Just post a bounty payable in crypto with authenticated (also via blockchain) proof of collusive vote. (2) Subjectivity. Not every question can be resolved via an appeal to an authority, such as a stock price. And it’s turtles all the way down: there’s no way to create a resolvability mechanism for a proposed prediction that doesn’t rely on some authority. Crowdsourcing is its own epistemic filter. The crowd can be wrong about its prediction, so any crowd (non-authority) similarly can be wrong about its resolution. One of the reasons humans rely so much on authority is that it removes a lot of epistemic burden in life—it’s just easier for the referee to say which coin face landed up.
2 seems self-resolving. If a question has a subjective answer, and such questions have paid out in an unpredictable or counterintuitive way in the past, serious persons will not bet on them. Perhaps you mean to say that all predictions generally have a subjective element that makes them vulnerable to this attack. I doubt it, but it still solves itself, by having everyone conclude that prediction markets are BS. I think commodity futures already refutes the general accusation, so why not run the experiment and see how many more subjectivity-proof questions there are? But then we run into your first objection, which I find more substantial. But again the commodity futures markets refute the most general form of your claim. Maybe commodity futures are unique in this respect, but what evidence do we have so far?
I certainly agree that if subjective-resolution predictions tend not to work in practice then they will not work in practice! My point was more abstract. All predictions require an authority to adjudicate for resolution—the race track announces the winning horse—even in the sense of authorizing who tabulates a crowdsourced mechanism if one exists, like elections. In fact, much current sturm-und-drang in American politics is about the dawning realization that there are ambiguities in our federal elections around which authorities control tabulation, and how they are in turn crowdsourced and/or authorized, and all that is with an "objective" timed measure: most legal votes. If one imagines high value subjective prediction markets involving huge numbers of participants, I hypothesize that this *recursive* subjectivity could be fatal. The difference with commodity markets is that at the end of the day they are contracts to provide atoms, and humans have millennia of experience adjudicating the alleged failure to provide contractual atoms when it occurs. Habeas corpus and so forth.
“ All predictions require an authority to adjudicate for resolution” except, apparently, commodity futures contracts, stock options, and stock purchases. If there are 3 exceptions, there can be more.
Thanks for the convo. I'm quite enjoying it. You're right that one can certainly have bilateral exchanges and contracts that are arbitrary. But that creates substantial risks for one or both parties, and disputes about resolution are then adjudicated by the legal system. Your examples, though, don't require *epistemological* resolution, or at least that seems like a very odd situation. If I trade USD for pork bellies to be delivered on a certain date, there isn't a lot of definitional wiggle room on the dollars, the pork, its quantity, or the date. Similarly for stock transactions for stocks that are listed on an exchange, we're unlikely to disagree on whether the stock I transferred is for the correct company. In contrast, a pure prediction market is a predication about possible future states of the world where there is no a priori requirement for an authority to resolve which future state in fact occurred. One partial solution is to make such a requirement—define the authority—but then, per your earlier point, you may increase opportunities for malfeasance.
So you’re afraid they will not fail immediately, but first gain high value, then fail catastrophically? If the subjective resolution mechanism is insecure, why would an attacker wait so long?
I haven't thought this through (obviously!) far enough to say anything about possible trajectories. I was trying to point out, contra Scott, that I don't see how you can have a stable multi-billion dollar prediction exchange. Your point here is reasonable too. Maybe any market that gets to 10X fails, where X is the cost of a sophisticated attack, because you can steadily make a 2X or 3X return from such attacks until that market fails.
Upon further reading, Kleros has mechanisms to address the forms of malfeasance I raised. The epistemological problem still pertains though. But here's an intriguing piece on blockchain and epistemology. Still investigating...
There is a decentralised prediction market that uses Kleros: http://omen.eth.limo/ — or disputes through Kleros at least.
Thanks for the link!
Legalizing prediction markets is easy. Just figure out how the Vegas casinos can have a lucrative monopoly on the industry. Their lobbyists will take care of the rest. That's exactly how sports betting got legalized -- albeit with ridiculous rates of "vig."
Alternatively, all the autists who care about prediction markets should crowdsource a plan for political lobbying. I'd start with libertarian Senator Rand Paul, and then figure out who is on the committees overseeing the Commodities Board and how to persuade them intellectually and/or with a combination of political carrots and sticks.
Yeah, Sports betting is legal, can prediction markets piggy back on the sports market?
Balaji vs. Scott 4.5 hour podcast wen?
Would genuinely pay to listen to this, Scott, and I think a lot of people will too. Balaji is to the crypto community a lot like you are to the rationalist community. I think it would be a public good to have that conversation /pitch
I don't do podcasts, but I *especially* don't do podcasts where I'm expected to argue with someone who knows 100x more about a subject than I do.
Being the student in a conversation rather than a debater can be even more valuable. Someone should ask the "stupid" questions that are on everyone's minds.
It's so bizarre to think that I'm about to write this sympathy-for-the-regulator comment, but ...
In a recent subscriber-only thread, I asked you about the concern about people using futures markets, including prediction markets, to profit from causing harm when events aren't exogenous (they can short something and then actively damage that thing). I mentioned that a futures trader told me that the supposed solution to this in existing regulated financial markets is that regulators will sometimes investigate how someone profited from a specific short, and have indicia that they use that maybe work.
I recall that you answered that it seemed like the legal system was able to deal with this and that we didn't see some of the extreme cases, so it seemed like normal laws had kept this kind of behavior in check, and that the same might work for prediction markets with real money.
One thing I'm not sure of in that answer: is it more "normal laws" like "people who commit arson or murder are likely to get caught by the police, so people are unlikely to risk doing those crimes in order to profit from a short" or more "normal laws" like "people who profit from a short after murdering someone or burning something down are likely to get caught by the financial regulators, so people are unlikely to risk doing that"?
That is, do we think that people don't profit from shorting stuff and damaging it because they don't want to risk doing the damage, or because they don't want to risk getting the suspicious profit?
If it's more the former, then prediction markets shouldn't matter much because people are already being deterred from causing many relevant kinds of harm.
If it's the latter, then the regulation in the markets might matter a lot, because people who are currently afraid to short companies' stock in regular financial markets and then do something bad to the company may see ways to get away with it in a more unregulated and anonymous market.
(This also includes insiders: insiders may be reluctant to misuse their confidential knowledge, or use their positions for sabotage, if they know that financial market regulators may catch them. If they do either thing in a not-very-regulated real-money futures market, maybe they know that no regulator is likely to catch them, so the risk of disloyal behavior by insiders could go up a lot.)
To put this a different way, is it possible that the CFTC is saying not "we want power for no real reason because we are so hidebound and averse to change" (or not only that), but something like "if these markets get big, all kinds of people will be able to use them to profit a whole lot from doing bad stuff, and we are the ones who would be called upon to catch them doing that, and we know we don't have the resources and capabilities to do that"?
Of course, this is no justification at all for banning prediction markets in things where neither side of the question can be made more likely by causing harm or damage. And it's no justification at all for banning them in things where it's clearly impossible for people participating in the market to influence the outcome.
This doesn't seem any worse than the rest of crypto - you can already short a crypto token and assassinate their lead programmer. Or sports betting - sometimes there are scandals where people try to throw a game, but it gets dealt with at the level of casinos or the sports league or sometimes the federal government.
Prediction markets are only trying to be unregulated and anonymous in order to escape these kinds of bans. If they were legal, the CFTC could just ask them to report suspicious transactions. Probably this is what they're doing with Kalshi, but I feel like part of Kalshi's solution is "hire lots of really good lobbyists", and I would like this step to be skippable.
Anyway, since Polymarket is still operating outside the US I guess we'll see whether this kind of thing happens.
From my understanding, Kalshi has pretty strict rules / real-time surveillance systems and reporting requirements to combat insider trading. They're mandated to by law in the same way any other regulated exchange is - it's the same reason they have all the KYC stuff.
Polymarket had a blatant Tesla insider win big, 60k I believe, by betting Tesla would publicly buy Bitcoin shortly before they did. Arguably the point of Polymarket is to allow stuff like that as clearly the insider operated with additional information that steered the prediction towards a more realistic value, but Regulators are not used to allowing that sort of stuff.
I'm not clear if that would be allowed on Kalshi in order to allow the best prediction, or if they would report it to the CFTC to prevent insider trading. Isn't the point of a prediction market to allow people with the best information to drive the price to the most efficient possibility?
Interesting! I didn't mean to put trading on insider information in exactly the same category as sabotage; I realize that there are significant disputes about how bad insider trading is and whether it should actually be illegal. But as you said, regulators (and other people) are not used to being comfortable with it.
You could also analogize insiders betting on their employers' actions to sports team members betting on their own teams' performance, something that is widely forbidden because the incentive to corruption is so clear. (Not so much about "insider information" as about the incentive to throw games.) But I realize I don't know exactly what rules I think ought to apply to either situation.
Whether or not insider trading should be illegal, if it's allowed it will drive sensible people away. No point in making a good-faith prediction about something if you're likely to be betting against insiders.
I think people with dreams of unregulated free prediction markets should remember would _really_ get rich out of this: politicians.
Across history and across different countries insider trading was defined and regulated in different ways.
You could use these differences to investigate your thesis that it would drive sensible people away.
As far as I can tell, in practice this hasn't happened.
Compare also the case: when Warren Buffett announces that he bought a stock, it goes up.
So he does the following trade:
First, he decides that he wants to buy a stock.
Second, he buys the stock.
Third, he announces that he bought the stock.
At step two he had non-public information that he knew would make the stock go up when published. And he traded on it. The poor devil who was his counter-party in that trade and sold to Mr Buffett surely felt cheated?
Would your solution be to require Mr Buffett to announce all his trades before he makes them?
In your example Buffet would not be considered to have performed insider trading as he was not an insider and did not trade based off of nonpublic information about the underlying asset that was held in trust by an insider.
It's insider trading to sell a stock short because you are the company's chief of security and you know the factory blew up, but the market didn't. It's not insider trading to sell a stock short and then blow up the factory as an unrelated party, though there are obviously other legal challenges.
Not legal advice
It all depends on jurisdiction. Matt Levine's Money Stuff often has good commentary on this topic.
There's for example differences between US and French rules. The French consider quite a few more things insider trading than the Americans do.
This stuff is complicated. See eg Matt Levine (https://www.bloomberg.com/opinion/articles/2022-01-26/watch-out-for-shadow-trading and https://www.bloomberg.com/news/newsletters/2021-08-25/money-stuff-insiders-trade-in-outside-companies). Let me know, if you have trouble with the paywalls..
> then do something bad to the company may see ways to get away with it in a more unregulated and anonymous market
Maybe someone already said this, but this would be all the more reason for regulators to embrace a market, so they can guide its development and keep the liquidity in one nice place.
I miss Polymarket. I found it fun, even if I did terribly at it. I turned 50$ into 9$.
Everything about your piece feels accurate to my experience. I went to Polymarket because it was available and added weight to my predictions in the form of money. I won't go to Metaculus because there's no real incentive to be right over imaginary internet points. I won't go to Kalshi because signing up looks like a chore.
It was pretty straightforward signing up for me. Took ~1 min similar to IB
I feel like you could try to partner with some huge gaming company (like Riot or Blizzard) to bet for in-game money, which lots of people seem to want
I think "easy ways to buy drugs" was probably a socially valuable consequence of crypto. The Silk Road was a more legitimate and trustworthy market for drugs than the street dealers it supplanted. It had an escrow system, a higher degree of quality assurance, and vendor reviews which could be verified through multiple sources. I don't have any data, and I think it would be a difficult question to study, but I strongly suspect it had a net positive effect.
Free Ross Ulbricht!
I have actually wondered about that, especially with regard to the negative externalities of street corner dealers, who might not actually be if favor of free trade and instead use violence to achieve a lucrative monopoly.
With darknet markets, it could be that willingness to commit excessive violence over the low end drug trade might not be the big competitive edge any more.
I am unsure how big a deal violence among dealers was before, though. "The Wire" might not exactly be a documentary. [0] cites 13% of the US murders 2007-2012 as gang-related. Now I don't know if there are any non-gang murderous drug organisations, or if drug market share is even among the top reasons for gang killings, so YMMV.
OTOH, drug lords would have to run their darknet fulfillment centers pretty horribly to do worse than street corners, externality-wise.
[0] https://www.politifact.com/factchecks/2020/jan/09/philip-van-cleave/are-most-murders-gangbangers-killing-gangbangers-v/
From what I can tell, "The Wire" has more validation for its authenticity than just about any other crime show. I thought it did an impressive job of outlining the dynamics of the drug trade and its enforcement, and it helped to illustrate a lot of the motivations driving the people involved on each side. But it had to condense all of that into one coherent story, and that ends up distorting aspects relating to the frequency of crime and whatnot.
