Is there a concept of insider trading on prediction markets? Also, I can see this type of bets going very wrong on things like "elections" (everyone with money on A. Hitler winning the election is likely to vote for him no matter what).
I am sure that this is addressed somewhere and that I have missed it though, as mine looks like a "day one" objection to prediction markets and everyone else is very excited about them.
Your vote has a very small chance of affecting the outcome of the election - from a bit of Googling, it looks like under very favorable conditions for a US presidential election you might get as high as a 0.0001% chance to decide things (and much worse, if you're not in a swing state). So if you bother to vote at all, it is probably for reasons other than the extremely small amount of profit it generates in expectation, like a sense of civic duty or a deontological/acausal decision theory argument or multiplying 0.0001% by the vastly larger utilitarian benefit to the world of the best candidate winning and finding the product exceeds your personal inconvenience of getting to the polls.
Right, yes, this is valid only until you are dealing with a large scale and a small number of voters. What happens when Robinhood enables the average Joe to take part in prediction markets, so everyone "bets" on their favourite candidate winning and then votes for it?
On the other hand, what happens when 45 of the 60 townspeople of Little Town in Nebraska have stakes in the local military director not being fired, and he rapes a cadet?
This is just where "rule of law" comes in, right? Presumably whoever knows first moves all their money and makes a bundle, and whoever isn't plugged into the news loses their money.
Many arguments against markets become more plausible in the absence of rule of law.
Hmmm I think there is a definite danger for prediction markets to become self-fulfilling on stuff like elections and jurisprudence. If the sheriff has money on the military director's promotion... well, probably the girl is lying and it was consensual.
Oh and what if the girl had money bet against him being promoted?
Bets in a prediction market aren't locked in until the market resolve, you can freely trade them at any time. If the sheriff has money on the military director's promotion, the sheriff can sell those positions, put the cash into the opposite prediction, and make *even more money*.
This does incentivise the sheriff to maintain secrecy until they have a chance to log into their account and punch in the trades though. And possibly cause them to do that right away instead of rushing to arrest the director, incidentally allowing the director to escape.
Well, yes, but he would sell them at less than he paid for them in light on the new information. I am talking about a scenario where everyone knows about the rape, and everyone has interest in the guy being acquitted or they're left holding bags.
There will always be someone on the other side of the bet. If so many bet on the win that it can impact the result it would seem that their payoff would be low...maybe below what they paid for the "win" option.
I think my bigger concern would be Candidate B running for a position, shorting his own chances of winning, and then bombing intentionally to cash in on his bet. The US has at least proven itself willing to elect people without political credentials, so I could imagine some enterprising businessman doing this, and perhaps trading on a margin to rake in an extra profit.
Insider trading is a feature, not a bug. The reason is this:
In any market where insider trading is prohibited, the market is likewise prohibited from knowing the truth. There's no other way to get the insider's knowledge into the market unless they participate.
A second reason, which is better in my view, is that when insiders participate in the market they, too, become incentivized by the truth. This is very different from the current situation, where insiders are motivated almost entirely by internal political concerns and the outside world is pretty much irrelevant.
I am still confused between "I know the company is firing the CEO so I short it" insider trading and "I am firing the CEO because I shorted the company a month ago and it went up too much" insider trading. Stocks mostly do not get the second type, random events might.
I have a vague sense this is a solved problem, mostly having something to do with it being hard to bet enough money to make such a gambit worthwhile when you are already a big shareholder the way boardmembers are. That being said, relating it to prediction markets, a similar objection was raised when Robin Hanson proposed them for use in intelligence agencies; the congressmen who opposed it were very concerned that a terrorist would predict their own attack or assassination, follow through, and then collect taxpayer dollars to boot.
They could not be persuaded that this is also a hilariously desirable outcome, because they would have to collect their winnings....from US intelligence. If memory serves, the people who bombed the World Trade Center the first time got caught because they tried to collect the deposit on the van they blew up.
So in keeping with my original feature-over-bug position: wouldn't you, as a predictor in the market, want to know that information? It's a little different in the prediction market than in the stock market because the payoff doesn't come from an outside mechanism like stocks, but in the end it feels like what we really want is for insiders to bet hard they will do X, and then do precisely X. It's what we'd want in the case of a new project; why not a firing decision?
Insider trading (in the US) is about theft, not fairness. If you know something material & nonpublic incidental to an obligation you have to a public company, that information is the property of the company and you are not allowed to personally profit from it; if what you know something material & nonpublic through another means, go nuts.
Contrived example: assume a near future where SpaceX has IPO'd and Starlink is fully operational. You spot signs of an impending coronal mass ejection that would cripple the network. If you are employed by SpaceX to monitor space weather, you can't trade on this; if you're just some random hobby astronomer, then you're free to trade.
Your example of shorting + CEO firing is probably insider trading in the first case (it's implausible you could learn that information without it having been misappropriated from the company), but definitely not in the second case; you can always trade on your own intentions. That said, if you have the power to fire the CEO you're probably a board member and have other duties to the company which such a course of action would breach.
>Insider trading (in the US) is about theft, not fairness.
Though the rest of what you wrote accords with my understanding, the SEC has stated they're trying to enforce fairness as well. I think it's better to think of insider trading in terms of fraud, rather than IP theft.
>A second reason, which is better in my view, is that when insiders participate in the market they, too, become incentivized by the truth.
How do you prevent people from being incentivized to do things you don't want them to do, like making decisions that let them get more money through insider trading even when their decisions are suboptimal for the company?
The short version of my opinion is that there is no way to construct a prediction market that things will get worse; the floor of badness is that people will do the exact same things they are doing now.
I have a hard time imagining the prediction market for a company exceeding the market cap for that company; as a consequence I expect that there isn't anything people generally don't do now (like bet against the company in the market and then tank the critical project they are working on) that they will start doing when participating in the prediction markets.
> making decisions that let them get more money through insider trading even when their decisions are suboptimal for the company?
In deadly earnest: this is exactly the situation we are in now. It is how executive careers operate along all dimensions, and that would not change even if insider trading of any kind in any endeavor were quashed with extreme success.
This doesn't mean it wouldn't happen, mind you - it definitely would. It just wouldn't make things any worse than they are now, is all.
Cantor-Fitzgerald started the Hollywood Stock Exchange prediction market game for forecasting box office revenues of movies with the long term plan of making it into a real futures market using real money. Sadly, there office was on top of the WTC, so they were delayed by about a decade. But when they finally did make an official proposal, the relevant federal regulator wouldn't take them up on it.
One obvious problem is that HSX works best on inside information: the pool guy overhears the producer raving about the dailies, that kind of thing. Should the feds try to police that kind of harmless (and in fact helpful) gossip?
I imagine that for prediction markets to really get traction with regulators, they'll probably need some guards against insider trading. There's some wiggle room for how to define "insider", but at a minimum, it would include people with substantial influence over the result.
There are legitimate arguments on both sides for whether insider trading is desirable. On one hand, allowing insiders to trade allows their information to flow into the market. On the other hand, a lot investors will be (or, perhaps more importantly, *should* be) scared off if they know they're betting against insiders. Also, in some cases, insiders could be incentivized to perform actions with negative social consequences by betting on their outcome (though there's a lot that could be said about whether this is actually a problem, or something that market forces can compensate for).
Though I'm sympathetic to both points of view, I think regulators and the general public are more concerned with fairness than with optimal information aggregation.
A lot if it's subsidized. My proposal (I think stolen from Robin Hanson or someone) is that if the school cares about this, it would put some amount of money into subsidizing the market, such that on average you expect to make money by playing (but still a lot more money by being right than wrong). I don't know how the subsidy level would map to the accuracy of the price signal, but presumably for a fraction of what schools currently spend on diversity they could get a pretty liquid prediction market.
I think subsidies work well for large-scale moderately important effects on reasonably large institutions who care about their public image, but it might run into trouble with investigations of extremely important impacts on small institutions. For instance, if Riverdale Elementary School is secretly using their students to ferry illegal drugs across state borders on field trips, this is clearly worthy of investigative reporting attention, but there will probably not be hundreds of thousands of dollars of liquidity in the "Riverdale Elementary School horrifying drug scandal" prediction market, so it isn't worth the effort.
Perhaps you want to spread this kind of rare-but-important event across some larger entity? E.g. in this case, the state school board has a subsidized prediction market for “number of incredibly bad scandals in our education system unearthed in the next 5 years”. But this solution would work less well for e.g. small companies or other independent groups worthy of investigation.
Or to go even smaller-scale, what about individuals? At some threshold of notability, you’d like to incentivize figuring out if e.g. your congressperson or a rich and powerful celebrity is secretly doing something evil, but any given person isn’t much incentivized to subsidize markets heavily, or investigative reporters will disproportionately look into them. Maybe a tax on all sufficiently-high-income individuals to fund personal prediction markets? Feels vaguely Orwellian somehow.