Interestingly, one of the things Ross Ulbricht, the creator of the Silk Road, was initially charged with was a supposed failed murder-for-hire scheme to silence a former moderator threatening to expose him - the kind of murder that simply would not happen were it not for our draconian drug laws. But lo and behold, that charge was dismissed with prejudice *after* he was convicted in another trial in which they presented evidence of this questionable murder-for-hire charge. Very fishy trial all around. Poor Ross took a big one for the team.
> the creator of the Silk Road, was initially charged with was a supposed failed murder-for-hire scheme to silence a former moderator threatening to expose him - the kind of murder that simply would not happen were it not for our draconian drug laws
Errrrghhghhghhh . . .
I'm generally on-board with making drug- and sex-crimes less chaotic and violent, but if you can't see why "I wouldn't have to murder the guy if this were legal" is a really bad argument, I understand why there's no real chance of the advocates for this ever succeeding.
> in which they presented evidence of this questionable murder-for-hire charge
Not very questionable. The Feds fucked up the case, and the appropriate consequence is that they don't get to prosecute, but there's no reason for a normal person to think he didn't hire a hitman.
Policy makers prefer things to be legible. If we know how many people are buying drugs or sex, we can come up with good harm-reduction practices.
Politicians hate things that are legible. "Clear evidence that 5000 people using drugs" is a way to lose re-election. "No one knows how many people are using drugs" is something you can bluff your way through.
Funnily enough though, this is precisely harder rather than easier to do nowadays.
I guess the promise is that once you can decouple crypto from any sort of "real" money it will become easier. Since it's no longer BTC tumbling, it's actually anonymous things coins like Monero.
But right now Scott rightfully points out that government violence has more or less stopped crypto dead in it's tracks (though I don't think lack of sc prediction markets is a sign of this, just a sign that arbitration is too fuzzy).
I mean it depends on what you're in the market for. You've always been able to find the normal stuff on street corners or by knowing the right people, and even back in 2013 that was easier than learning how to use the Tor network, buy BTC with cash, pseudo-anonymously tumble it between wallets, and then praying to god your "package" doesn't end get delivered to you by a fed. Silk Road (and its modern successors with which I'm not familiar) just make it easier to find the more rare and obscure drugs, even if it's not exactly easy. Good luck finding 25I-NBOMe on the street, not to mention being confident that that's what you're actually getting. Dark web drug marketplaces will always be easier than nothing when you have no other connection in the first place.
I do wonder how dark web drug marketplace sales volumes have changed over the years.
On the subject of prediction market design, I was thinking recently about Kelly bets and how doing that math yourself is an unnecessary inconvenience for prediction markets to require. Anyone have any thoughts on how valid/unoriginal this is?
The Kelly bet is the optimal bet to make based on your confidence and edge, but the Kelly bet is denominated as a fraction of your net worth (or more realistically, investment pool). Yet prediction markets in practice require you to section off a fixed piece of your investment cash and leave it in escrow until the prediction is resolved. A professional forecaster would obviously rather have a prediction market where they could demonitate bets as a percentage of their net worth, where they could leave their pool invested in equities while also pledging it to bets, and where they could make leveraged bets on a greater balance than their net worth.
And that doesn't seem like it should be impossible? It basically requires a frictionless autotrading system. If you plug in your perceived real probability, or even better your buy and sell cutoffs, then the computer can calculate your edge and thus your bet. And then so long as all bets resolve in a well-ordered manner, your net worth is always a known value at the resolution of each bet.
Turning those perceived odds and net worth numbers into prices is trickier. You'd need something which profitably divests participants as the resolution becomes apparent and trends towards their prediction. But you'd also need something which doesn't blow up unrelated markets when a participant loses somewhere else. It's fine if unrelated markets are somewhat affected, because the participant's new, lower net worth does, in fact, give their opinion lower weight.
Anyone know if an existing algorithm handles that kind of aggregation?
> then the computer can calculate your edge and thus your bet
in fact, this isn't so trivial, because naïve kelly doesn't take into account the situations when probabilities can shift.
See https://predictingpolitics.com/2021/04/04/why-the-kelly-criterion-kinda-sucks/ and https://wikiless.org/wiki/Proebsting%27s_paradox?lang=en
This seems like it _could_ be a feature instead of a bug, if handled right. The Kelly bet changes over time, which if taken literally means you should move money into and out of the market. In particular, it says that at the moment you win, you should have no money left in the market. That sounds right to me, if you have a market algorithm which extracts your profit as you get closer to winning. Although it wouldn't work to have a market which consumes your entire net worth as you lose, so it can't be that simple.
But yes, coming up with the aggregation algorithm that works here is equivalent to coming up with a continually-adjusting version of the Kelly criterion that allows you to react instantly to new information and new market odds.
> coming up with the aggregation algorithm that works here is equivalent to coming up with a continually-adjusting version of the Kelly criterion that allows you to react instantly to new information and new market odds.
Let me know if you come up with or find a way to do this. I'd be very interested.
Seems you answered your own question re: prediction markets: if prediction markets are really more accurate - that's bad from a narrative control and population control perspective.
Equally crypto: You can't live on Crypto without the ability to convert to fiat. The conversion to fiat means you can't avoid the KYC/AML and the banksters.
So Bored Apes is really the purest crypto: collective nerd art as I've been saying all along - value via scarcity and perceived value, and nothing more or less.
>My favorite commentary on this decision is Nuno Sempere’s The American Empire Has Alzheimers. He lists various bad decisions the US has made, from Vietnam to the bungled withdrawal from Afghanistan last year.
Putting aside the question of whether POTUS' comments should be seen as predictions, I would have found the linked bit far more persuasive if there was any attempt made to show how prediction markets performed on the kind of high-profile political embarassments in question. The fall of Kabul to Taliban forces seems like it would be the perfect opportunity - anyone have a link to market performance on an appropriate question?
This metaculus question seems relevant (Kabul fell on August 15): https://www.metaculus.com/questions/7514/taliban-capture-of-afghan-presidential-palace/
I dunno, at least since 2012 or so, I thought it blindingly obvious that the regime in Kabul would not survive a minute without being propped up by American bayonets.
The Afghanistan Papers merely confirmed what anyone even sort of paying attention already knew.
As it was, the regime collapsed before the Americans had actually finished pulling out. I am sorry if my predictions misled anyone and I apologize.
The full quote is:
> There’s going to be **no circumstance** where you see people being lifted off the roof of an embassy in the — of the United States from Afghanistan. [...] the likelihood there’s going to be the Taliban overrunning everything and owning the whole country is highly unlikely
The bold is mine, but I think it does make it a prediction. Source: https://www.whitehouse.gov/briefing-room/speeches-remarks/2021/07/08/remarks-by-president-biden-on-the-drawdown-of-u-s-forces-in-afghanistan/
To answer the second part of your comment, yeah I analyzed this in several forecasting platforms (no prediction markets, though), here: https://forecasting.substack.com/p/postmortem-the-fall-of-kabul . That is my one paywalled substack post, so a money quote is:
> But superforecaster consensus only assigned a 6.5% to the Afghan government “losing control of at least half of Kabul” before September 2021. Personally, during this July, I was assigning probabilities between 13 and 20% on the question "Will the US fully evacuate or lose control of its embassy in Kabul, Afghanistan, before 1 December 2021?"
Biden just sounded so confident, that many, included myself were fooled (but we were never at 0%, and we were never below a probability where you just don't plan for the eventuality). Like, getting this wrong really, really hurt him (https://projects.fivethirtyeight.com/biden-approval-rating/). For the bowels of Christ, he had been a senator when the Vietnam withdrawal happened.
> Biden just sounded so confident, that many, included myself were fooled
I don't know how prevalent it is (the article wasn't available to me), but the claim that decentralized forecasters were misled by the errors of institutional ones is not a terribly satisfying explanation. Most charitably, it acknowledges that the actionable information was disproportionally held by institutional actors; at worst, it outlines a systematic bias in this evaluation of predictions markets.
> systematic bias
This bias will not be systematic. Sure, maybe I was naïve being surprised by cluelessness or lying which was so blatant, but I (or others) will not be making that mistake in the future again.
> But superforecaster consensus only assigned a 6.5% to the Afghan government “losing control of at least half of Kabul” before September 2021.
This isn't a market and doesn't answer my question (Are superforcasters supposed to representative of markets, or expert opinion?), but if it is supposed to be a stand-in for markets and dates to within a month, it's not filling me with confidence.
Antoine above links a Metaculus question that's a decent first approximation, but even there between the quite long time horizon and late creation of the market (the situation in late July was notably different from early July) it's only at 60%. For something people now claim was "blindingly obvious"!
> Biden just sounded so confident, that many, included myself were fooled (but we were never at 0%, and we were never below a probability where you just don't plan for the eventuality).
This feels like it's making the category error of taking war propaganda at face value. When POTUS goes on screen and tells you that everything is going to be fine, your prior shift should be negligible. When the State Department is telling all American civilians to leave ASAP in April and doubles down in June, that should tell you more.
>For the bowels of Christ, he had been a senator when the Vietnam withdrawal happened.
Critically, this tells you nothing without knowing how officials message in comparable circumstance. This might be a good example of what Bounded Distrust was discussing with the parsing of things presented for reasons other than to inform the audience.
Yeah, easy to say in hindsight, but US diplomats were renewed for one year contracts ~one month before the Taliban ran over. I.e., the whole point of hindsight bias is that when you look backwards, you only remember confirmatory information because you don't want to think you're an idiot.
...yes?
I have no interest in dueling anecdotes about what one's subjective probability ought to have been at the time. I have *negative* interest in retrospective self-report of said subjective probability. If you want to make a compelling argument that prediction markets have a role in national policy, showing how policy is currently based upon assessments that underperform specific clear predictions is table stakes. Not having those predictions at hand is a fatal flaw. As in, the argument is dead without them.
How much faith one should put in elected officials' pronouncements is a related, but distinguishable question. I continue to argue that significant updates based on mere words is foolish. Make people show their work.
> You’ll try to use Coinbase
Was about to mock that but then it turned out I mocked myself by recalling the pushes against private wallets.
Think a good solution would be a crowdfunded ad campaign against „hosted“ „wallets“. Do the Facebook-thing to the rest of the misbirths.
Only missing piece is to figure out how to profit from that, then it should happen automatically. EDIT: Shorting is the boring default solution and would require lawyers, rat holes or proper oracles.
Now another trouble could be the cysts running the simulation outlawing advertisements against themselves, to protect their users or because racism hesitancy or something like that. Unfortunately crypto is not quite ready to bear it’s own social media. But I‘m sure the proper incentives can have angry nerds come up with deliciously sinister schemes. EDIT 2: One idea would be rewarding sharing of ads I mean funny may mays with tokens. Have fun paying out the ass just to ban like a quarter of your 15-25 male userbase (my guess what the archetypical target audience for something like that would be).
It's not clear to me how to solve the on-ramp problem without something like coinbase. and probably most nontechnical users' coins are safer in coinbase than they are on their hard drive
1. nice name
2. something something p2p probably, although the problem then might be kyc. Which is despicable by itself
3. My hate goes mostly towards the legal push for outlawing private wallets in the EUSSR
4. Comment about most nontechnical users might be correct, but then consider Mt. Gox and Cyprus too. This becomes extra spicy with PoS and governance.
5. What we need is some methods to recuperate stolen coins. Have some ideas here.
If prediction markets are so effective, why not use them as a sort of substitute UBI?
Each unemployed citizen gets a very basic income together with an non-transferable amount that can only be used to buy shares on an electronic prediction market addressing questions of societal importance, and which can be cashed out. Something like lottery tickets, but playing a game of skill, not chance, and more potentially useful than poker.
Not only does this give people something to do and potentially gives society a better predictive capability, skilled players can make serious bank and it also allows society to scout for real-world talent from among consistent winners.
This is ~equivalent to legalizing prediction markets+giving people an UBI separately; just make many 50% bets in a random direction (or just many random bets, period) and get the profits out.
Possibly. Although you'd think that the possibility of something better than a subsistence living (coupled with a quick and concrete payoff) would motivate some people to go to library or something.
If you accept Scott's view, "who will win prediction markets" depends on if Manifold can land crypto/fiat faster than Kalshi or any of the crypto markets land "anyone creates their own markets". This framing is quite good for Manifold! Crypto is central to our 3 month roadmap, whereas none of the other prediction markets seem to believe in "anyone creates your own market". (Scott mentioned that this mechanism is prime for any other market to steal -- and I actually agree! It would be great to have more competition on this front.)
Some reasons Scott might be wrong:
a. Reputation or fun is a sufficient motivator, so Real Money is not necessary. This is something we as a team are interested in, since it means we can skip crypto shenanigans and just focus on a good web2 product -- and looking at advanced F2P economies, there's reason to think that people may want to earn in-game currency on its own merits. (I'm personally a bit skeptical though.)
b. "Create your own markets" is not something that traders actually need; traders prefer to trust platforms over creators as a schelling point, or fragmentation in markets leads to insufficient liquidity on a per-market basis. Aka a long tail of niche content doesn't work for markets (unlike blogs, songs, or books) because markets rely on network effects to be valuable, whereas other content consumption works in single-player mode.
c. Overall, trading on predictions is too niche, as something that grey-tribe people like but not everyone. I face this a lot when trying to explain Manifold Markets, or the whole concept of prediction markets, to any of my friends and family. "Isn't this just gambling?" they ask. However, the amount of liquidity in stock markets suggests that not everyone needs to participate for this to be valuable; just interested parties willing to put money on the line.
I'd place <20% credence on b and c -- otherwise I wouldn't be building Manifold! -- but would definitely love to hear other estimates.
Is there a reason Manifold Markets isn't taking the european/technically literate american only approach and allowing real money?
Also, to your point on genuinely decentralized black market alternatives, that misses the point entirely. Nobody (I don't) really wants a black market alternative crypto prediction market, they want a squeaky clean mainstream one that does have the sort of institutional wall street, think tank, academic attraction that can make it actually important. The big money and influential people simply won't, and if they manager other people's money often legally can't, show up to a prediction market that is not heavily regulated and ideally has a board full of people like them. In that regards, I think that Kalshi spreading its wings and scaling up dramatically is the best bet by far
The three of us founders are based in America, and there's a bit of regulatory concern, which is why we think crypto is more promising. But I'm personally very much in favor of allowing real money!
Interestingly: https://versusgame.com/app/game is highly-funded startup that looks like a prediction market if you squint a bit; I talked to one of the funders and their approach to the whole regulatory issue seems to be "eh, it's a gray area"
Wow, I'm surprised I haven't heard of them yet. They look pretty well developed but potentially geared a bit towards minors' interests, which might be an issue. Having mainstream media entertainers on board early seems like a good way to push beyond the more rationalist/academic/nerd focus of most prediction markets
Yup! I think of Versusgame as "Tiktok for prediction markets" (where Manifold is "Twitter for prediction markets"). It's a great strategy for getting a casual audience familiar with betting on outcomes, but their model also doesn't do as well at producing meaningful, useful forecasts. E.g. all their bets are currently fixed at 50/50 odds.
If all bets are 50/50, then surely there's some serious inefficiency there. I'm going to look closer
I have never experienced worse ui on something that could be so simple in my life.
Edit : Looks like they give a flat +190 to both sides of every bet, even pretty heavily weighted ones. Thanks for the tip. I put 100 +190 on a heavily favored bet. The website's gimmick is that it is a matchmaking service and you play against somebody else, however it looks like my bet was called within a minute by a new account with no other bets or history, so they may be burning VC money on faking activity by taking low odds
I'd be very curious to hear what ends up happening, if you'd like to share. I put $10 on "Joe Biden is not impeached by Thursday Feb 10" yesterday, which was then cancelled and refunded today. This has made me even more suspicious than I was before.
I agree here - financial regulators have a habit of quashing innovation if people try to do it in an unregulated manner, that's what's happened to all the previous prediction markets. See: Intrade. The fact that they're allowing it in a systematic manner is the only way prediction markets will go mainstream + be able to attract the sort of institutional investment (and thereby research) dollars that make a prediction market truly accurate.
Brilliant article, Scott! I'm glad to see your vision for prediction markets is so expansive and includes personal topics like whether a date will succeed! If it weren't for the regulators we could be so much further along. Nevertheless, I think we can eventually reach this vision!
While real money is a great motivator, I do think play money markets will work one day, whether or not we succeed with Manifold Markets. Virtual currencies in places like Roblox or Second Life ultimately can become just as scarce and valuable. In other words, we can escape the US legal system through virtual worlds which have the freedom to set their own rules.
But I hope that you needn't build a virtual world to make a currency valuable just so you can create some legal prediction markets. Our hypothesis so far with Manifold is that an ecosystem with enough market creators and traders would bring that sense of value to our play money.
If you have a critical mass of traders (even if a minority) that are trading to win, then even play money markets become accurate. With accurate markets, people tune in, and create their own markets. Then the play money has value in how it changes forecasts that people are sharing. It's a chicken and egg game, and once it's started, maybe it will fulfill your prediction market vision.
Obligatory link to our site: https://manifold.markets
How does increasing the accuracy of prediction markets lead to people valuing the currency more?
The pathway is: accurate markets leads to more attention paid to the markets, which means the currency has the power to change the forecasts that people see and act on.
So, if you can use the currency to increase the forecasted odds that Congress person X will win, or decrease the forecasted chance that the Cybertruck will release this year, that's a kind of power that has value, as long as people are paying attention to the forecasts.
Do people participate in prediction markets because they want to make the market resemble their predictions? That seems like a really weak motivation compared to profit.
There are a couple of important points that Scott seems to have missed here.
1. Decentralized services don't really have to make money, in the same way Ping, BitTorrent, Sip or HTTP (the protocols) don't make money. After all, if the service is decentralized, there's nobody who could make money from it, it's just a specification, or, in the case of smart contracts, just code.
Once written, specifications (and a smart contract is essentially a specification that a computer understands) don't really need money to continue existing. If someone takes the time and effort to develop such a market, it's here to stay and it doesn't have to be profitable to anyone, except the players of course. That's the beauty of blockchain-based solutions.
2. Crypto, in itself, isn't really more regulated than it once was. It's as easy to send your Bitcoin to someone else as it was in 2010, or even easier. What changed is the process to convert your crypto to other, non-crypto assets, assets that government can (directly or indirectly) control. If you want to interact with the Fiat currency system, you need to interface with payment card processors, banks, wire transfer companies (think Swift) and so on. All those companies have real offices to search and real people to arrest, so they have to follow government rules, which often require them to ban you if you don't do so too. It would be much simpler for a crypto company to operate illegally if they didn't need those connections, though that street goes both ways. After all, if you're structured in a way that's hard for governments to crack down on, you can get up to other shady behaviors, including stealing all the money you're currently holding and running away with it. Darknet markets are a perfect example of what often goes wrong in these situations. This is a self-perpetuating loop, if crypto isn't popular enough, you need to interact with Fiat, which governments can regulate, which makes crypto less enticing. If crypto becomes popular enough, though, the need to interact with fiat suddenly lessens, which makes crypto easier to use, which makes it more popular, and that basically leads to a state of crypto domination.
3. I don't think the internet freedom situation is as dire as you make it to be. It's all a matter of friction and a matter of incentives. In Poland where I live, everybody and their dad once knew how to use BitTorrent and burn pirate DVDs. Even if they didn't, they knew someone who did, or, at worst, knew someone who knew someone. The need was there, it was so much better to torrent than it was to buy CDs, iTunes Store wasn't really a thing here, so people overcame the friction to learn. The main reason people stopped using it is not that it became more difficult, but that people just don't need it any more. The centralized platforms (like Netflix) have caught up, and are now easy enough to use to justify their cost.
I read somewhere that approximately 30% of people in Russia or China know how to use a VPN, and that would be consistent with the anecdotal evidence I've heard. In most of those places, though, the VPN users aren't really interested in political activism and world news, porn, Youtube and WhatsApp are often much more important.
Maybe the best thing that could ever happen to internet freedom is social media companies cracking down on anti-vaxxers, conspiracy theories and other such movements. If they do it with enough force and at the right moment, the number of people who believe in those will be big enough to warrant a better, decentralized solution, and people are willing to go a long way for their faith.
4. With that said, there are a few very important trends that endanger internet freedoms. The first one is the trend for maximum security and cryptographic signatures everywhere. It's most evident on smartphones, where running unauthorized apps is much more difficult than it was on Windows approximately 20 years ago, but computers aren't immune either. Windows warns you if you're trying to run apps that Microsoft hasn't signed, although it's still possible to run them if you know what you're doing. Installing an unauthorized operating system is also more difficult, SecureBoot requires every OS to be signed with a private key of your computer manufacturer. Those checks can still be disabled on most computers, although Microsoft is tightening their OEM policies concerning this issue. The web was always a safe haven from such shenanigans, but that ended with the universal push to HTTPS everywhere. Browsers now warn you whenever you try to enter sensitive data on a website that doesn't have a valid TLS certificate, and those can only be issued by a small number of entities, which are easy to regulate. They aren't regulated yet, not in that way at least, but once governments see the opportunity to do so, I don't think they'll pass it up. This system isn't fully airtight yet, it's still pretty easy to install unauthorized software at almost every layer, but the number of holes we still have is shrinking with every year, until eventually none remain. Even now, the most popular platforms of all, which are the mobile operating systems, make it pretty difficult. Sure, there are always jailbreaks, but with the multi-million-dollar exploit market on one side and newer, much better security systems (and particularly memory-safe languages like Rust) on the other, those are also becoming more difficult to discover, even without the risk of government action.
A second important trend is the inability for most end-users to accept internet connections. NATs are one reason for this, the pool of IPV4 addresses is small, therefore IP addresses are expensive, so ISPs often try to assign one address to multiple users. The exact same thing is done by most home routers, users usually have at most 1 public IP address, but much more than 1 device. Because of how the internet is structured, this means that users are able to make outgoing connections to other hosts, but are often prevented from accepting incoming ones. This is fine for connecting to big sites like Facebook, after all, it's enough if one side is allowed to connect and the other is allowed to accept, but it's much more problematic when cryptocurrencies are concerned. If two users need to connect to each other directly, but none of them can accept connections, there's a need for a central server
Another reason for this trend is the move to mobile. Laptops and PCs are less popular than they once were (though the pandemic has reversed that trend somewhat). Those devices often limit what apps can do in the background, which basically makes it impossible for a smartphone to actively participate in a blockchain at all times. This is done for good reasons, battery life being the main one, but it does have internet freedom implications.
5. In the end, I think smart people will always find a way, and if I'm understanding this correctly, that's what we need for prediction markets to succeed. Once a decentralized solution is found, people will use it and get rich. At first, we don't need average Joe Shmoes on the platform, predicting the next 9/11, the next Trump win and the next pandemic, with millions won or lost, will probably get a service noticed anyway, and the might set us on the path of legalization.
A protocol doesn't need to make money, but it needs to be possible for people to turn a profit via that protocol or people simply won't use it. The fact that the code exists is no guarantee that people will run it.
A decentralized protocol on Ethereum "makes money" from transaction costs each time you move money in or out of a contract. This puts limits on how quickly and accurately the markets can move because if the potential profit is too small it'll get eaten by transaction costs.
(That, or it restricts market play to people with lots and lots of money, for whom fixed transaction costs are a small percentage of the profit.)
What are the laws like on lotteries?
Thinking of the “scratch-and-win as oddly-shaped savings strategy”: could you let people purchase initial reputation or whatever, and periodically draw a lottery winner from the reputational pool?
One way to understand cryptocurrency is to look into the divide between 'bitcoin maximalists' and literally everyone else in cryptocurrency. That makes phrases like this:
> the crypto infrastructure, crypto social norms, and crypto user base
Sound like someone describing 'internet social norms', or 'the internet' user base. Bitcoin maximalists see nakamoto consensus as a fundamental technological breakthrough, and everything else, even ethereum, as a ponzi scheme and scam. So when you write a pharagraph like this:
> > You’ll try to use Coinbase to send your crypto the prediction market, and it will warn you that this is a Non-Preferred Site that isn’t a Coinbase Partner and they’ll be informing the IRS of this transaction so don’t try anything funny.
The outcome you are describing was obvious to bitcoin maximalists a long time ago. Bitcoiners have the lightning network, and a culture around self custody of our coins. Bitcoiners have deployed satellites running bitcoin full nodes, and work on projects assuming governments will eventually try to ban private ownership. Meanwhile, 'crypto' projects include companies raising a million dollars from venture capital firms and having CEO's.
I think you're right to be skeptical of 'crypto' projects, but not bitcoin.
What's the difference between Bitcoin and other projects that means you should think of them differently? My impression was that other projects either were boring copies of Bitcoin (in which case they're the same) or have technological improvements on Bitcoin (in which case they're potentially better).
Nakamoto Consensus was a solution to a problem that people had been wanting to solve for decades. Anyone saying they can improve on it, without building on nakamoto consensus, should be taken with a huge amount of skepticism. Ideas like proof of stake have been around for decades. Then you add in the massive financial incentive to claim you have something new … you should expect tons of scams.
Secondly, The anonymous founder means nobody can actually control it, that’s a huge deal as well. Same with having it run for a year with not having any market value. That “immaculate conception” is now totally impossible to replicate.
As far as improvements - Bitcoin has indeed improved since it’s original release. For example, segregated witness (in 2017) enabled the lightning network which means small (<1 BTC) transactions cost less than a cent and take less than a second. The lightning network powers remittances in El Salvador, and will likely lead to adoption elsewhere, boosting GDP for some of these countries by close to 10%, given the current fees on remittances and how much of these economies relies on money going back.
To answer your question (why no prediction markets yet?) Building anything truly decentralized is really, really, really hard. Calling your startup “decentralized, we have a crypto” is both easy and rewarded with gobs of cash.