"Will a public employee of Riverdale be named in a petition for removal signed by 33% of the voting-eligable residents fo Riverdale" would get me putting cash down on the table if I lived in Riverdale. Lots of strange incentives to work through on that though.
objection - that's not objective!
response - no, but democracy is not objective eather, and if you want to measure a democratic institution, 'does it piss of the voters enough to sign a petition" is a good metric.
objection 2 - but people will just take the yes, and then sign even though they don't think this person did a bad job.
response - that's a feature, not a bug. Imagine a crazy world where, get this, elected officials have to maintain the favor of the voters. I know, crazy.
I would have lost this one though. My local public school superintendant left under the cover of darkness while the state was conducting an audit so we never had the chance to recall. So, long way of saying I'm bias here.
Wait wouldn’t I just make a bunch of opposite bets to extract that money for free? Like a hedge fund looking for uncorrelated or risk free alpha but in this case it’s just explicitly there? That seems bad
Can’t you make fees pretty arbitrarily low using computer? Yeah though, anything where fees are roughly comparable to the subsidy won’t actually encourage using the market much.
Prediction markets as they exist today have high fees (as well as trading limits and liquidity issues) that make it extremely difficult to make money. The consensus has to be ridiculously off to make it worth your while, thus leading to large inaccuracies in the markets.
> Wait wouldn’t I just make a bunch of opposite bets to extract that money for free?
There's a board game I like to play, in which there's a stock market including shorting. You're prohibited from owning both short shares and normal shares at the same time.
A decree that you're not allowed to own both "yes" and "no" shares in real (subsidized) prediction markets looks, after doing 0 seconds of careful thought, like it might prevent this exploit. [Someone should consider this hypothesis.]
Maybe there's some kind of arbitrage that's supposed to fix incoherent markets which can only happen by the arbitrageur owning both "yes" and "no" shares at one or more points in time. [Someone should consider this contrary hypothesis.]
not sure that works, just take random long or short positions and hope they average out, or take long positions and have sekrit swaps with another hedge fund so that they take the short position and then each is exposed to half the others returns
Is there any reason the female students wouldn't just secretly band together to predict the result will be X this year, then all fill out X on the survey?
I mean, I understand that stock markets have massive bureaucratic and regulatory edifices developed over centuries to prevent this type of manipulation, and prediction markets likely need the same and it's not a failure that we can't say exactly what will be needed before they even exist.
But a. I'm not sure how well those measures work on the stock market to begin with, seems like bad stuff still happens, and b. I never seem to hear any prediction market advocates talking about the need for these measures, which worries me.
I don't see a reason why they couldn't in theory, but in practice that sounds like a great deal of effort for extremely little benefit. It'd be difficult to coordinate in secret, if they did it out in the open all the other investors would be able to make the same prediction and their payout would go way down, and even if they did manage to coordinate it secretly, it'd probably still be a pretty trivial amount of money per student; they wouldn't be able to coordinate such a thing unless *all* the female students on campus were involved after all. Plus, in doing this, they'd be obviating the ability of the prediction market to effect positive changes in their satisfaction, which is almost tautologically something they have a vested interest in.
If they were all cynically pragmatic self-interested people, that sort of conspiracy just doesn't seem worthwhile. And if they weren't cynically pragmatic self-interested people, that sort of strategy probably wouldn't appeal to them on the face of things.
If the benefit to fixing the result is so little, how much of a reward could it offer? I could easily see a group of students agreeing to dramatically tilt the market in exchange for $100 each to go out and celebrate at the end of a particular course.
There doesn't seem to be any practical cost to doing this - the changes made to the course, assuming that they were even effective, would affect future students while the money is a definite personal gain, and probably pretty good fun to do.
It's a lot easier for the reward to be enough to justify a meaningful return for the fraction of people who're right among the sort of people who'd take part in a prediction market than it is for it to be meaningful among the entire population the question is concerned with. Only a small fraction of the population is ever likely to participate in prediction markets, just as only a small fraction of the population engages in speculation on the stock market (a prediction market shouldn't be able to offer index fund type investment, because unlike the stock market, the return should always average to zero.)
A prediction market could be liquid on a question like the expected levels of satisfaction of female students at a particular university without trading an amount of money which would be meaningful to the entire female student population. Let's say that a thousand people are trading on the question, with investments averaging ten dollars each. In order to even address questions on this level of specificity, the market would probably have to be trading on at least tens of millions of different questions, many of them trading in far larger volumes than this, so you might see this sort of volume in a prediction market trading on the order of trillions of dollars.
In that situation, if the entire female population of the school numbered a few thousand, and they decided to coordinate to take part in the prediction market together, they'd mostly just be redistributing their own money amongst themselves. There would only be a few dollars worth of other people's money left over for each of them. How many would have to participate for them to bring in a return of $100 each? On the face of it, 100, enough to swing just a few percent of the vote. But in fact, because they're also competing against other people in the prediction market who can make reasonable guesses themselves, they're not actually going to get that much unless they can change the answer to something which none of the people already invested in the question are betting on... which they have to accomplish with only a few percent of the total vote.
What happens if someone starts a social media campaign the same way we get cancel culture mobs right now, and all of a sudden there's a spike in the number of students who use the prediction market?
I would actually be more worried for people to manipulate the market to make a point. If you want X to happen, you could coordinate with all the other girls to give a low rating on the survey. Even if the market predicts the survey result correctly, it would predict something ultimately meaningless.
You could, of course, say that it would be possible to rig the survey without the market. But having a whole market for the survey would surely make it a more attractive target to tamper with
That's a good point, money isn't the only incentive that might produce the level of coordination needed to distort the results. In fact it seems like the lesser of the two possibilities, assuming the prediction market is set up properly, because participants respond to financial incentives in a more or less rational and predictable manner which can be accounted for, unlike spontaneous mass action driven by external motivations, like the recent Game Stop stock rally. Still, such aberrations seem to be exceptionally rare because people are passive by default and feel they have better things to do most of the time. It's only in rare instances that capture people's collective attention and imagination that such disruptions can occur.
Subsidized or not, I think the vast majority of the direct investment in that market is going to come from the faculty, alumni, and wealthier students at that particular school, because who else A: cares and B: has money? And they're probably going to make Tesla fans look well-informed and cold-bloodedly rational in their investment decisions. That's going to make it doubly risky for a reporter to invest a great deal of their time in an investigation that A: may not reveal anything and B: may not move the market the way it "should" even if it does.
Scratch that, *triply* risky because the reported has to put their own money into the market up front, and their reporting will annoy the probably much richer people who already dominate that market. They won't just behave in some random irrational manner; they'll collude to punish and discredit(*) the reporter even knowing it will cost them money - because the money they've invested in the school-specific prediction market is not their primary interest in the school.
* or, if aggrieved female students, reward and validate the muckracking journalist even if her work is as bogus as Sabrina Erdely's "A Rape On Campus".
How do you solve the problem where people who don't know and don't care about the probability of the event in question eat up all the subsidies by betting both sides (arbitrage)?
Scott, do the math here. For every long-term winner there is a long-term loser (or long term subsidizer). If people are rational, there are no long-term losers. So all the money for the investigative journalists MUST come from the subsidies themselves; there is no other source.
Your proposal is a strictly worse version of the school just directly saying "if an investigative journalist reveals something important, we'll give them $X".
Yeah I came to the same conclusion in some comment chain, the good version of this is various groups just directly funding what they want to see. Solves the problem of market participants not knowing anything, and the problem of the market itself not knowing anything, because participants only do so if they can satisfy the goal & the proposer actually cares about the goal. And has none of the other mess that the prediction market necessitates.
"In a prediction market, once you're wrong a couple of times, traders will stop updating on your reports and you'll lose most of your power to move the market."
I don't know about this. Does this happen to people who try to pump and dump stocks? Why would it be different for prediction markets?
I don't think people making fraudulent pitches to investors keep a consistent identity and online presence by which their past statements can be identified and assessed (as opposed to news organizations). Also, it's typically harder to short a stock than it is to bet on the other side of a prediction market, and an overhyped stock can keep rising beyond the point at which you can maintain solvency (as opposed to a prediction market which settles to some "ground truth" at a fixed date and doesn't typically take more than your initial investment), so those not taken in by the fraudulent claims have a harder time betting against them than they would in a prediction market scenario. And pump-and-dump schemes are much harder in highly liquid markets with lots of volume, so to the extent this would be a concern it would probably only occur for events of fairly low importance.