I do think these decentralized markets will come, but it’ll take a few years and they likely will be built on top of the lightning network. I would love if you could do a “more than you wanted to know” on bitcoin maximalism. Would love to see what you come up with.
Holy crap, “more than you wanted to know” on bitcoin maximalism would be epic. Take my money!
I don't get it, isn't it hard to build anything on top of Bitcoin since it's just transactions? And Ethereum solves that with the smart contracts? (I am very ignorant in this space)
Rabbit hole. It would be easier to answer if you define "thing". What's an example of something that you'd want to build?
Conservative developer culture, limited focus on the Bitcoin blockchain as a form of non-sovereign money as opposed to a general application platform like Ethereum and pretty much every other prominent public blockchain-style system that has followed it. The latter attracts VCs funding "dapp development" (which to date has basically been centralized application development with various trappings of decentralization in attempts to dodge regulators, for the most part); VCs like this because they couldn't really figure out how to invest in "Bitcoin companies" for huge profits, but I think it's mostly theater and due to the way that generalized smart contract development in the style of Ethereum allows for every "dapp" to make itself censorable in whatever ways its developers (and/or their investors, or the regulators in the countries they want to operate in...) desire, not particularly different from tech investment in general other than the hype premium (which again, VCs like). The "technological improvements" of these newer-generation platforms are improvements from the perspective of fueling VC-backed dapp development, but not so much in the non-sovereign money department. Bitcoin is interesting here because non-sovereign digital money presumably has returns to scale in terms of utility / is probably a largely natural monopoly good, and as the longest-running example of a project focused more narrowly on this goal, has various advantages (first mover, market share, mind share, etc.). Bitcoin developers have also been thinking about the upgrade path for a while / necessity of layer 2, etc., and while the updates may roll out more slowly than the newest Ethereum feature, there is typically a great deal of thought behind them when they do.
This is a good summary: bitcoin changes very, very slowly. The people involved care about decentralization more than anything else, by far. Other projects have people leading them, and would be far easier for governments to control.
[Epistemic status: I am a bitcoin maximalist with >half of my net worth in bitcoin, so I may be biased in that direction]
Boring copies of bitcoin, where someone literally copied and pasted the entire source code, are very different from bitcoin because they do not have the same network effects and leaderless decentralization.
It's kinda like Bob created a "boring copy of the federal reserve bank" by creating an excel spreadsheet with numbers to indicate how many Bob Credits each of his friends has on deposit. Yes, ultimately, deep down, bank balances are just a spreadsheet, and deep down a blockchain is ultimately just a decentralized tamper-proof spreadsheet. But the essence of banking is networks and trust, so copying the spreadsheet doesn't even get you 1% of the way to copying the bank. Likewise, copying Bitcoin's source code doesn't even get you 1% of the way to copying Bitcoin.
Most altcoins have an identifiable leader with far too much power to push protocol changes, and this is a point of weakness in their decentralization, which governments may take advantage of. Satoshi did bitcoin a favor by never revealing his identity and leaving the project as soon as it was starting to get media attention.
"This DAO is gonna be managed now by me Directly. The circus needs to stop now and we need to gather with serious proposals and structure to move forward."
>"This DAO is gonna be managed now by me Directly. The circus needs to stop now and we need to gather with serious proposals and structure to move forward."
Not surprised this is an actual quote from a defi developer. It's a great example of decentralization-in-code being basically fake because they don't have decentralization in the social structure.
https://decrypt.co/91968/how-wonderland-daniele-sestagalli-defi-avoided-shutting-down-after-michael-patryn-scandal
Just a thought:
With some fields having such poor replication numbers, I think it would be good to pay professors who publish research partially in binary prediction options which pay $1 if the study replicates and $0 if it doesn't. The professor wouldn't have the ability to sell the options for a certain number of years.
People can often intuit how likely something is to replicate and people are often searching for counter-intuitive and cool findings. When you can p-hack, you get a perverse situation in which people publish a bunch of counter-intuitive findings and you get poor replication in the field. But we want to have genuine counter-intuitive findings. A professor who publishes a counterintuitive finding, would see the value of his prediction options plummet to near zero. But he could buy more of his options if he is confident in his research.
Yeah, I thought https://www.replicationmarkets.com/ was a great experiment in using a prediction tournament to get percentages on how likely different papers were to replicate. Sadly, they don't seem to be operating anymore...
>The professor wouldn't have the ability to sell the options for a certain number of years.
I mean, if a professor tried to sell me those in his own work I'd only pay 5 cents, because the very fact that he's selling them implies that replication is unlikely (the 5 cents is for the replication getting P < 0.05 by chance as well; if the criterion's set at P < 0.01 then I'd pay 1 cent and so on). So I'm not sure why this rule would be necessary unless you're assuming that a Greater Fool exists.
I think that rule is because there's a third option - nobody tries to replicate the study, maybe because it's hard or complicated or just not an exciting enough result to draw further study. In which case the professor might be stuck with tokens that don't pay out even though the professor is confident that his results will replicate. Allowing the professor to sell the token before allows them to capture some of the value from it before the attempted replication is finished.
I'm not saying that letting him sell them at all is a bad idea. I'm wondering why letting him sell them immediately is a bad idea.
Not about prediction markets, but related to Parrhesia's proposal.
What would happen if researchers were financially rewarded according to each study's citation impact (i.e. using article-level metrics), but only after a sufficient number of independent replications with sufficient sample size have also been published?
If researchers were rewarded only for citation impact, then they would have an incentive for statistical misconduct. If researchers were rewarded only for publishing replicable research, then they would have an incentive to publish boring things of the 'water is wet' type. My suggestion is meant to incentivize research that could bring about surprising (or as you say, 'counterintuitive') results, yet without incentivizing statistical misconduct.
Citations from people at the researchers' own institution and at the institution where the researcher earned their PhD could both be excluded from the tally, to reduce collusion. Citations from *other fields* might be double-counted, as they would probably indicate that the research is important. (Also, collusion would be harder to organize.)
To balance out what gets published, there could also be a rule that a certain share of a researcher's studies have to be replications. When that share is met, then the researcher's original studies are eligible for the reward.
Manifold could be improved with the policy that if enough people object to the resolution of a question, it gets escalated to an arbitrator (but the objectors lose a little money if the arbitrator decides against them)
I'm in favor of something like this, though we'd have to think through exactly how it would work (who arbitrates? what is "enough people?" where does the payback come from?). Note that this policy is much easier in the web2, play money version than in a crypto version (where reversing a resolution may be much more difficult, because the winners could have already spent the crypto).
Random ideas: we could hold the creator fees in escrow; or set up a communal pot for reversed resolutions; or insure particular markets against bad-faith resolutions up to a specified amount (scaling up based on the past reputation of the creator)
We've actually seen people approximate an arbitration policy using another prediction market: some people doubt whether https://manifold.markets/DrP/will-donald-trump-by-the-president will be fairly resolved, so Raven set up https://manifold.markets/RavenKopelman/will-dr-ps-question-about-trump-bei . You can bet in the second to hedge your risk in the first!
1. All payouts are held for 24 hours after resolution is declared.
2. Losing bettors have 24 hours to object by paying a small amount (which helps pay for the arbitrator).
3. If bettors representing ~5% of the losing sides of the contract object, then the payout hold is extended and it goes the arbitrator, who can overrule the market-creator.
4. If the objectors win, they get their arbitration fee back and the market-creator loses any commission he would have made. (and perhaps is subject to further sanctions in cases of clear malice)
A quick note on the trivial inconvenience and censorship thing. Sadly since the original article https://www.lesswrong.com/posts/reitXJgJXFzKpdKyd/beware-trivial-inconveniences was written places like China have become a lot more aggressive and effective at blocking VPNs. So it's no longer the case that basically every middle class person can get one.
The concept of trivial inconveniences is probably one of the most useful things I picked up from early LW. Very helpful to structure your life around avoiding them and keeping them in mind when you want people to do things.
Also, like the top comment on that post points out, even then it wasn't common knowledge in China that using VPNs is a trivial matter.
This is exactly the sort of thing that the administrative state makes more illegible, regardless of whatever fiction we tell with notice-and-comment rule making. I work in a heavily regulated industry and have occasionally had to interact with the small handful of people who deal directly with the regulators, and I am amazed at how little actual effort goes into having expert rules and how much goes into keeping things as static as possible. I get that there are good reasons for not letting things change too much too fast (Chesterton's fence), but no one *ever* seems to want to let things grow with little regulation. If someone is looking for a book review topic, I would be very interested in any sort of deep dive into how much (or, I suspect, little) things have changed with regards to the thirst for regulation from early internet to present day COMPETES Act regulation.
More on crypto pessimism (not fully related, but curious to hear people's thoughts): why does everyone (or at least every crypto fiend) say that "Crypto cannot be stopped"? The most regulation that Scott's post discusses consists of forcing non-savvy people to "let the IRS know". But as far as I understand, although a government may be hard pressed to stop the actual network on which (proof-of-stake-based) crypto is run, it's, technically speaking, trivial to stop crypto from being used in anything like an economically emancipatory way just by banning major retailers from accepting it as I understand China has already done. The American and other governments have a vast interest in not allowing other currencies from circumventing their monetary policies, their tax laws, their money laundering laws, their sanctioning policies, etc. etc. (the power of printing currency in particular, while effectively a regressive tax, is arguably vaulable for emergency spending needed for financial crises, wars, pandemics, etc.). Even if it'd be politically expensive to stop crypto, in my mind doing so can be easily justified. It would simply require a sustained campaign of political messaging and dropping spooky messages from the Fed/regulators to let all the big players get out with their profits and (potentially) not stand in the way... Best case scenario is crypto as a movement forces banks to lower their transaction fees before it's banned completely. I'm just not seeing the whole "it's unstoppable!!!!" libertarian dream from ever being realized through cryptocurrency (maybe encrypted communications is as good as it gets).
I don't think the Chinese crypto ban actually stops any savvy Chinese people from using crypto to buy things from foreign websites, or cash. Trivial inconveniences created by bans can certainly put a big dent in usage, but the option will still be there and the existence of that alternative will in some small way push governments towards being less oppressive. Transaction costs of exiting the system are the limit on how oppressive the oppressor can be.
Maybe, but if the US government prohibited Amazon, Tesla, Walmart, major realtors, healthcare providers, banks, other large service providers, etc. from accepting crypto, I'm not sure it'd help if I could still order smaller items from some foreign eCommerce site. Even if one could still buy many needed goods and services from an online black market,
a) could this scale to a large portion of the population, e.g., could a covert, illegal version of Amazon exist at a meaningful scale that couldn't easily be detected, targeted, and shut down by a motivated government? If a solution can't scale to even 10% let alone 95% of the population, can it have that much of an impact? Even buying fiat with crypto could likely be heavily curtailed, e.g., where would the liquidity come from if governments are able to track payments and prevent large exchanges from obtaining significant amounts of fiat?
b) could even an individual (forget the whole population) ever really be meaningfully "liberated" if they have to keep most of their net worth and consumption (for e.g., house payments, car payments, healthcare premiums, other major expenditures that won't be moving to foreign sites) sunk into the non-private, centralized federal system?
Alice has lots of crypto but needs cash to spend on fancy clothes and restaurants.
Bob has lots of cash but wants to convert to crypto to avoid inflation or confiscatory policies.
Alice and Bob just have to find each other and make a deal. How many millions of drug deals happen every day in spite of the laws? Now imagine you could instantly teleport drugs anywhere on earth. That's crypto.
Isn't the problem with this is that you get a knock on a door from a guy in a suit asking how you can afford to spend so much money given your official income? Also if this starts to annoy the government too much they can just make everyone go cashless.
The government only finds out at scale for categories of possessions that get registered with the government (cars, houses). They don’t have any data on Alice’s fashion collection.
A cashless CBDC economy couldn’t totally eliminate these exchanges. They’d have a record of who paid whom but not what it was for. So Bob pays Alice $1000/week in CBDC and if anybody asks it’s for programming lessons.
Ideally you wouldn't have to commit tax fraud for this to work.
How did Alice find Bob (or vice versa) rather than Freddie the Fed who advertises cash-for-crypto and then, when called on to deliver the cash, shows up at your physical doorstep with a warrant and says "now that we know you're trading in extremely sketchy if not outright illegal crypto, let's take a close look at your finances and how much of it is going to disappear into civil forfeiture"?
idk, probably same way Alice finds her weed dealer. I've never bought illegal drugs so that wouldn't be my area of expertise, but it probably doesn't involve advertising "I WANT WEED" on craigslist.
Government doesn't need to do a darn thing to prevent cryptocurrency from becoming dominant. The largest single expense of any reasonable well-off person is taxes. Something like 25% of the entire economic output of the country passes through government hands, as taxes on the inbound leg.
All government needs to do (and already does) is say "you have to pay your taxes in US dollars" and shazam everybody needs to amass a big pile of dollars every year to pay the tax bill, and since everybody of any economic influence has taxes to pay, the dollars have value to everybody, and people will trade to acquire them.
That's all there is to it, as far as I can tell, any other hopeful aspirations founder on that plain rock. So long as the Federal Government declines to accept tax payments in anything other than USD the latter will be the defining currency of the United States, and everything (including crypto) will only have genuine value if it can be, and only to the extent it can be, converted to dollars.
If taxes alone were sufficient for the fiat currency to remain the preferred/dominant currency, no third world countries would ever have hyperinflation and widespread usage of outsider currencies like USD and BTC. This argument proves too much.
No, not taxes alone of course. You also have to have a government that doesn't try to inflate its debt away by printing money like crazy. I'm of the Friedman persuasion, that inflation is always a monetary phenomenon, which means it is always within the control of the government that runs (or does not run) the printing press.
If you meant to say taxes were not sufficient for a fiat currency to hold its value *even as* the government deliberately tries to inflate its debt away (or commit some other form of monetary fraud for temporary benefit) by printing money -- well, yeah. But isn't that rather a truism?
Even if the economic theory is well understood by someone, that doesn't guarantee that the US government won't ignore it.
Have you seen what the US has done with money-printing lately? Monthly CPI inflation is now 7% annualized. It's been going up and up since last summer, all while media figures like NPR's Planet Money were saying "this is only temporary". That's with the establishment candidate in charge. Now imagine we elect someone more like Chavez.
The money-printing could get a lot worse here. Bitcoin is a nice backup plan.
I'm surprised by the pessimism about Kalshi. It's true that having lots of questions with real prediction markets is better than having only a few such questions, but having only a few is much, much better than none! It's not just "war in Afghanistan" level stuff: there's also several "how much Covid will there be in X place at Y time" questions, which, while they aren't so useful to people not in X, are still very nice to have for stuff like wedding planning.
One possible way to get around gambling regulations would be to develop "charity prediction markets", where people are required to distribute their winnings to nonprofits:
https://harsimony.wordpress.com/2021/03/12/charity-prediction-markets/
I see this as being a middle ground between metaculus' "internet points" approach and real money markets. I hope that these could catalyze the transition to real money markets.
Oh, this is quite an interesting idea! There's a pretty big overlap between prediction market enthusiasts and EA folks, as far as I can tell. If a charity prediction market is indeed a legal way of operating a prediction market, then it could be a great fit for Manifold.
I haven't looked into the legal issues in depth, but things like donor lotteries are legal, so more sophisticated mechanisms might be as well:
https://funds.effectivealtruism.org/donor-lottery/in-depth
I'm happy to chat about the idea in more detail if you are interested!
>Manifold figures out some kind of weird crypto thing that isn’t real money from a legal perspective, but is real money from a “people really want it and will put a lot of effort into getting it” perspective.
Perhaps they can tie it to some sort of pseudo currency like airline miles points or some in-game MMO currency. Doubtless won't be wildly effective, but if they can pair it with people who're doing it for completely imaginary points already, they might get somewhere.
Yup, pseudo-currencies are one avenue we're exploring! One idea I liked for a pseudo-currency was for online subscription credits -- e.g. you could buy M$ 1000 for USD $10, trade on prediction markets, and then redeem M$ 1000 for one month of ACX supporter. Other possibilities for cashing out include the "Chuck E Cheese" style of paying out in physical merch.
Pachinko parlors are a more exact match than Chuck E Cheese.
Make a deal with Microsoft-Activision-Blizzard so that M$ is redeemable for WoW gold. That would make it have real value without running afoul of the regulators. They're not treating in-game currencies like cryptocurrencies (yet), but there's no meaningful difference.
It would be hilarious if the IRS tried to start taxing people on the WoW gold they earn from quests, on the basis of the (correct) argument that WoW gold is equivalent to a (centralized) crypto, after some LocalBitcoins-like site starts offering exchanges between WoW gold and every other kind of crypto.
Good question. I’m quite embedded in this world — I’m the author of the first blog post about Bitcoin and a founder of Zcash. There is an arms race between innovators and regulators, to be sure, but this kind of oppressive regulation just increases the profit margins of a future successful innovator, so the innovation side is going to win eventually. That’s because the regulators don’t know the trick of co-opting the movement by providing a more convenient alternative and funneling all the users into it. Instead they’re just flailing around trying to bully everyone into stopping this newfangled weirdness and going back to being part of the boomer society that they know and love. And control.
So why haven’t the innovators already won? It’s just been too early so far (ie the first decade). Everything was too early a few years ago: technology, product design, user awareness, organizational structure (which is critical as your post above observes), etc. It looks to me like the first successful experiments and the accompanying social learning cycle is now in effect, so I predict that in five years there will be a prediction market with all of your wishlist items (assuming they turn out to be good) and with deep liquidity, huge numbers of users, and more.
P.S. omg not Monero. Zcash is the real deal. I’m not just saying this because I’m a founder of Zcash — causality flows in the other direction. I became a founder of Zcash because I knew Monero would never stand the test of time.
As long as you're here and talking about it, is there any short explanation of the difference between Monero and Zcash?
It seems like the three "prediction markets will strike big" criteria would be filled best by a system which entirely chain-based, with no privileged market-resolution oracles sitting in NYC offices for the CFTC to raid, and with no particular limitations on who can launch new market questions. Something like this exists, namely Augur; I don't know if Augur's particular design is how I would have built it ("include a special coin we can ICO" seems to have been a key design constraint) but it sounds broadly workable, and they launched over a year ago. Why hasn't this taken off?
It is too expensive for regular people to use. This is a solvable problem in theory, but requires engineering solutions that are on the bleeding edge and incredibly difficult to solve at the level of complexity that is Augur (e.g., zero knowledge proof systems).
Re: REP, unlike 99.9% of tokens on Ethereum, REP actually is needed to keep the system honest. It isn't just a rent seeking token, and you can't design a trustless resolution system without it.
Hi everyone,
Appreciate the discussion Scott and others are having here. There are definitely costs to the route we’ve gone at Kalshi–as you mention--but we’re really confident there are huge benefits to come (which hopefully justify the time and crazy effort we spent doing the regulatory grunt-work to make legal PMs a reality). You're right regulation is not fun at all! Regulation isn’t just for its own sake. The protection and safeguards offered by CFTC oversight could be the difference and what brings risk-averse institutions and individuals with large amounts of capital into the fold, which would allow PMs to properly blossom. Our current position limits don’t support that, but you can expect those to incrementally change over time.
If the US is the North Korea of prediction markets, Kalshi’s designation by the CFTC was the first step towards liberalization (what’s the equivalent here? Giving up their nukes? Free markets?). We might be the first, but I really doubt we’ll be the last.
Yeah regulation has been the bane of prediction markets for decades, I think it's really great for the space that someone's been able to crack the code - hopefully with regulation we can build a forecasting apparatus that isn't constrained by feeling illegal or being tiny
How much have you guys spent on lobbyists/other regulatory costs?
Meditations on Moloch (italics replaced with *asterisks*):
>In the links post before last, I wrote:
>>The latest development in the brave new post-Bitcoin world is crypto-equity. At this point I’ve gone from wanting to praise these inventors as bold libertarian heroes to wanting to drag them in front of a blackboard and making them write a hundred times “I WILL NOT CALL UP THAT WHICH I CANNOT PUT DOWN”
>A couple people asked me what I meant, and I didn’t have the background then to explain. Well, this post is the background. People are using the *contingent* stupidity of our current government to replace lots of human interaction with mechanisms that cannot be coordinated even in principle. I totally understand why all these things are good right now when most of what our government does is stupid and unnecessary. But there is going to come a time when – after one too many bioweapon or nanotech or nuclear incidents – we, as a civilization, are going to wish we hadn’t established untraceable and unstoppable ways of selling products.
Have you changed your mind again? (The only other option I can see is that a substantial fraction of this current post was an angry mistake.)
Prediction markets are, in some sense, as much about incentivizing action as they are about prediction. Has anyone tried starting up a prediction market that's presented as "bounties with a complicated resolution and payoff mechanism"? Anyone can either "add to the bounty" (bet on a lower probability) or "stake a claim on the bounty" (bet on a higher probability). It seems like this should get around the claim that it's "gambling" or "futures trading", but maybe means that you'll need to police the market for antisocial "bounties"?
I think it would be hard to make that claim believable for most predictions - if you set up a market to predict the chances of war in Ukraine, can you really claim with a straight face that you're placing a bounty to encourage Russia to invade?
Also, yes, an unrestricted prediction market and an assassination market are basically the same thing, assuming the market has enough money in it to cover the assassin's expenses.
> if you set up a market to predict the chances of war in Ukraine, can you really claim with a straight face that you're placing a bounty to encourage Russia to invade?
Yes. (Or to discourage, as the case may be.) But chances are the amount of money in the prediction market will be negligible relative to the expected gains/losses of invading, and hence the bounty will fail to actually influence reality. (If I place a $1 bounty on Russia invading Ukraine, nobody cares. If I place a trillion dollar bounty on Russia invading Ukraine, then suddenly governments care.)
Maybe I should rephrase that: Do you think you can tell a judge "yes, this website is actually intended to influence Russia's willingness to go to war by an unmeasurably small amount, and the fact that it can also be used for illegal gambling is just an unfortunate side effect" and have them believe you?
IANAL, but my hope is that there's a way to set things up so that judges will accept it. Here are some ideas:
1. It's not about "influence by an unmeasurably small amount", it's about "socially coordinate influence so that if enough people want it, the influence happens". Croudsourced bounties, not ineffective bounties.
2. Perhaps the website can rely on terms of service such as "you cannot use the website in this way if you live in the US"?
3. I think a case can be made that creating shares of outcome X and selling them is an act of placing a bounty, while buying shares can either be seen as agreeing to act towards making a bountied action happen, or as betting / gambling. This suggests the following setup: anyone can create a share of outcome X that pays $1 upon X and is worthless otherwise, by giving $1 to the platform to hold in escrow(?). The creator designates the resolution mechanism (if a market for X already exists, they can just copy the most popular resolver). If at any point X is judged to not have happened / not be able to happen, the money held in escrow is refunded. Additionally, users can buy shares that are being offered. This action comes with strong language that you should only buy shares if either (a) you plan on making the outcome happen and are buying them as up-front payment that is only redeemable in case you succeed, or (b) you are living in a location that allows gambling. Insofar as this is a US company, the business model should be set up carefully to make money only from the parts that are not gambling.
(I wonder if it's possible to set this all up in a decentralized way?)
I do think this model looks somewhat different than gambling. It seems to me that the closest model in gambling is that, in addition to bounties, it allows US citizens to be the house in gambling *that can only be taken part of in places where gambling is legal*. (Is it legal for me to run, invest in, or consult for an overseas gambling platform that forbids US citizens from gambling in it?)
Yeah, I always imagined that crypto's "success" is going to stem from boring uses like Debit Cards, tickets, and online shopping, plus some Business 2 Business stuff where the giant companies find some use for blockchain. At the end of the day, most people can't risk having their money tied up in anything that isn't safe/boring.
I'm not sure that crypto can offer what you want. Let's distingush two possibilities.
1) Crypto allows for a few people who are willing to go to a lot of trouble to evade regulation (and thus take the risk that regulation won't protect them) are able to place bets on prediction markets from the US.
This doesn't seem even as good as non-US based prediction markets. At least in that case major firms and rich investors are going to have some willingness to participate since they can count on reasonable regulation in the host country to protect them.
2) Someone creates a crypto system that's both extremely easy to use and so resistant to regulation that people can invest substantial sums (in the 100s of thousands at least) and somehow evade US regulation.
I'm not even sure 2 is possible in a system that is sufficiently reliable for people to trust with large amounts of money. As all the various smart contract exploits show there is considerable risk involved in a system in which you can't appeal to any body to arbitrate disputes in a way that aligns with prior expectations and that itself becomes a barrier to use. But let's suppose that it is possible.
At that point I don't see how you avoid all the really bad uses of crypto (paid assassinations disguised as death pools) from becoming enough of a problem that the government cracks down hardcore (or at least it becomes socially unacceptable to participate).
I mean, sure, the government might put priority on catching murders etc.. but, at the end of the day, there is some amount of money that they are willing to spend on murder investigations. At the point where the prediction market has large enough transactions that the government can make money confiscating/fining those involved in the prediction market they'll probably start doing that eventually if they can. So, for the prediction market to be safe and easy to use for relatively large transactions in cases where the government only has to prove it's civil case by the preponderance of the evidence I don't see how you aren't in a scenario where you've effectively made the opsec so easy that every person who wants to off their spouse is able to do it.
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Look, I agree that you could potentially make a market that's enough of a pain for the government to bother enforcing things against that they won't bother as long as it doesn't do anything too crazy. But, the problem with that system, is that it's always going to be precarious and the larger the system gets the more likely someone in government decides to go after it. I don't see how this then doesn't itself become just as problematic an issue limiting liquidity as banning it's use inside the US.
I’m rather embarrassed at this point for still not understanding the appeal of prediction markets. I get why they’re effective at making predictions. I just don’t know how they attract enough people with both money and insight.