Some modern pump and dump scammers have hundreds of multiple accounts on reddit, twitter, facebook, youtube, discord, and stocktwits, and just spam messages into the void from these nobody accounts. But this is probably not a very effective method compared to cultivating a cult with one consistent online presence or becoming a mod of r/wallstreetbets
I read once that in the 80s, Donald Trump repeatedly did pump and dumps by publicly claiming he was thinking about acquiring a company. After the first few times, investors wised up and started ignoring him.
Yes, that also seemed wrong to me. In a prediction market for an election, what matters isn't whether investors think a scandalous story is true, but whether they expect that enough people can be made to believe it for long enough to affect the result. If a news organization regularly published unconvincing stories--i.e. poorly written and/or false ones--they would be punished by the prediction market, but only slightly more than they already are by the regular market (slightly more because people sometimes read news sources that they don't trust, and therefore give them money/views but not the short-term political influence that can be used on the prediction market). So we should expect about the same amount of fake news under the proposed system as the current one.
If the prediction market is for the actual truth of the story as determined at some future date, i.e. it's ability to convince a second round of investigators rather than the general public, the problem disappears. The female-student-life-satisfaction pollsters in Scott's example are pretty close to filling that role, assuming "culture of sexism" is the only plausible cause of widespread unhappiness among women but not men. I'm not sure how practical it would be to extend that to every issue, though. I'm not sure it's practical in the sexism-at-a-particular-school case, in fact. And of course the second set of investigators needs to be kept honest, too.
Agreed. It's probably not feasible to have a prediction market that's asking exactly for the information the investigative journalist is supplying (e.g. is this school sexist - how would you even evaluate that?). But then you have to take some proxy question that is expected to react to your information - but I suspect in many cases it would be easier to move the needle on the proxy question by other means. If your plan is to increase life satisfactions of the students there by replacing the head of the school, it doesn't actually matter if your report is true. Only that the head is sufficiently smeared to be (forced) to resign.
I think the bigger issue lurking behind Scotts idea is that prediction markets might allow you to benefit if you find a way to CHANGE THE WORLD IN ANY WAY THAT MOVES PREDICTION MARKETS. If that is a good thing or not depends on if you change the world for the better or worse. By the law of entropy, my guess would be that most of the easy stuff would change the world for the worse.
Exactly, what's to prevent a GameStop style short squeeze? Why would the market care if the underlying prediction is true or false if there's money to be made in simply taking the more profitable position en masse?
Because unless someone is shorting a position on a prediction market, I can't think of a setup that would allow that to work. Usually, a lot of people taking the same position in a market makes that position *less* valuable, not more.
> If we've gotten so polarized that no conceivable fact could change who we vote for, then investigative reporting should have the same status as golf
I think this is underselling the value of investigative reporting. Suppose I'm an American reporter investigating Putin or Xi. There's value in my reporting news about them, but not many immediate results. Perhaps the prediction market could measure "American sentiment toward China" or something like that, but I suspect that on predictions that large any given investigation is too small to make the averages pay out in a reasonable timespan. If my investigation makes the result 0.1% more likely, then my newspaper only gets the payout after many investigations on average, making it probably not worth their while. A national-level newspaper like the NYT or the Washington Post might be okay, but anyone smaller won't bother.
In addition, this means that a newspaper could only have one position on a given issue. Suppose I'm a nonpartisan newspaper who wants to investigate the election. If I accurately report on both a Republican-favoring issue and a Democrat-favoring issue, then the election odds are the same as before, but the voting population is better off. This would encourage partisanship in reporting, which seems like a poor result.
I suppose your hypothetical newspaper could get around that by staggering there reports so that the market has time to respond to one before the next comes out.
But if it's known that they do this and that each party has some typical amount of scandals, the releases won't change a lot, because it's factored into the market that some novel revelations will come out after the current ones. Insufficiently scandalous reports would actually drive the market the other way, for the evidence they provide that more-scandalous things weren't around to be reported on instead.
"I'm looking at the front page of today's Washington Post, which has something about how there's a culture of misogyny in some important military school. This could charitably be termed investigative reporting - we can imagine the journalist painstakingly tracked down women at that military school, heard their stories, hunted down documents proving that this school discriminated against women in some way, et cetera."
Why "charitably"? Paywall and all that so I'm at a disadvantage, but this sounds like a central example of investigative reporting, and you seem to be straining to "imagine the journalist painstakingly tracked down...", which seems like exactly how I'd expect that reporting to work.
Yeah I thought the tone of that was weird. Plus the "even assuming it's true," aside. Which seems needlessly disparaging unless there is some reason to think this particular peice is bad. Feels like Scott is letting his feelings about journalists and sexism override his normal commitment to kindness and charitability
I went and read the article. I would say it deserves some disparaging, because if there is such a thing as "assault porn" I would rather not encounter it accidentally in a news story, but they clearly aren't concerned with that. Don't read it, but this is not a normal article. If I believed conspiracy theories I would say this is a piece of some type of psy-op warming us up for whatever dose they will deliver tomorrow.
Well, those aren’t the only two choices. I looked at the Barnes&Thornburg report a little more and it looks like it was requested by the state (commonwealth) of Virginia. It has analysis.
Whereas the Post:”She awoke and he was in the room, staring at her. I’m going to kill you, he said. And you’re going to die.”
If I were one of the people the Post quoted I would feel used. It was sensationalism.
And factually it doesn’t make the jump to indicting the military. Agglomeration of sensationalism indicting the school, but that’s as far as it really goes. I was just searching for a plausible explanation for the creation of that article, since there seem to me to be more effective ways to address any aspect of it, except for the goal of creating fear and revulsion in the reader. They did that very well. I knew most of the facts presented or knew that those things can exist, in general terms. I didn’t need convincing in terms of “assault and harassment are bad” and I’m guessing most Post readers don’t either. But regardless it didn’t change my feelings about the military, just made me feel disgust toward the Post for taking a substantive issue and making it demeaning and lurid. The continuum isn’t “love the military” on one side and “believe the Post” on the other.
I don't see how that's demeaning or lurid. It might make some people update their priors about the military, since it is a fact that these types of things occur.
To a normie, posting negative things like that creates negative feelings towards the group they are prominently associated with in the article, even if from a logical point of view the negative things are not actually the fault of that group.
This is understandably not clear given the name of the school, but Virginia Military Institute and all the other state-level "military" academies are not actually part of the military (i.e. Texas A&M, Citadel). They require all of the students to participate in ROTC, but they don't have to sign contracts, they don't have to accept commissions and actually join the military when they graduate, and they're not subject to UCMJ. Only the actual national service academies are part of the military.
It's interesting to see how strict VMI is. Not sure disallowing cadets from having consensual sex is all that good an idea. They're still college students, and I would expect a lot are meeting future spouses in college. We divorced years ago now, but I did meet *a* wife in ROTC. They're not an actual military unit, have no command relationships to each other, and are not serving or fighting together. They're just classmates playing pretend and wearing uniforms. Many of them do join up, of course, but it's only after doing so that they can actually be held to any real military conduct standards with real consequences beyond what any other college student would face at any other school.
Or we can imagine the journalist decided s/he wanted a story about misogyny at a military school, went to one, asked leading questions intended to elicit the appropriate response, selectively reported the answers, and created the narrative s/he wanted.
However, the argument for honest investigative journalism as positive-sum does not apply to malicious propaganda (which is negative-sum because it makes the truth less clear).
Weirdly, this article was not paywalled for me (sometimes if you google the main search terms, the link from the google results will not be paywalled).
The investigation was done by a law firm, Barnes & Thornburg, and released earlier this summer. 6/01 "Marching Toward Inclusive Excellence: An Equity Audit and Investigation of the Virginia Military Institute." Why they did the audit is not clear to me yet. It was released just after the first female cadet was promoted to a significant leadership role at the university.
Then the Post interviewed women graduates of the school and yes, received multiple reports of assault, harassment, and rape, some of which had gone through the legal system to conviction and some of which had not. Read with care, they included more detail than I needed this evening.
In terms of funding investigative reporting, it seems to me that whoever hired the lawyers started this one, not the Post. I'm glad they did in terms of holding VMI accountable. I don't know if the Post added much though except for publicizing it, but not in an especially clear way. Methinks they got a press release about the release of the law firm's report (or the cadet's promotion). They are after all not far from VMI.
And the school only began admitting women in 1997 after a Supreme Court case. So yes, culture of misogyny. But is this similar to other military academies, or different from them, and in what ways?
Scott may have written "charitably" because he was banging his head into a wall trying to get the article off his mind, but he didn't want that to be discernible in this substack post, that he had to write to get the article out of his mind. (Dear Post: more thinking and less traumatic detail, please.)
WaPo just recycled the content from the law firm’s report and cherry picked the spicy bits. They didn’t do the investigating or “break” any news here. I’d bet a fair amount of money that a PR person for the law firm called someone at WaPo who realized this was a lay up. Responding to PR agents for stories a client wants pushed isn’t investigative journalism.