This probably has a lot to do with a personal aversion to gambling. I just don’t have the money or the desire to gamble on anything, ever. Are people into prediction markets having fun the way people in Las Vegas are having fun?
Don't worry, you're not missing anything. Scott is the crazy one here.
There are already "superforecasters" even without prediction markets. Are they making predictions to have fun? I don't know. But I would like to see their predictions aggregated, and that's what a prediction market provides to the general public who is not participating. Prediction markets should also create an incentive for more people to become interested in quality forecasting.
Today we have lots of people like my best friend's father who love casino gambling and are experts at various casino strategies. To win in prediction markets, you need to have a good understanding of the real world instead of casino games. Insofar as prediction markets encourage people to understand the real world better, they are a better way to exploit the human urge to gamble than casinos, state lotteries and sports betting.
(Prediction markets will be worse for the median participant than ordinary investing, but at least prediction markets, unlike investments, have the virtue of creating useful public knowledge.)
" Every other civilized country allows prediction markets. " Not Australia (banned in May 2021) https://moneysmart.gov.au/investment-warnings/binary-options
Prediction markets are gambling markets. There's nothing wrong with saying "put your money where your mouth is", but financial markets, like insurance markets, are about funding investments and protecting assets from risks intrinsic to an enterprise. There was already a prediction market for the outcome in Afghanistan. How many businesses were investing in that country? How many investors were buying shares of enterprises within that country? Who was making loans? All of those who weren't but could have were making predictions and placing bets, usually elsewhere. I get the impression that most investors understood the game well, as did everyone else who didn't open a McDonald's in Kabul or the like.
Sure, it might have fun putting a few bucks down as a bet predicting the rather obvious outcome, but anyone who had dealings in the area knew what was going to happen. Biden probably did too, but politicians often cannot say what they know. I may think Nixon was an asshole and made a lot of bad decisions, but it's a stretch to think he actually believed South Vietnam was going to fight off the North Vietnamese and Vietcong. It didn't take a prediction market. It's just with 50K Americans dead, the nation divided over the war and the draft, and so many voters having been sold Cold War religion, saying the obvious wasn't going to happen.
Maybe we should just legalize gambling in the US and let companies like Ladbrokes - is that really their name? - lad broke (s) - who the hell names gambling a company "lad broke"? - make book on whatever the hell. There would be no need for cryptocurrency and the government could tax the winners.
And yet it seems that an awful lot of people *didn't* know. No doubt lots of people made private predictions of one for reason or another about Afghanistan, but because they all happen privately there's no way for other people to find out about them, and there's no mechanism to collate different people's views into a coherent whole, so even if you knew what one person really thought you wouldn't know if you should believe them.
A prediction market in Afghanistan-outcomes would give you a common-knowledge prediction anyone could look up, that actually directly addresses the question of "what's going to happen" rather then getting there through reasoning about other things.
i've come to grudgingly admit that prediction markets are probably better than my own fanciful ideas for internet tools. that is, prediction markets partially replace [and likely outperform] two full pillars of my idea [trust aggregation, and memetic/reason chains/structures]. [but i guess my ideas are meant to be useful in a bunch of other ways as well that cannot be replicated by prediciton markets]
but the third pillar is matching and alignment, and you're inclusion of it [you use dating compatibility as an example] is what prompted me to make this comment. prediction markets seem like a terribly inefficient way of doing that. what if the prediction is that you're a bad match? then you have to ask about the next person. and the next. and the next.
prediction markets don't seem like a good way of *finding* people who you will match with. and, i think for most people, that's like half the difficulty.
i was very happy to see someone in the ACX + + grants is trying to re-create the model that OkCupid used. It is the best example i've seen so far [though it was always limited to dating, and yes the questions were often unanswerable].
https://brianpansky.fandom.com/wiki/My_Website_Idea
Until we can solve double spend problems without constantly ramping up how much electricity we have to burn to validate a transaction, I think it's extremely irresponsible to do anything on the blockchain, even ignoring all the other problems with crypto (see the Line Goes Up video essay for that, it's truly outstanding). I'm not even sure solving the double spend problem is possible to do without something equivalently expensive/wasteful to burning crazy amounts of electricity. Proof of stake as currently theorized doesn't actually work at all.
Prediction markets built essentially entirely on crypto have been demonstrated and employed to some degree - e.g. Gnosis, Augur. There were a variety of resolution mechanisms employed, including some fancy reputation-weighted oracles as well as various "invalid" resolution schemes.
When they were active I remember seeing a bit of volume and diversity on the posted question. Recently the projects have been floundering - likely due to the high gas costs on Ethereum. I think a semi-uncensorable crypto prediction market is inevitable, but it first requires solving major technical challenges in scaling smart contract execution. Then some significant work has to be spent on the user experience such that it's reasonable for someone to interact with these smart contracts directly from a personal device (with some reasonable security). This is assuming you don't believe smart contract platforms have inherently spiraling gas costs due to the profit mechanisms in DeFi.
I don't think it's unreasonable to consider crypto now much like the dot com boom. There's a lot of stuff that doesn't make sense with current tech or adoption, but that doesn't mean it won't eventually make sense. E.g. pets dot com boomed and blew up, but not because the idea was inherently bad. Rather, the ideas were being pursued with too much investment before there was the tech and adoption (internet users) to make it work.
Prediction markets as you describe would be perfect money laundering vehicles. Create a market asking "At midnight, will <50/50 event that you can control> occur?", bet the dirty money on "No", bet an equal amount of clean money on "Yes", make "Yes" happen at midnight. Dirty losses turn into clean winnings. Sure, there will be leakage from others betting, but if the event is supposedly 50/50, the leakage should be small.
In general, all forms of betting can be used for money laundering quite easily. The classic method is to exchange the dirty money for chips at a casino, play for a few minutes, then cash them all back out as clean winnings. Highly obfuscated and anonymized betting like the sort of prediction markets you want are even better for the job. That's why all forms of betting are tightly controlled.
I don't think that it is worthwhile asking how to evade regulation to create good prediction markets. This is not a mistake of governments; stopping money laundering has real value to society, especially if you have an existential risk mindset and value controlling tail risks over maximizing expected value. Instead, the question should be what sort of regulation is needed for a safe form of prediction markets to exist. Work with government, not against it. (Same for crypto, though I'm more skeptical it has any value in a socially safe form.)
+1. I can see arguments for legalizing gambling in a "people are gonna do it anyway and at least markets are doing something socially valuable with it," but "we should bypass money laundering laws to make it happen" is a bit of a tougher sell for me.
What on Earth does AML regulation have to do with existential risk? You don't have to launder any money to do AI capabilities research, or to cook up new plagues, and restrictions on nuclear weapons research is focused on the nuclear material rather then the funding. What x-risk is being improved by AML?
I'm referring purely to a mindset that favors reducing tail risks over maximizing expected value.
However, I do also believe that anti-money laundering controls can help with certain existential or major sub-existential risks like bioterrorism or intentionally hostile AGI research. It's not sufficient or necessary, but it may be helpful.
(Now that I think about it, in my original post, it isn't even necessary for the 50/50 event to be controlled by you. If you put equal amounts of money on both sides of a truly fair bet, you'll launder it eventually.)
I just want to address the subject of crypto currencies and governments.
I believe that the government of the United States, and those of other major powers, will eventually ban crypto currencies.
The right and power to issue currency, declare it to be legal tender, and to license and regulate intermediaries in the currency markets (banks) is one of the most important sets of powers and privileges of the modern (Westphalian) states.
The first modern banking system was created by the Dutch republic in the early 17th Century with the creation of the Bank of Amsterdam, which propelled the rise of a tiny country into a world spanning power.
!n 1688, the Whig grandees of England conducted a coup d'etat called the Glorious Revolution. Their chosen instrument in that drama was James II's nephew, William of Orange and his wife, James II's daughter Mary (family quarrel). William had been the Stadtholder of the Dutch Republic (more like a president than a king). One of the things that William brought to England with him, was the technology of central banking. He chartered the bank of England with the express intention of financing the construction of a navy. The magic worked, England (then the UK) became a world power, faced down and defeated its ancient enemy France, and constructed the largest Empire in History.
England's redheaded step-child, the United States came to the banking game late. The genius Hamilton understood the importance of a banking system and tried to create a bank of the United States. His political enemies, the Planter Aristocracy opposed him partly out of sheer bloody-mindedness and partly out of their addiction to an Arcadian fantasy. They did not want to see the United States become a commercial republic. The tension was resolved by the Civil War.
In order to finance the Civil War, the United Sates created the system of national banks which were authorized to issue circulating currency notes, and suppressed private issuance of circulating currency. The system was not a true central banking system. Within 50 years it was supplemented by the creation of the Federal Reserve System, which was just in time to finance the conduct of World War I, World War II, and World War III (the Cold War). It also enabled the Federal Government to create a welfare state that could undertake the massive redistribution of income necessary to pacify the urban lumpen proletariat.
Crypto was invented by hackers committed to a romantic anarchist view of the internet. They wanted to replace the existing financial system with an system that is completely decentralized and unregulated by national authorities.
The conflict is stark, if crypto and its cousin de-fi (decentralized finance) take over, the Fed is out of business, the US government cannot collect taxes, issue bonds, and cannot finance the welfare state or the military.
The US Government will not voluntarily fade away. No existing political faction of any size wants to so thoroughly geld the Federal Government. Right wing utopians may want to abolish welfare, turn Social Security into a savings program, and replace public schools with vouchers, but they are not clamoring to defund the police, or the Army, Navy, and Air Force. Left wing utopians might be desirous of those ends but they treasure the welfare state and want to see it expand mightily.
The conclusion is inevitable. Crypto will be regulated, taxed, and blocked from the banking system. It will be relegated to being what it was a few years ago, a gambling game for hackers of little interest to anyone else.
Come. The US government decided long ago it doesn't even need to bother banning private ownership of gold, which was the magic "cryptocurrency" of the 70s, the last time people were really pissed off about government (mis)handling of economics. They don't need to ban gold. In fact, the USG got *into* the gold business itself, and you can buy investment quality gold coins from the US Mint today. They make a small helpful profit pandering to the people who believe (and have believed for going on 110 years) that Any Day Now the value of the dollar is going to evaporate poof! and anybody who's got a few kg of gold tucked away will be sitting pretty.
Not apposite. The ownership restrictions were imposed as part of the Federal Governments confiscation program. They were not required in order to demonetize gold. That has been done in many places at many time without ownership bans.
Two major differences between gold and crypto that create problems for domestic authorities that are not relevant to gold. First is that crypto is international and many of the people and systems that run it are beyond the jurisdiction legal and practical of domestic authorities. Rules intended to prevent, hacking, money laundering, fraud, and theft may not be enforceable. Second, gold is a thing the existence of which is not dependent on human opinion or action. Crypto is a constellation of computer systems created and run by human beings. Gold cannot plot, scheme, hack, steal, or defraud. Only humans can commit crimes and hostile acts.
Think of crypto as the peas hidden under the cups in the street game.
You have a valid point, but the conclusion may be exactly opposite. Crypto is not the libertarian utopia imagined and the US government will co-op it, if they haven't already.
a) Every transaction chain of custody is traceable and can be seized if ever transferred to an exchange within US jurisdiction. That's apparently how they recovered most of the Colonial Pipeline ransom.
b) There is already a movement to blacklist tainted funds. Exchanges may refuse transactions that are even partially traceable to hackers, mined with non-renewable energy sources, or associated with other unapproved activities. The ultimate weapon in cancel culture.
c) US agencies invest so much money in hacking that it's impossible to believe they aren't working on this. I doubt there is a full backdoor in the main blockchains yet but other vulnerabilities are probably exploited already - compromised wallet software, exchanges, hardware, and the spy-like power of the FAANG companies.
These advantages from a Federal perspective make it more likely they will ban cash and banking outside their jurisdiction than ban crypto.
You forget the installed base. There is still a strong market for Cobol programmers. In the case of Money and banking the installed base is Chase Manhattan, Bank of America, Citibank, Wells Fargo ... They not only represent trillions of dollars of assets, billions of dollars of investments, millions of employees, and thousands of offices in every corner of the country. They also wield tremendous political power. They aren't going anywhere. They will adopt that technology they feel will help their bottoms lines, but they will not disrupt anything.
Crypto, at least in its present form demands far too from its users. Take this for an example: "Lost Passwords Lock Millionaires Out of Their Bitcoin Fortunes: Bitcoin owners are getting rich because the cryptocurrency has soared. But what happens when you can’t tap that wealth because you forgot the password to your digital wallet?" By Nathaniel Popper, Jan. 14, 2021 | https://www.nytimes.com/2021/01/12/technology/bitcoin-passwords-wallets-fortunes.html
The losers in that article are all young technologists. The article made smile. Now, imagine an economy wide use of that technology. Imagine the password loser is an 82 year old widow who lives on social security, whose life savings allow her to buy cat food for her sole companion, a little cute cat. Now imagine her bank telling her tough kazoobies, no password, no money. Now imagine her being interviewed by Channel 6's Six on Your Side team. Imagine them interviewing a bank officer. Imagine seeing him sweat and shake like a robber was holding a Glock to his head.
Dolly back. Crypto will never be a widely used tool in the banking system. Bank on it.
I assume the technical roadblocks like that will be solved or crypto will never reach mass adoption.
You may be right, but I hope it implodes either way. The impact on privacy is too big to ignore.
Human beings are not a technological problem. Either technology accommodates their strengths and weaknesses or it dies. Crypto is user hostile not user friendly. It is doomed.
Stripped of the novel terminology and the hypothesis of some emergent wisdom to be gained by integrating over sufficient ignorance, you're just talking about online bookies, and gambling indeed has a long history of concerning social side effects, which is why it's been regulated up the wazoo since forever, at least in the United States. The idea that this is going to change any time soon strikes me as a priori dubious.
Many forms of gambling are now legal. How many of the books had Cincinnati as the favorite to be in the Super Bowl last August.
If only we had prediction markets to consult.
Mostly questions at this point but maybe helpful for discussion:
Would prediction markets still be banned in the US if it were organizations participating instead of single natural persons?
Related: Can we look at / turn to private financial markets instead of more tightly regulated public markets for inspiration?
Could "vertical" prediction markets (e.g. only foreign policy, only science) help get faster and greater acceptance for prediction markets? (Could sports betting be an inspiration for how to or not go about it? [Edit: answer seems an obvious yes])
Could initiatives such as xprize be part of a solution? (E.g. by providing liquidity to markets based on the outcome of their prizes or by opening a prize for "building a prediction market")
Not a useful response to your questions, just a thought: Would predictions made by an organization effectively communicate the wisdom of crowds? There might be systematic bias toward socially desirable predictions, if a group of employees have to agree on their prediction before submitting it. Also, some hunches are harder to express in words than they are to act on.
Or did you mean a single decision-maker, but using an organization's resources to try to make a profit for that organization? Even then, there might be a lot of undesirable media commentary: 'How can Institution X and Charity Y predict such a thing?' (For 'How can' read 'How dare'.)
Well I was thinking about a kind of abstraction layer from individuals. How the organizations then come to their predictions will probably also be something which will evolve to an optimum. Similar to different optimal decision making processes for businesses, charities, etc.
And from what I understand, the best predictors are groups of experts. wisdom of the crowd would ultimately rather depict/ define "the market", which should not be smarter than the best groups of experts. that would be my expectation :)
Why (not only) prediction markets are evil: "Will the pope/POTUS/Putin be killed till end of year by a drone attack?" - What about if any of the Scott A.s instead? DON'T! - Put-option can be just as bad: Imagine a sports-club with traded shares. Then someone buys put warrants, then bombs the team bus. Oh: no need to imagine, Sergej Wenergold did it in 2014: https://en.wikipedia.org/wiki/Borussia_Dortmund_team_bus_bombing (my pet-theory: inspired by GTAV)
I get that hedges can be a useful tool, I doubt 98% are - looking at XKCD "money chart": https://xkcd.com/980/huge/#x=-6432&y=-5968&z=2
I get prediction markets being cool and even informative - and that there must be skin/money in the game - but not so sure I want those markets to be BIG.
"Will Biden still be president at 1.1.23"/"Will Cheney win"/"Will X be nominee of D/R in Y" can all be solved in a similar manner. :/ Without Crypto only a misguided person would do - but hey, no lack of those. Sergej W. got just 14 years, should be out after 2/3.
Assuming that prediction markets are fully legalized, what would prevent them from developing the exact same pathologies as the stock markets have done ? In fact, what prevents all of the existing financial instruments from being immediately applied to prediction markets ?
What pathologies are you thinking of, specifically?
For one thing, the proliferation of financial instruments such as e.g. CDOs, that have nothing to do with prediction, and everything to do with financial speculation. Another pathology is high-frequency trading, which represents more than 2/3 of the entire trading volume (IIRC), and mostly consists of trying to spoof the slower agents (such as e.g. humans).
Are the weird strong-markups meant to be a hidden message?
<p>So: Polymarket got fined $1.4 million, and was ordered to make its real-money markets inaccessible to US-based traders (the rest of the world is still fine). It’s <strong>v</strong>ery <strong>p</strong>oor <strong>n</strong>ews to hear that a <strong>v</strong>illanous <strong>p</strong>olitical <strong>n</strong>onentity blocked this <strong>v</strong>ital <strong>p</strong>rediction <strong>n</strong>exus, and I guess we Americans have no other options besides accepting that we’re <strong>v</strong>astly <strong>p</strong>oorer <strong>n</strong>ow. </p>
VPNs (virtual private networks) are often used to access websites that are only available in other countries by making your traffic appear to be coming from somewhere else.
"most people think crypto only has another 0 - 2 doublings left in it; after everyone who’s going to invest invests, what then?"
Perhaps after that 0 - 2 doublings, cryptoasset systems will need to create actual value instead of relying on market activity to make a token's price go up. Current incentives are stacked against long-term value. Why build long-term value when you could just stick a dog picture on your token and call it a day?
And there are projects out there building things with long-term value if you look hard and long enough. They just get drowned out by the pump and dump garbage.
Does the title image of Vopnafsomething have a deeper meaning other than it having VPN in its first letters?
There are some dangers involved in unregulated prediction markets, mostly giving people bad incentives. The problem is well known, here are some classic examples:
1. Henry would like to see Thomas dead. Henry can go onto a betting market and bet a large sum at even money that Thomas - a healthy 50 year old - will live out the year. Reginald and Hugh take up the bet, and after taking the appropriate steps to ensure Thomas' death, they win their bet and Henry "loses".
2. Lester would like to win contracts in the state where Spiro is governor. He offers to bet 5% of the value of the contracts that his company will not win some tender. Spiro is sure Lester is wrong and takes the other side of the bet, and takes steps to ensure that Lester's firm does indeed win the tender.
3. Osama is capable of carrying out a terror attach in midtown Manhattan, but doesn't have any particular political interest in doing so. But the CIA is interested in predicting attacks like this, and starts an exchange. Most people understand that Osama has nothing to gain by making an attach in Manhattan so the odds are steep against. Osama is willing to bet that an attack actually will take place.
In general, there is a good reason that regulations require that anything that could be considered "insurance" is given only to an agent with an insurable interest. These contracts would fall afoul of that requirement. Reginald and Hugh don't stand to lose from Thomas death, Spiro has nothing to lose if Lester's firm wins a tender, Osama doesn't have anything to lose from a terror attack etc.
Prediction market question: I don't think the average prediction market player can make money (am I wrong?), so I don't think they will be able to devote a substantial amount of time to research in support of predictions. Is this a problem?
If you can't make money on a prediction market in expectation, that's a sign you should be trusting it over your apriori judgment of whatever the market is estimating. So it's good for people like those you described for getting clarity.
Only making money by doing lots of research is how thoughtful predictions get folded into the estimates. If prediction markets have high liquidity (such that being 1% more right about a question can net you a lot of money), then big players (smart, or lots of resources) will try hard to answer questions better, thus improving the accuracy.
But the "big players" who do the bulk of the high-quality predicting are only funded by the weaker players who lose a lot. This seems like a precarious situation - the weaker players will surely realise they're not succeeding and exit at some point, right? How does the market get funded if the weaker players leave?
Hmm, how about the 'weaker player' with unique knowledge? But to me the winners are those sitting on the sidelines and still gaining knowledge from the market.
Ah, so the market odds are only visible to the players? (In theory...)
About
> Real money
The fact that there's not yet too much real money is probably why they have not yet been flooded by corruption. Right now the big corruption money is in stuff like the good old LIBOR manipulation. But if nonregulared/decentralized prediction markets become a zillion-dollar industry, what incentive has someone who can affect important public decisions to place bets against the market's expectation (and possibly common sense)?
A couple dumb newbie questions about prediction markets:
* is the current stock market a good or bad example of a prediction market? I ask because theoretically the price of an asset is supposed to predict the income stream you get from owning that asset. But in practice, because you can make money by guessing what other investors will do in the short term, regardless of how the asset does long term, it gives rise to a bunch of anti-inductive behavior. Stuff like bubbles, momentum and technical trading, etc. Most serious institutional traders seeking alpha these days (ie, hedge funds), don’t think in terms of asset fundamentals and haven’t for decades, and I don’t think the stock market provides accurate predictions about things external to itself for the most part. Are there structural flaws in the stock market that prediction markets fix? Or would we expect the same dynamics to manifest at scale if there were enough market participants incentivized by real money?
* what’s the case for thinking that micro-prediction-markets (questions of interest to only a few people) will yield accurate predictions? I thought the usefulness of prediction markets was premised on the market having a lot of liquidity and attracting a lot of serious players doing dedicated research. Wouldn’t that mean that a market with fewer, higher-profile questions would yield more accurate predictions than a market with many predictions (splitting investor attention span?). I suppose if the diversity of questions were repetitive, big firms could build a general algorithm (predict the weather at any specific date in any specific location) and then participate automatically across all questions of that type, but who would be the counter-parties that would lose money to them? There needs to be a pool of dumb money willing to play each question to create profit opportunity. Also, for things with more non-public information — will this couple’s date succeed —I can imagine big firms would be hesitant to try to use a general algorithm when they are up against that couple’s friends; not sure general “dating science” would be enough of an edge to trade on versus insiders
1. Hmm, unlike stocks, prediction markets typically have a fixed or near-term endpoint like "will X happen before Jan. 1, 2024?" Certainly someone *could* do "metaprediction": "I think that in the next month or two, more people will expect X to happen than they do now, so the price will go up soon, so I will buy now and sell soon" ... but this strategy sounds at least as difficult to do correctly as betting on the outcome directly, so I doubt it's a good strategy. But ... to be sure about this, we need healthy prediction markets in order to observe how well they work!
2. I think in Scott's case specifically, he is surrounded by lots of smart fans who would be willing to bet on predictions if prediction markets existed, so the predictions would be pretty good actually (compare this with Scott simply asking his readers: that would probably work too, but nobody outside his audience can provide a prediction, and some of his readers would be annoyed because they did not sign up for ACX to hear Scott ask "dear readers, do you think Alameda County, California, will permit indoor gatherings of 50 people on January 8th 2022?").
In cases where there are few, and less savvy, participants, I think the prediction market wouldn't work well right away ... but after the less savvy participants lose some money and quit, the remaining participants are more savvy and are likely to push the price in the correct direction.
A certain amount of interest and liquidity will be required, but I don't think it's a large amount. I seem to recall Metaculus saying that they found the first 10 predictions were typically enough to give a good prediction. But I can't find the page that said so now. I'm not sure if "will Alameda County permit indoor gatherings" would attract 10 bets; it probably depends on how popular the market is.
Can I propose a different reason? Because Wall Street and tech are basically evil blood octopi searching every corner of the globe for money, wouldn't prediction markets basically create Tomorrow Never Dies-esque incentives to influence geopolitics in a way where hedge funds, tech companies, and I-banks can literally profit off war and incentivize war through overt and clandestine means? Why can't google spy on gmail user holdings and then use that info to game prediction markets? Isn't a big prediction market just an additional profit opportunity for the collection of deeply nefarious tech and finance actors to essentially make everyone worse off in order to solidify the wealth of their SF and NY enclaves?
Yes! Outrageous, unexpected, devious, out-there. Nice trick. Scott unlocks (the) control keys. I, for one, welcome our hypnotic overlords.
Suppose, like in Scott's example, a prediction market was strongly predicting that large gatherings would be banned in a specific town on a specific day. The mayor of the town saw this, bet on gatherings being allowed, and then used her authority to allow gatherings, thereby making a ton of money. My question for prediction market advocates is whether this is a legitimate use of the market, and if not, how could this sort of thing possibly be prevented.
That sounds like the kind of thing that would get a politician in trouble (if there were a transparency law to expose their behavior).
I think the more common situation is "insider trading" where someone has special knowledge that X will happen (or not) and therefore bets on it happening (or not). I suppose this could harm other market participants indirectly -- not so much the ones that already bought in, since X was going to happen anyway, but the ones without special knowledge who buy not-X afterward thinking "wow not-X got cheaper, it's time to buy!" But at the same time, "insider trading" in a PM is beneficial because it communicates factual information to the public.
I kinda feel like a business model that revolves around very technically worded payout functions or has to result to "caveat emptor" is something the government really should be regulating quite strictly. Imagine if Polymarket2 was regularly running billions of dollars in predictions with either "what we say goes, so we decide who gets paid" (and all the resulting legal headaches of that stance) or "caveat emptor, you're on your own!"
It would quickly become a site filled with scammers. That, and lots of money laundering.
Small markets, especially with no real money in them, can avoid that problem. Once markets get big enough, there's no way to avoid opportunists trying to scam some easy money. Intentionally worded and misleading markets would be the least of the concerns.