I’m not saying it’s bad journalism. Signal boosting is important. But it’s definitely not a “central example of investigative reporting”.
There's no problem. It's just a standard piece of journalism. Charitble to call it "investigative" for the reasons stated above. And the content isn't central to his argument as it's just a placeholder for demonstrating how this predictive market busines model might work.
There's also no "vague aspersions" when only 27% of Americans trust the media. Light skepticism is a reasonable starting position. The irrational position would be to accept one of these reports as the final world. It's classic one hand clapping.
Let's go through the article to see if it's investigative journalism. I'll bring up the points the article raises, then look for the sourcing.
Points in the article:
1. Anonymous posters on internal social networks are annoyed that a woman was picked to be the leader of the corps of cadets. Allegations that she was picked as a political stunt rather than as a result of her fitness for office. I can't comment on the veracity of these reports, but the leader of the school has stated he has a mandate for increased diversity, so it's not inconceivable that this is in the water.
2. There are reports of sexual assault on campus. This is reprehensible.
3. Some males on campus have joked about the sexual diversity trainings they've had to go through. Someone also made off-color jokes about sexual assault and wasn't publicly condemned (this gets 10 paragraphs).
4. VMI doesn't offer amnesty for drug/alcohol offenses for victims of sexual assault (IE, if someone takes illegal substances then gets sexually assaulted, they get in trouble if they report the assault since their decision to take illegal substances would come out. This may be controversial, but this is a good thing. You're at a military academy, don't do drugs.)
5. The school helps facilitate parties at which sexual assault has happened.
6. More vivid descriptions of sexual assault.
7. Description of VMI's history of not admitting women until being forced to do so.
8. More descriptions of sexist behavior.
From the article's sourcing, points 1-6 all came from a report recently issued by a law firm about diversity climate on campus.* Point 7 is information you'd get off Wikipedia and point 8 is the result of what appears to be a couple phone calls.
Overall, I would not call this investigative reporting, it is a summary and transcription of an investigation, not an investigation itself.
I like this idea, but running some numbers - it might work out? (My original claim was that it didn't, but on second thought I'm not sure).
Let's go with the military school example. A damning study on inequality there might move betting markets on the firing there by, say, 10%. So if you're willing to pay an investigative reporter $x for that story, you need to invest $10x into the betting market to have enough liquidity for this to be worth the reporter's time.
But it's actually worse than that - most investigative reporters' investigations will (hopefully) not turn up firing-worthy offenses. so if say 1/12 month-long investigations come up with something, x needs to be about a year's salary for a reporter. And this 10x (which is now on the order of a million dollars) isn't buying you improvement, it's just buying you insurance that you'll probably catch anything too egregious going on in that particular guy's watch (since you have to get this insurance for every single employee).
So putting all these numbers together - you'd need about a million dollars' worth of insurance per senior employee, that would cover all-cause scandal, and would pay out if the betting market resolves (I'm assuming the school takes most of the money if they don't fire the guy). That... Actually seems kinda doable, I think, at least for senior employees.
Won't this run into the same issues highlighted in Inadequate Equilibria for multi-stage funding, where you're rewarded not for predicting what will happen, but for what other people will think will happen given some news? Ie. the longer the time horizon in play, the more a market has to worry about whether it's predicting outcomes or "just" future market sentiment.
There's also a problem that you can change people's perception with falsehoods just as easily as with truth. Eg it is probably cheaper for me to spread rumors that politician x is a pedophile than it is for me to do an in depth investigation into them that exposes some kind of financial fraud. And even if the rumors are baseless and disproven they will move the market in the short term. So I can profit off them. Which incentivises the opposite of what this system is designed for
Yeah, this was my thought too. Just as it'd fund actual the exposure of actual problems, it'd just as effectively fund baseless mudslinging, and in fact, probably more effectively.
I suppose a counter-argument is that if you slander someone to profit off their predictive market, you can probably be sued for defamation/slander/libel but that depends on being able to 1) identify the person/group who initiated the slander (probably not hard to 'cover your tracks') and 2) actually win a defamation suit.
And even then if the market is high volume enough and the damage is enough, you might make a profit after paying damages for defamation. (Which is tort not criminal law)
---
And hey, why not cut out a middle-man? There's probably a potential scheme where someone shorts their own position, then swan-dives their own career to "cash out".
... but perhaps these hypothetical markets would have "insider trading" regulations against these sort of schemes.
I think that's the biggest problem with this - Scot suggests a separation of profitable slander and valuable investigative reporting, I expect them to continue to overlap.
Life satisfaction markets seem dubious to me. Could it incentivise companies to avoid hiring people with histories of depression? Also, could a bad actor "short" such a market, then attempt to reduce the life quality of the market's subjects by nefarious means?
What if you paid your employees in stock options of Company Satisfaction Measures. It would be similar to giving your employees regular options, with more skin in the game for day-to-day office interactions.
> Could it incentivise companies to avoid hiring people with histories of depression?
So, by exposing the reality of life satisfaction of employees, for PR reasons, the companies will try to boost that reality by hiring happy people, or pressuring their employees to appear happy, etc. Is this what you mean?
Yes, that is what I mean; rather than actually trying to improve life satisfaction of existing exployees, they would try to influence this by their hiring decisions. It's also an incentive to fire employees who appear unhappy. I don't think I would want to work for such a company where I had this pressure to constantly appear happy! Furthermore, would anybody give a true report of their life satisfaction in such circumstances? It sound kind of similar to "anonymous" company surveys...
More directly: it's hard for me to imagine a way that you measure this, where the measurement itself doesn't get captured by the people who stand to profit of of it. Whether that's your boss telling you 'fill in high satisfaction or else', or the satisfaction being measured by an independent agency that's paid by your company and has incentive to return positive results, or by an independent company which itself is betting on the market and has an incentive to turn in surprising results that shift the market in ways it can profit from.
1. It helps the negative or expository reporting, but less ones which are in depth views of topics which don't necessarily have a fireable culprit.
2. Stock markets work because they normalise equities (same re other mkts), each equity looks/ feels/ smells roughly similar to others. That's the hard bit in moving the concept to more esoteric markets.
3. The infotainment industry prediction would sure make TV a hell of a lot more fun. Or at least CNN ! I'd even settle for realtime betting alongside news broadcasts.
That said, I like the idea of fire the CEO markets, even if illiquid, though I'd also note that Glassdoor exists, often with horrible CEO reviews, and the Board rarely takes that into account barring properly illegal conduct.
All in all, I'm very supportive of prediction markets. However, I do see a key flaw here.
Right now, the media has a vague incentive to be partisan - it helps them get more clicks and slowly builds up an audience with a consistent ideology. I would say that this is Not Great - the utility that most people get out of the media is unbiased information, which partisanship is at odds with.
With prediction market being the key to fund them, they have an explicit, definite incentive to be partisan and write as many hit-pieces as possible, take every quote as out-of-context as possible. What if Cade Metz could make $50K, contingent on Scott's blogger approval rating decreasing by 5 points?
Interestingly, this flips the onus of The One Unbiased Truth from the old school media to prediction markets. Culturally, it might take a bit for people to get used to changing where they get unbiased information from, but I'd argue we're going through that already.
The hope is that markets will learn who to trust and how much. And outlet/reporter would be competing among each other in trust, since with the same info, the more trusted outlet/reporter would make more money.
Maybe you are right and they would exaggerate, but somehow, their actions have to convey to the people with money the truth. (in the sense that some people claimed that Trump was the biggest liar in history but not really because you often could tell what was truth and what was exaggeration or nonsense in his statements).
The issue isn't about whether the market trusts a report - the people with money on the line may well be able to sniff out fraudulent accusations, and dismiss them.
But I think that's irrelevant?
Because what the market is betting on is - in the case of a politician - how the *general public* reacts to the fraudulent claim, eg whether it changes the outcome of an election. And the general public doesn't have the same profit motive to discern whether the claim is fraudulent.
So basically, the financial incentive for the market is not to determine whether an accusation is *true*, but whether it is *convincing* to the general public.
Yeah. The more general financial incentive is to do whatever you can to change the winning chances of the candidates. That sounds like the same incentive that the political campaigns have, all together in the same place (Russia happy)... They don't tend to focus on truth. This would enrich the best at the wrong thing. What was I thinking? Thanks!
The problem is that the market doesn't care what should happen, only what will happen. Assuming for the sake of argument that QAnon is false, its falsity didn't zero out its effect on "will Hillary Clinton get elected" and as such Q could have made money from it.
To get prediction markets to give zero effect on slander, slander would have to have zero political effect, which would be such an amazing accomplishment that it's pretty much begging the question.