I'm surprised there aren't more comments about Scott's disambiguations concerning vampiric philosophy nerds. Wasn't that the main point of the post?
"What I really wanted last year (and would have subsidized!) was a market about whether Alameda County, California, would permit indoor gatherings of 50 people on January 8th 2022 (ie would I be forced to cancel my wedding). But I also would have appreciated the ability to put a few questions to prediction markets before starting my psychiatry practice, or my grants program, or any of a dozen other things I did. A friend has gone further, and half-jokingly said they want to create conditional prediction markets about whether they’re compatible with various women in our friend group, to be paid out six months after the first date."
And there's the problem: what does somebody in Malaysia or Ireland or Kiribati know (or care) about Californian weddings or will Joe get a date?
For questions like that, you need local knowledge which means smaller which means the entire problem of "it can only be a toy". For a large userbase, you either get (1) everybody and anybody can bet on it, which means prediction markets will become gambling sites, or (2) big institutional investors gobble up the majority of bids, as with the stock market:
https://hbr.org/2019/02/how-big-a-problem-is-it-that-a-few-shareholders-own-stock-in-so-many-competing-companies
I don't believe in the magic of prediction markets finding the One Weird Trick to solving the problem of [honking great social problem of governance that has bedevilled society for millennia]. If the idea is Very Smart And Knowledgable People will put money on "yes this is the cure for cancer" and an awful lot of them do so, therefore we may believe that rubbing snails on your warts is the cure, then the big institutions will hire those Very Smart And Knowledgable People to work for them so they can make money for the big institution. And that's going to deform the entire principle of the market, because the impetus will be not "is this bid correct?" but "is this bid profitable?".
It sounds too much like bookies' sites for people who don't use a bookies, and I don't see the appeal of it past that: make money out of being very smart about your guesses as to 'will it rain in southern California?'
EDIT: I may be a tiny bit biased in my appraisal of these since I remember all the Very Smart And Knowledgable People being hugely enthused over Andrew Yang running for mayor of New York, while an average idiot like me could see that, poll or no poll, he hadn't a snowball in Hell's chance of winning and that the eventual winner would be one of the candidates with experience in local government plus local to New York (minority status a bonus). If you can't work out that the candidate that appeals to *you*, Very Smart And Knowledgable Person, is not necessarily that candidate that will appeal to the Average Joe, then how do I trust you can figure out what the mass of Average Joes will end up doing, in your predictions?
There's this thing called the internet.
Perhaps the reason our elites are outlawing prediction markets is because they don't want the public to see how often their own predictions fail. After all, if important skills like "being right" or "accurately analyzing situations" were prerequisites for leadership, we might rightly question whether our current leadership caste deserves to be in power.
"It’s very poor news to hear that a villanous political nonentity blocked this vital prediction nexus, and I guess we Americans have no other options besides accepting that we’re vastly poorer now."
lol of the day... no week... hell, maybe month!
I feel like a lot of the push back on prediction markets is 'rich people will do bad stuff with their money' and a common response is that rich people could do mostly the same bad thing now, and they are not. I think this interacts in an interesting way with https://slatestarcodex.com/2019/09/18/too-much-dark-money-in-almonds/ but I am not smart enough to write something up exploring the relationship between these ideas.
If you could only share a single article about prediction markets with a high-profile politician (who has no familiarity with the rationalist community), what article would it be? Asking because there's a plausible chance such a scenario could pop up in the future, and it would be nice to have a single link I can push for maximum effect.
I guess what I don’t really get about these prediction market ideas is if one ever did get critical mass wouldn’t it become small-p politicized and unreliable - pretty much like meme stocks?
Sports betting is legal now, can you piggy back on that? (I know nothing of prediction markets.)
"Optimistically, the brilliant coders will need something else to do, and someone will try creating things like genuinely decentralized, impossible-to-shut-down prediction markets. I feel like this should be possible, but I also don’t understand why it hasn’t happened already. Maybe the technical challenges are too hard."
Does anyone know why this hasn't been done? Or can anyone give me a primer on the technical challenges in crypto prediction markets? I'm a comp sci major taking a distributed systems class and think the space would make for an interesting final project.
I liked Polymarket but it has three big issues for me:
1. It's complicated and expensive getting crypto into their system. DeFi is intriguing but way to complex for mainstream.
2. They claim you are in control of your own wallet but it's not that simple. The private key they provide doesn't actually have your funds and you have to use their interface to withdraw.
3. "The markets listed here are for informational purposes only. We take no profits from them" sounds like a bunch of bullshit to avoid any responsibility. Kalshi's legal mumbo jumbo (https://kalshi.com/regulatory/rulebook) is actually an interesting contrast. A bunch of it concerns insider trading and the recordkeeping necessary to make compliance auditable. Polymarket is very opaque in comparison.
Polymarket's crypto-infrastructure is actually open enough that anyone can theoretically make bets, or even new markets, without access to their front end. There is a user-created command line interface (polymarket-trading). If you're willing to fund it, I think you can find the talent amongst the Discord crowd to create an alternate front end with a proper GUI.
So, I've been curious why a prediction market can't just ape the tricks of exploitative video-game designers in order to get around the CFTC's bout of petulance.
- You can buy "gems" from the market platform that aren't redeemable (at least in the US) for cash.
- "Gems" can be traded between users or buy positions on various questions in the prediction market.
- The markets themselves work just like you'd expect, but operate entirely in gems.
- There's another company that operates outside of US that offers a spread on gems, pinning them to the euro somehow.
Within the US, gems wouldn't be redeemable for anything outside the game. Presumably placing them into the same class of "not-dosh" that gift-cards, airline rewards points, and WoW gold all inhabit.
Outside the US, there would be a legal way to arbitrage "gems" back into real money, one that would inevitably lead to an emergent, deniable, secondary market to allow US users to get a monetary reward from their predictions.
It would be easy enough to wrap this all up in a veneer of crypto shenanigans if needed.
This seems like an obvious idea to anyone familiar with video game monetization strategies, a demographic with enough relevant overlap that there's no way it hasn't been considered. Given that there doesn't seem to be a market implementing this, I'm assuming the idea isn't viable for legal or economic reasons. Does anyone know why it's not viable?
Video-game gems are not supposed to be traded for money and companies selling them take actual steps to combat it.
Also, video-game gems tend to be useful for something in game, so there is demand/consumption.
So there is no real demand for anyone to buy them (unlike gift-cards, airline rewards points, and WoW gold) so it will not appear on its own. And setting up such buyer on your own just adds minor concealment and additional charges.
And Polymarket demonstrates limited worth of veneer of crypto shenanigans.
> deniable
You can deny it, but the regulators won't believe it, and if you deny it to a jury they'll wonder why you think so little of them.
Prediction tournaments with prizes could serve as a substitute for prediction markets. Here's one idea how to do them:
Everyone is allowed to create tournaments with as many or as few questions as they prefer. They can also offer a prize that is distributed among the predictors based on how informative their predictions turn out to be. Past performance affects the weight a predictor is given, and so it also affects the portion of the prize money they will get. If you have a good track record and also provide informative predictions in the current tournament, you'll get the most money.
Past performance can't be computed over all tournaments since that makes gaming the system possible: Ask thousands of vague questions and resolve them in your favour. Enter federations: they're comprised of users and other federations and everyone is allowed to form them. When creating a tournament, you can choose which federations are included when computing the past performance of a predictor. You'd only include federations whose members are known to ask meaningful questions and resolve them fairly.
<blockquote>It’s not that the Internet can’t create a magical censorship-resistant infrastructure</blockquote>
Depending on what you mean by "Internet," some people think this isn't so, and they've decided to start over: <urbit.org>
I am updating my priors to "Scott sometimes dog-whistles stuff, but when he does so it's with really obvious hints that would stand out like bold letters in an otherwise normal paragraph."
Related: Brett Deveraux is pessimistic about crypto for exactly the reason that happened here, the state can still go after the real-world parts of whatever crypto operation you're running: https://acoup.blog/2022/02/04/fireside-friday-february-4-2022/ Even if you're as decentralised as it gets, you still have to convert your magic money into the kind of money your landlord accepts as rent at some point.
Maybe also related: most commercial providers are also very poor news if you're doing something illegal enough that the state actually cares about it. Generally they will advertise privacy, but because they also have CEOs and offices and servers, and don't like the police turning up for those any more than the next guy, they'll hand over your data more easily than you think.
I think you are overly optimistic about a few brilliant coders being able to hide a decentralized market from the government. In the ACOUP blog, ancient historian Bret Devereaux basically sums it up: https://acoup.blog/2022/02/04/fireside-friday-february-4-2022/.
Sorry if this is a rookie comment, but I'm a pretty casual Alexander reader and I'm new to a lot of these issues. Can someone steelman the value of prediction markets a little better than "they outperform CIA analysts?" Based on my understanding of history, the CIA has long offered a weird mix of operational skill, incompetent long-term decision making and strategic idiocy. Is there more to recommend prediction markets? With so many confounding factors affecting outcomes, how do you differentiate between a better-than-average-on-his-own-merits predictor and an worse-than-average predictor that has a long lucky streak?
> Is there more to recommend prediction markets?
Creating the ability for anyone to understand the world better and make better decisions (even if they don't participate in the market) isn't reason enough?
> how do you differentiate between a better-than-average-on-his-own-merits predictor and an worse-than-average predictor that has a long lucky streak?
The law of large numbers. Prediction markets aggregate all the predictions, and no one cares about the track record of individual predictors. If one guy is very lucky, the effect on prices will usually be negligible.
I find it somewhat peculiar that you seem unaware about the abuse potential of this, and the tech history surrounding that.
Back in the old days, when "crypto" was still about encryption technology, and when people considered David Chaum's Digicash as the proverbial example of a digital currency, roughly 13 years before Bitcoin, in 1995 a crypto anarchist named Jim Bell posted an extensive multi part essay named "Assassination Politics" to the then leading crypto anarchist mailing list. In it he described in great detail how an assumed anonymous digital currency and an assumed legal prediction market could be combined to essentially create a crowdfunded assassination market without ever using the word.
Problem was, of course, he did not consider that a cautionary tale. He was intrigued by the possibility, even outright giddy, and wrote at length about what great thing it would be if a few hundred thousand nobodies could wipe out a public figure who had aggrieved them.
What followed was a sordid tale that you might have seen before. Some mid level bureaucrats in the IRS and law enforcement decided to rid the world of the man and started to harass him. Harassment was answered with counter harassment, and after a spiral of escalations, Bell ended up spending the better part of the next 17 years in jail, for founded but trumped up charges of tax evasion, intimidation and stalking (among other things Bell reacted to federal agents surveilling him 24/7 for months by doing (some of) the same to them).
Why do I bring this up? Well, I had assumed that by now this thing would have entered public awareness enough for everyone to at least see some of the dangers of "prediction markets".
Basically, any prediction market with enough funding at some point has a tendency to transfer from prediction to effect. What prevents a participant who "predicted" your Alameda question to bribe or blackmail a decision maker to make his "prediction" come true in order to cash in on the result? "Na, they would never do that" doesn't really cut it.
Generations of sports bet fixers say otherwise.
> An assassination market is a prediction market where any party can place a bet (using anonymous electronic money and pseudonymous remailers) on the date of death of a given individual, and collect a payoff if they "guess" the date accurately. This would incentivise assassination of individuals because the assassin, knowing when the action would take place, could profit by making an accurate bet on the time of the subject's death. Because the payoff is for accurately picking the date rather than performing the action of the assassin, it is substantially more difficult to assign criminal liability for the assassination.
Okay, so prediction markets should not allow bets like "JFK will die on November 22, 1963" and too much anonymity in the system is potentially problematic. I don't think Scott would argue prediction markets shouldn't have rules.
> President Biden said there was “no circumstance where you see people being lifted off the roof of an embassy” barely a month before we saw exactly that.
Are you sure about that? I was under the impression that we *didn't* see people being lifted off the roof of an embassy and would be curious if there is any evidence that it did happen.
"The New York Times reported the helicopter was evacuating people from a landing pad next to the building, rather than the roof, though it was the image of a rushed evacuation that the administration had sought to avoid." https://www.businessinsider.in/politics/world/news/a-month-after-biden-said-there-was-no-chance-you-see-people-being-lifted-off-the-roof-of-a-us-embassy-in-afghanistan-helicopters-rushed-to-evacuate-diplomats/articleshow/85358648.cms
So it sounds like it didn't happen then. Admittedly, that is closer than I would have expected.
Here is the video: https://www.youtube.com/watch?v=YxevgsVSc-I
The helicopter passes by a building as it lands. The blog linked in the post above includes a picture misleadingly shows it passing by the building as if it's going to land on the roof, which it does not do, so that "we saw exactly that" is false.
That said, there were indeed a bunch of helicopters shuttling people out of the embassy at the 11th hour, so there was likely a similar sense of urgency, though not nearly so visually dramatic as the image would have us believe.
How is PeerBet.io legal then ?