Apologies; I'd messed up the timeline. I mixed up Pizzagate's beginning (prior to the 2016 election) with the posts by Q (2017). The basic idea still holds, though.
Pizzagate was a right-wing conspiracy theory which suggested that the democratic elite were secretly pedophiles to a much greater degree than the general population, and they used their affiliation with hollywood to groom desperate starlets in cali, and to then traffic these underaged girls to sex parties attended by the most powerful folks on earth
And people mocked and laughed and said that this was absurd and literally the dumbest thing they'd ever heard
And then epstein happened and we learned that the true objection to pizzagate is that actually it's a *bipartisan* pedophilia grooming ring!
Updated on it in favor of what? The specifics of Pizzagate were profoundly implausible, but there's no shortage of people who already believed, and may have believed more strongly post-Epstein, that wealthy people often exploit their money and connections to break the law for personal advantage or satisfaction.
The crux of Pizzagate was essentially "my political enemies are, as a generalizable group, overwhelmingly and willfully evil in a way that departs from the sort of contentious moral questions that form the basis of political disagreement, and my political group stands in opposition to that." As far as I can see, the revelations of Epstein's wrongdoing don't bear in favor of that.
The details of what Epstein did came to light 16 years ago. They just didn't bother to punish him until more recently. No new information came out of that.
The true objection to Pizzagate is the same as it always was: that Pizzagate would involve an implausibly large and broad group of conspirators committing a particularly blatant and heinous crime that only a tiny fraction of them would be likely to enjoy or profit from, in spite of this group having numerous well-organized enemies who are constantly looking for weaknesses to pounce on.
Epstein ran a much smaller conspiracy committing crimes of much lesser moral valence, for the benefit of a small and select clientele who can themselves maintain a level of plausible deniability, none of whom are the constant focus of vetting and opposition research and investigative journalism.
That Epstein was able to run a tight little conspiracy, is little cause to update one's priors on someone else being able to run a big messy one.
Again an instance of “everything good will, by increasing people’s capability and power, make the culture war worse because people like the culture war”. The media is already monetarily incentivized to be mean to the people they don’t like, so whatever.
I think the opposite of this is true. If a source is obviously partisan and constantly doing bad hit jobs, nobody will pay attention to their nth hit job. If a source is clearly neutral, or attacks someone on "their side", then we'll take it more seriously.
Like clickbait news sites do now? They only work because there's a sufficient subset of the public that pays attention to them, and often believes them, regardless of how many hit jobs they publish.
(And remember that the prediction market depends on the public's reaction, so whether you personally are smart enough to think the site is not credible is irrelevant.)
> Very few of the people who cared about Watergate bought subscriptions to the Washington Post
Are you sure - breaking such large controversies, in a pre internet era, could significantly drive purchases and subscriptions of newspapers. It also dramatically raises the status and just direct power of the investigators, which is its own motivation and desire.
Also this seems to be precisely the same as insider trading
> Maybe then we should just accept that the market is correctly telling people not to bother investigating Adams
How on earth is this a good predictor of whether or not someone is corrupt? Even if it’s “the sum of the knowledge of the smartest people everywhere” I don’t see how a bunch of common market participants will have any clue whatsoever how likely it is some particular guy out of a million is corrupt or has dirt hidden, and even then how that helps you investigate (investigation is something you do about a person in particular areas for particular reasons, not just abstractly, you have to know what about them to investigate and why, and also there are politics involved that probably drive this stuff way more than abstract likelihood and price)
Also this is legal? One guy in a few weeks could create a prototype investigation market or ceo firing market on the internet or using one of the many crypto platforms.
> Also this seems to be precisely the same as insider trading
Honest ignorant question: what's the problem with insider trading (other than it can incentivise an insider to boycott the company, which doesn't apply to the investigative journalist case in general)?
> How on earth is this a good predictor of whether or not someone is corrupt?
I'm not understanding what you mean here. The market Scott was talking about here was whether the politician would win. If it happens to be the case that such a market doesn't move with new revelations of corruption, then yeah, the market doesn't give you info on whether that person is corrupt, at least on the margin. Scott's point is that, if we only care about his corruption to the extent that it affects his election chances, then this is a sign it may not be worth the work to find and expose the corruption, if it exists.
> I don’t see how a bunch of common market participants will have any clue whatsoever how likely it is some particular guy
> One guy in a few weeks could create a prototype investigation market or ceo firing market on the internet or using one of the many crypto platforms.
I'm not sure those platforms are good and reliable enough yet, nor if they support conditional prediction markets (i.e., how will a company do if X ceo gets fired, vs how will it do if he doesn't -- which is what they were talking about here). Also, it needs to be subsidized to attract money. And Robin Hanson would like it to happen mainly because he believes it might be a good idea for companies and so it would catch on. As a market, it couldn't be more boring to me or you or anyone other than the company or prediction market activists.
Insider trading both reduces the market’s response to new information, as only the insider has it, while allowing them to extract large amounts of value from people without the information, rendering their participation in the market dangerous. In this case, due to relatively illiquid markets that are highly dependent on complex information relationships, having more information would let you arbitrarily take advantage of other market participants, making the whole thing questionable. In a stock market, an insider who knows information before the shareholders would effectively be able to extract value from the supposed on paper “owners” of the company - the stock shareholders - by executing trades before they can. The shareholders there are supposed to be owning the company and directing the behavior of insiders - but then the insiders are acting for their own benefit instead of for the shareholders. Here, liken “shareholder” to “betting market user” and “insider” to “investigator or subject of investigation” - and latter parties can pretty arbitrarily dictate the outcome of the formers held value in bet positions while enriching their own held bet positions - without even the incentive normal executives and employees have of working for or owning stock or reputation in the same company.
> It seems to me you have deeper differences with Scott than this in particular. E.g., see here
No I mean in practice “will KVZ Steel Industries be profitable in ten years” is way more tractable for someone who is moderately interested, say via mandatory public company financial disclosure and also economic activity generally, than “what is the happiness level of black students in grade 11 of Mullberry Elementary” or “Does josh Hawley have a mistress or is he gay”
> I'm not sure those platforms are good and reliable enough yet, nor if they support conditional prediction markets
They’re not. That would be the task, implementing conditional prediction markets and the platform. You’re not restricted by political or sports betting being illegal though, and there are plenty of platforms that are reliable enough for those in jurisdictions allowing that activity.
A bigger problem is just that there are so many people that you’d have markets for investigating that I don’t think that helps you pick targets. In general it’s just so different than company investing or even the bit clout slash human ipo “invest in a person” thing that has some alignment and knowledge from market participants, which is plausible in a way this isn’t. I can’t see previous market participants in the “did US diplomat #67 trade a college scholarship for his kid for diplomatic favors” market - even if it’s just for he person generally - really helping in either targeting or funding such an investigation. Not even counting measuring that and resulting incentives!
I can see why organizations might want to prohibit their own insiders from trading before they can, leaking information and capturing gains for themselves. It's far less clear why anyone outside the organization would want to help said organization prevent leaks and concentrate benefits according to their own rules. I've never seen any opponent of insider trading provide evidence that, say, liquidity/trading dries up in the presence of insiders or the reverse happens when there's a crackdown on insider trading.
To clarify, are you talking about insider trading in the prediction market context or the irl stock context? If the second, if I’m a stockholder of a company, and I own 10% and the CEO owns 10%, I don’t want the CEO to get better returns than me by buying the stock before good news when I can’t. I also don’t want the CEO manipulating news disclosures to distort the price to his advantage. Groups of said investors might want insider trading laws, as might the whole economy! Liquidity probably wouldn’t dry up, but it would potentially discourage investment - and even if it didn’t (likely if there’s really no other investment with said returns other than big stocks), it’s still probably bad for insiders to just rake in money like that
That's an argument for a firm to make & enforce insider trading rules so as to attain investments, not so much for the rest of society to have any stake in it. The latter would seem to require some externalities.
> for a firm to make & enforce insider trading rules so as to attain investments
For a *firm*, but emphatically not for any individual involved in the firm, hence a society wide law. There are laws in a lot of cases where “extremely capable individuals” could, via intelligent deal making, solve it, but because they didn’t in practice and insider trading abuse was rife, legislation fixed it instead. In principle the Free Market could solve housing safety regulation, but it didn’t, so we have building codes.
Practically, I think both ability and incentives would be lacking to effectively enforce such a policy. Companies can only see the trades you disclose to them, and the harm of insider trading is so diffuse, few individuals are motivated to pursue difficult cases.
So, there's a situation where both companies and investors might want insider trading enforcement, but can't provide it effectively by themselves.
Regulating insider trading provides a solution: regulators can look at everyone's trades, and they represent all investors so don't have the coordination issues. Also unlike the private sector, they have the power of criminal penalties to provide even more deterrent.
> reduces the market’s response to new information, as only the insider has it
Wouldn't the insider be incentivesed to reveal that information soon after shorting with all the money he can gather, so that he gets his earnings as fast as possible? Wouldn't this be more profitable than waiting it out or delay the revelation?
> No I mean in practice [...]
Ah, oka. Maybe you mixed up Scott examples? The conditions are that (i) the market reflects well what X cares about, and (ii) X subsidizes the market. In the Adams elections example, to the extent that we care about that outcome, the price will move when new info is revealed that changes his chances; and if some info doesn't change them, then maybe it wasn't worth investigating (or so was Scott's point which led to your comment). In the "female student happiness" case, I agree, people don't know very much to bet on that, but doesn't that just give the investigator the opportunity to keep more of the subsidy to himself?
> there are so many people that you’d have markets for investigating
> I can’t see previous market participants in the “did US diplomat #67 trade a college scholarship for his kid for diplomatic favors” market - even if it’s just for he person generally - really helping in either targeting or funding such an investigation.
I have hopes that subsidized legal markets that happen routinely, in a reliable and accessible low-fee platform, after everything settles, would make people mobilize to investigate new markets, and new companies appear that do so. And intermediate companies that pay people for pieces of relevant data. And companies that validate the data staking their reputation. Etc. I wouldn't expect all that to happen overnight and without challenges.
> Wouldn't the insider be incentivesed to reveal that information soon after shorting with all the money he can gather, so that he gets his earnings as fast as possible
Yeah but he then captures most of that value from people he’s supposed to be an agent of, which is bad! And in practice I don’t think insider traders do that. You could claim that “CEO shorts stock, reveals company was hiding secret, market gains new information that it wouldn’t otherwise” but that’s a ridiculously big moral hazard and way to cheat that everyone would prefer wasn’t allowed.
> subsidized market ...
If there’s no information about Josh Hawley’s private proclivities with underaged boys, I don’t think a market would be very interesting. And if I’m a PI for that, I’d just sell the pictures directly to the campaign or news org, as I believe is current practice, and maybe make a bet against his future election odds on a betting market (that already exists now albeit constrained by regulations). But anything more fine grained than “bet against future election odds or stock price” is IMO just a bad fit for information and liquidity properties of markets.
I don’t think subsidizing markets works? People with money would just play all sides, extract risk free/hedged returns, and not improve much of anything for the market while getting free money.
I mean I don’t think the mass wealth transfer from trumpers to blues last election had much Predictive Utility or anything, and I think low information high volume stuff would dominate.
> Yeah but he then captures most of that value from people he’s supposed to be an agent of, which is bad
Right. But also, if I understand what you are saying correctly, then this concern doesn't apply in the journalist case. The same probably applies to the CEO example: it wouldn't be a "cheat" in the prediction market case, but the whole point. No one is cheated. It's like an early resolution of the market. If you bought and committed to keep it until resolution, none of these seems to matter to me. The journalist would gain money only from the subsidy and the people that decided to sell early when they saw the price of their shares go up, so they won less by being risk averse, even knowing that it might be driven by someone who knows more (since "insider trading" would be legal). I'm not claiming these have no effect on the market health; just that I don't see yet why you treat it as a somewhat bottomless pit of cheater gold.
> I don’t think subsidizing markets works
Ok, this explains a lot.
> I don’t think the mass wealth transfer from trumpers to blues last election had much Predictive Utility or anything
I'd expect, next time, less reds would be willing to bet for politically stupid reasons, and more people would be ready to put money into these opportunities. All which will make it better. But even then, the markets were never more than ~10% wrong (which is a lot in a question like "is water wet?", but if a market like "does ivermectin help with covid?" was at 90%+-10%, I wouldn't still appreciate the data..
You have a market for Fred being CEO at PezCo. It’s an active market for whatever reason, with a few million bucks on both sides. Fred makes.a deal with someone who has some capital or uses his own, takes out a “leveraged position” on it, resigns as CEO, and transitions to being a board member, picking up free cash.
That’s an example of how “insider trading” is still bad here.
> I don’t think subsidizing markets works Ok, this explains a lot.
I meant this specific subsidy. Subsidies in general can work lol
> I'd expect, next time, less reds would be willing to bet for politically stupid reasons
Betting markets aren’t new, there’s been plenty of maturity and experience taking in the past 100 years, and yet we’re still here. Market irrationality didn’t stop GME, and it continues now and indefinitely in bets. There’ll be a new political nonsense next year with plenty of money to be made.
Basically the 1929 stock market crash kicked off a bunch of financial reforms around capital formation and trading. So insider trading is illegal. But only for equities. Sorta.
I’m no fan of FDR but those reforms were reasonable at the time. Super Wild West shit back in those days. We just have updated those laws in the most crony capitalist ways you can imagine.
>How on earth is this a good predictor of whether or not someone is corrupt? Even if it’s “the sum of the knowledge of the smartest people everywhere” I don’t see how a bunch of common market participants will have any clue whatsoever how likely it is some particular guy out of a million is corrupt or has dirt hidden, and even then how that helps you investigate (investigation is something you do about a person in particular areas for particular reasons, not just abstractly, you have to know what about them to investigate and why, and also there are politics involved that probably drive this stuff way more than abstract likelihood and price)
Election forecasters are already going to extreme lengths to gain an edge on the Adams market, and we are talking about max 6 figure profits. I wouldn't be surprised if some of them are actually looking for dirt in Adams, Garcia, etc.
Yeah for an adams reputation or investigation market it already is, but then there’s already an Adams
market to bet on. This is for investigations in general, where I think it fails as a market.
The dirt seekers for adams and Garcia are presumably mostly paid for (and more importantly connected to, pushed) by campaigns and other politically involved groups. I don’t think a big “predict X for Y” market is interesting here, maybe something where a campaign can put out a bounty for interesting dirt? But not as a market, more direct transaction style.
I'm not a lawyer or expert, but I think insider trading has to be done by insiders, eg employees at a company. See https://www.bloomberg.com/opinion/articles/2020-01-27/everything-might-be-insider-trading . The legal theory is that as an employee (or executive) of the company, shareholders have deputized you with the right to know information, and if you profit from it personally you are betraying your obligation to the shareholders. If you're some random person with no obligations to a company's shareholders, usually it's okay.
Maybe a more concerning question would be something like - does this make it illegal for a company's employees to leak information to an investigative reporter? It seems like there *could* be a clear law where as long as the employee doesn't personally profit from it it's fine, but I don't know if that's how the actual law works. Also, this might already be illegal, I'm not sure. It sure seems bad to sign a confidentiality agreement (which I assume most employees/execs do) and then spill everything to a journalist.
"How on earth is this a good predictor of whether or not someone is corrupt? Even if it’s “the sum of the knowledge of the smartest people everywhere” I don’t see how a bunch of common market participants will have any clue whatsoever how likely it is some particular guy out of a million is corrupt or has dirt hidden"
I'm claiming that if you know Adams has dirt, but you also (expect) that revealing the dirt won't change the market at all, this presumably corresponds to "won't affect the relevant political events at all", and so you are assuming that spilling dirt on Adams doesn't change anything. This is different from expecting the prediction market to know if Adams is corrupt or not.
This is a very important point. Each candidate/party is already maximally incentivized to put out whatever stories will maximally influence election outcomes in their favor, but this doesn't make their output true or interesting. I'm not sure anything would be gained from throwing more money at incentives to produce Steele Dossier and Birther tier opposition research.
Another problem is that single stories with big impacts are generally scandals about personal lives, which are less important than the candidate's overall policy and competence. I couldn't care less about whether Bill Clinton got his dick sucked in the oval office, but I care a great deal about his policies. Investigative reporting is likely to focus on the former because the policies are already public knowledge.
I wonder how this would relate to stories with multiple possible impacts. Suppose someone does a story which turns up that Florida condos aren't inspected adequately. Does this win only if there's a deadly collapse? If inspections are improved and a deadly collapse is averted? Or a building is found to be in bad shape, evacuated, and repaired?
"This reporting has been brought to you by conflicts of interest!"
I am deeply skeptical of this proposal. If I learned that some newspaper today was shorting the corporations criticized in its pages, I would be shocked and appalled, and I would deeply discount its reporting. I don't think I'd feel better if everyone was doing it officially.
It's possible that in some future age our present norms against this sort of conflict of interest will seem quaint and absurd, like the historic prohibitions of usury. But I suspect not.
How did prediction markets become such a “thing” in the rationalist community? Is there some notable origin story?
Rationalists need to be able to explain why real markets failed to predict [insert Enron, WorldComm, or GFC example here] but how esoteric, illiquid derivatives will do better. Or why there’s liquidity problems in credit markets (the world’s 2nd largest asset class?) but a prediction market subsidy will work super great.
These ideas sound compelling but market construction is really hard. There’s still not a real exchange for bonds. Bond tickers have wide spreads and are thinly traded (despite Matt Levine’s smartass quips, bond market liquidity is a big issue!). The derivatives this community postulates over have similar complexity bond covenants so one would expect huge challenges in getting these ideas to trade to a point where they’re “predictive”.
I’m not going to address the batshit moral hazard opportunities because I expect others will jump on those.
I agree the idea is analogous to thoroughly digested biological matter in utility, but just to be contrarian:
If anything the extended participation of the financial community in options, derivatives, and complex financial instruments suggests they might be useful here! That despite said information issues and illiquidity they still are traded in the billions of dollars means there might be hope for these.
But yeah, illiquidity and especially total lack of information for potential traders seems bad
Don't commit the nirvana fallacy. Rather pointing to examples of prediction markets not predicting things (Trump's election was a recent example), point to something that does a better job. If nothing does, than these markets are the best predictions available.
TBF, coin toss / uninformative prior / etc might be “better examples” in those cases, if nobody involved really knows what’s gonna happen, which is the case there
You've got "might be" (uncertain) and "which is the case" (certain). Is the latter just referring to coin-tosses themselves? Because prediction markets on, for example, elections, do far better than coin-tosses.
Existing markets do a better job of predicting big events than these niche websites. If you want to add a product on CME, knock yourself out but don’t think you’ve invented your way out of all the problems that similar instruments have already. The term “Prediction Market” is redundant.
Speculative markets are essentially predictive, yes, but they are typically based around things like the stock of publicly traded companies or fungible commodities. Prediction markets are an attempt to expand that to things that aren't currently being traded on. I don't recall CME having any listings on whether Trump would be elected, though admittedly I have never been a trader in commoditities and would have been prohibited from trading any time I did work for a financial company (which was not the case when I bet an internet commenter that Trump wouldn't be elected in 2016).
Fundamentally I think “prediction markets” are retail websites circumventing the regulatory burden of public securities. And that’s fine. It’s just not some sort of financial, one size fits all panacea to world suffering as it’s being made out.
My point is that we already know enough about how complex products trade to not get caught down the rabbit hole of “let’s make a product for everything and also make it a business model for a segment of a struggling industry!”
I need to google why there aren’t more cash settled, event based derivatives. My guess is something to do with the 34 Act or exchanges just not wanting the PR headache. But I’m almost certain it’s not an issue with a lack clever people with half clever derivative product ideas. You can bet on women’s water polo in Europe.
I should note that one of Hanson's ideas is that these markets should be subsidized in order to produce the information that will be used, and that many of them would be internal to an organization rather than public.
I think a lot of people in this whole intellectual sphere are, at heart, frustrated game designers. I don't have a list, but about a half dozen times in the last month I've heard some idea for a new law or rule and thought "that sounds more like a clever game rule than a good idea for a law." Maybe I should keep that list and write it up someday, although it might end up sounding like a pileon.
"Rationalists need to be able to explain why real markets failed to predict [insert Enron, WorldComm, or GFC example here]"
They won't. That's not what a prediction market is for.
A prediction market is an unbiased and unbiasable way of aggregating the information that the public has. So if nobody knows that Enron is collapsing, the prediction market can't say Enron is collapsing, but it might be able to specifically pinpoint the public's probability that Enron will collapse in the next year as 5%. This number is wrong, but precise. There are lots of cases where having a precise number representing the state of the smartest people's belief in a certain thing is really useful, because even though the smartest people aren't always right, their beliefs convey nonzero information.
Most existing ways of figuring out what the smartest people believe about something involve things like asking the top expert, or having the relevant organization draft a consensus statement. Prediction markets are better because they're non-gatekept, unbiasable, and precise. That having been said, if the smartest people are still wrong about something, the prediction market will also be wrong.
(although a prediction market incentivizes people to get less wrong quickly in ways that some other things don't)
>A prediction market is an unbiased and unbiasable way of aggregating the information that the public has.
It's the "unbiasable" part that I'm not sold on. Every other sort of market we know about can be biased or manipulated. And the ones most vulnerable to manipulation are the small fringe markets, e.g. "penny stocks", where the normal market capitalization is too small to justify smart outsiders maintaining a consistent, independent focus so that they can hypothetically step in to quickly correct any bias for fun and profit. So I can *maybe* believe that a prediction market for e.g. presidential elections would be robust against bias even when a billionaire presidential candidate decides to put his thumb on the scale, but prediction markets for e.g. the fortunes of the leaders of small private schools with well-heeled but loyal alumni, I'm going to need more convincing on. Yes, there are hypothetical mechanisms for correcting bias, but will they work well enough and fast enough to prevent the hypothetical investigative journalist from missing rent when the alumni don't like someone dissing their favorite school? Needs more than an assertion that the correction mechanism exists.
There were CDS on Enron (underwritten by Citi and later contested). Was that a prediction market? What's the difference between that and what you just described above?
What is a prediction market that a public market isn't? What is a prediction market that a betting market isn't?
I'm confused if a prediction market is a 1) niche website like PredictIt 2) a financial instrument that has a winner-take-all construction expressed as a percentage and is continuously traded? 3) some non monetary voting market 4) a more accessible, compliance friendly, and easily creatable form of current derivatives we have today.
Back when media was all broadcast over public airwaves, as a condition to use bandwidth media companies had to carry content in the public interest, which mostly meant news. And, this mostly meant the news bureaus were quite independent. So, this journalism was essentially publicly subsided (the FCC could have charged more for bandwidth use otherwise).
Now that media delivery is all private, this doesn't work. Fully supporting news with advertising and treating at a profit center is problematic. So, I say go back to directly subsidizing journalism. Support local newspapers according to the population. Establish a national board of journalistic standards, much like those for medical standards, and yank the subsidies if they violate them. Etc.
As you say, it is a public good. Why not treat it like other public goods?
I don’t think we can put the genie of common carriers back in the jar. We live in a new content paradigm now and local news organizations need to figure out how to make ends meet. If people don’t care about local content enough for it to be a viable business then I guess that’s the world we live in.
> Fully supporting news with advertising and treating at a profit center is problematic.
Newspapers have worked that way since forever. They were great assets to own till rather recently relative to their long history. Seemed to work alright until they believed they were “above” being a profit center.
I don't think the demise of newspapers is due to them "believing they were 'above' being a profit center". I think it has a lot more to do with the unbundling problem mentioned in the article (nobody needs the newspaper for the classifieds or sports reporting or hot takes anymore) and the fact that online ads are doing a better job capturing value for ad-tech companies than the sites they appear on.
My interactions with newspaper executives and journalists has lead me to believe there was (and is) a ton of arrogance in the industry. It was quite visible in the amount of corporate excess at these firms before Craigslist came along. The corporate culture looked a lot like record companies. Even today, traditional content creators (journalists) find business matters beneath them. Literally truly not worth their time to learn as it would taint the purity of their craft.
Not a lot. On the business side, I had a close look at a deal maybe 5+ years ago and have a close friend whose did a bunch of those transactions back when that was a thing.
On the journalist side I lived in DC for a bit and interacted with a bunch of them.
I’d say Matt Taibbi does a good job capturing the zeitgeist of journalists and all the inside baseball that comes with it. On the business side, I’d have to think about it. Most of the depictions I’ve seen are pretty self aggrandizing or play into the journalist versus management trope.
The problem with this is that it only works if there is a lot of money in the prediction markets. But you can only get there if people already care a lot about prediction markets and put a lot of money in them. Why would any investor want to put money into anticipated life satisfaction for a random demographic slice, when they could put it in index funds, or even more lucrative prediction markets.
Also I'm not sure that the math works out for how much money you need in the system for it to work. How much money would need to be being bet on military school principals firings for a swing in the numbers for a particular one to be big enough that it's enough to fund anything meaningful?
I was just talking to a guy who launched an ETF. His was $500k but he already had the platform setup and the trade execution was pretty straightforward. My guess would be that it’s ~1M to setup and 500k/yr in compliance overhead. So makes some assumptions around expense ratios and AUM and that’s how liquid it needs to be.
I love the idea. Towards its feasibility in the news space, it might be necessary to invent defences against litigation. Media organisations currently can't expose every piece of material that comes their way due to legal costs. They have to pick their battles, which is part of the reason the best investigative reporters like Sy Hersh didn't stay in one place for long. (It also had something to do with his uncompromising personality)
Perhaps it'd be possible for power structures or corporations to tie up reporters in legal battles while denying them funds from their prediction market win, pending court ruling, which could take years. WikiLeaks is a great example of how far a financial blockade can be taken. It may be necessary for a reporter using prediction markets to rely on donations for legal battles in the short term post-release, or maybe it'd be possible to operate through some third party organisation built specifically to protect them in this way.
Another problem to solve would be getting people to take notice in the first place. There've been revelations about fossil fuel companies and the DOJ recently that haven't made a dent in the public discourse because traditional media won't talk about it. Mainstream signal boosting these days depends on being highly partisan or something both sides agree on. A report that harms a bipartisan narrative (such as the US' involvement in Venezuela being defined as "aid", or most other pro-empire narratives) is fighting a massively uphill battle.
No thanks. We should not be funding the Woke Olympics in this way. In fact, this sounds like it could accelerate the "find people who have heterodox opinions and cancel them" movement. I do miss the investigation of things like mistreatment of animals in factory farms. However, the cynical part of me knows that this would be used to attack people with minority. We shouldn't be encouraging paparazzi to "investigate" Chris Pratt and find that he's a devout Christian in order to maybe attack Disney's next film.
Impressive form in tying prediction markets to the woke sjws politics menace!
My “steelman” of OP is just directly funding media entities or like crowdfunding campaigns to target people you don’t like. Imagine if substack had a tip button! There’s already a crowdfunding platform for “I will pay $creator $xxx if they write $topic”, so that but for either targeting a specific person or company. That solves the misalignment and illiquidity problem a bit by just having people directly pay for things they want. Still don’t really see it, but maybe!
Obviously that also makes the “culture war” worse, but I can’t really imagine anything not doing that. Free access to all newspaper articles without paywall makes the culture war worse! YouTube Twitter Reddit substack, even just the internet! Utopia for all and UBI will leave nothing else left for anyone to do but argue about drag robots teaching children gender nanobots!
In response to your "steelman" I was thinking more of "Wall Street has a mechanism to investigate people they don't like". This is in comparison to the "Substack" model - Wall Street can already afford to pay these people and already had mechanisms to find these people. So Wall Street has the same capabilities, but now the "common person" at least has an option to fund the people he likes, outside of this pipeline. In a game of strategy, the other player's position is unchanged while you gained another tactical option - which is why I consider the new model a "Good Thing" (tm)
This scheme incentivises investigations, and then to reveal the new juicy info in a way that reliably changes what is knowable by people with money who honestly want to find the truth, so that markets adjust. Note though that this isn't the same as convincing the mainstream or publishing honest articles in NYT. We know already that there can be a big disconnect between what is knowable and what info reaches the mainstream. But one can hope it pushes in that direction at least.
It's an interesting concept for sure. I wonder if it could work for all public office holders. Public corruption is where the stakes are highest for citizens, and it's best investigated by local media.
I'm very glad you're writing about prediction markets, as they sound like a great possible answer to the messed up situation right now with public narrative machines, and the absence of a functioning entity that does what 'the news' is ostensibly doing.
Hanson's fire-the-CEO-market is based on the stock market price of the company, conditional on the CEO being fired or not. It's not a bet that the CEO will in fact be fired, although certain differentials would suggest that's what the board should do. So a fire-the-head-of-military-schools market would need to be based on some measurement, and it's unclear whether a poll of the satisfaction of students is actually at all a desirable measure. Student evaluations of university teachers are notoriously awful and just incentivize easy classes rather than actual learning.
Intriguing, but I would distinguish between incentives to inform, and incentives to convince (or provoke, or startle). My main concern would be that this system may incentivize actors to promote a *perspective or belief*, which doesn’t have the same positive externalities as detached investigative journalism.
Once you’re wrong a couple of times people will stop trusting you and your predictions will stop moving markets. A perfect incentive to go Big, even if there’s a chance you’re wrong, because you can cash out even an eventually wrong position if you can move the “stock” down, but you might turn out to be wrong later and people will stop believing you, so bet big. Incentive for over-confidence.
Sounds similar to Candidate 2 promising a UBI of $100 if they win, except in this case you can sell the shares and keep the money even if the other guy wins.
People not valuing true information is a pretty well established problem, and I can see how prediction markets would incentivise people to value it more. But doesn't it suffer from a problem where the more professional the market becomes, the fewer people can realistically make any money from it? Only people with new unknown information can do that, and only people who expend a lot of resources can find new unknown information. It seems like there wouldn't be much of a reason for ordinary people to participate in or care about these markets.
I think the solution we should be looking for looks more like a culture where most people care about true information, not one where most people don't care but a few people do and make a lot of money out of it. Arguably, the latter is a pretty good description of what we already have.
This sounds like a brittle, complex, fraud-prone way of allowing schools or other institutions to offer financial bounties for verified reports of misconduct. Which they can do already if they want to.
I feel like prediction markets are Scott’s hammer for which everything looks like a nail.
Really great to see this idea raised, and Hanson's name invoked in context. He is likely the most knowledgeable person around on the subject of Prediction Markets. We talked about a very similar idea recently... there are a number of investment firms built around a very similar model as Hindenburg's, but focused on the fact that China's economy is what I like to call 'structurally inefficient'. (In very rough economic terms, efficiency means that the value of any given firm or entity is based on the public having relatively accurate knowledge about its activities and therefore its market value. It has been widely observed that the structure of Chinese bureaucracy means that any given layer of management is incentivized to give inaccurate reports of activity and value to those above it... this view has strong explanatory power in the context of 'ghost cities' and firms that have recently been delisted from western stock exchanges for deeply structural reporting fraud. Thus 'structurally inefficient'.)
Hanson observed that a prediction market that incentivized people lower in the bureaucracy to report true information relevant to market valuation (say, with untraceable cryptocurrency) could very well work, but as with all Prediction Markets, it would need someone to pay for it. Reading between the lines, I took this to mean a 'first mover' to kickstart such a market. Of course, something along these lines could be just as interestingly disruptive to Western companies as to those in China.
Anyone looking to throw money at the problem? Maybe a Kickstarter campaign? Maybe something something NFT market something?
I still don't understand why the most obvious outcome of this isn't people terrorizing the women at a given school in order to make a ton of money predicting they'll be very unhappy? That seems a lot easier and more reliable than doing a ton of investigative reporting and hoping that there's actually something to find.
Or, more generally: if you can make $25million by finding a scandal about a politician, can't you make $25million by inventing a convincing fake scandal? The 'infotainment industry where people try to get clicks by accusing each other of being racist pedophiles' seems like it would be more lucrative than investigative reporting, unless we somehow create a society where people do not respond to those accusations in ways that affect things measured by prediction markets.
Your fake scandal should be very convincing and hard to prove that it is fake. Yet, I think if the prize is $25 million, some will invent it. Think about Getty Kouros: https://en.wikipedia.org/wiki/Getty_kouros It even passed chemical analysis and probably some people still think that it is real.
People don't short Google and bomb Google offices because bombing Google offices can land you in jail. Spreading fake stories doesn't land you in jail, and we have clickbait and fake reporting around already. Increasing the profit of fake reporting gets you more of it.
Well, we both know the answer to the ad absurdum is 'because they'll go to jail'.
As for the question, 'why doesn't someone short a company then make up false rumors about them', I think the answer is 'this happens all the time and is a big problem'?
But also, Google theoretically has a 'real' value based on the revenue-generating capability of their actual business, and investors have an incentive to care about this and return stock prices towards it.
But as far as I can tell, people in a prediction market don't have any reason to care about if a politician 'really' did crime X, only to care about whether rumors about crime 'X' will 'really' cause them to lose the election.
I feel like you to some extent invented Bloomberg. Which isn't a bad thing to invent, since Bloomberg is something like a $20 billion company with $10 billion in annual revenues.
On the other hand, the stock market as a whole is valued around $40 trillion. Apparently Bloomberg has a few competitors like Thompson Reuters that are maybe collectively another $10 billion in revenue. So that would suggest that you can get about $1 of analytics value for every $2,000 of trade volume.
I can maybe believe that there's a future with predictive markets on whether the president of (say) Iowa State will be fired in the next year. I really struggle to believe, however, that more than, say, $1,000,000 could be invested in the prediction market (already double the president's salary). So that suggests about $500/year in potential investigative reporter revenues--to generate $100,000 in revenue, you'd have to provide a Bloomberg-esque product for 200 million-dollar questions.
For questions like "is there a culture of misogyny at school X," this seems unlikely. The reason the Washington Post cares about this isn't that their readers had a preexisting interest in school X, it's that they had a preexisting interest in cultures of misogyny, and are interested to hear about examples of those cultures. To the extent that that sort of reporting is useful for making predictions that the readers actually care about, it's in a very general, world-view building way, not in a specific, directly actionable way.
Apart from all the usual issues with prediction markets, the failure case here is that you can't have prediction markets for every possible scandal, and you certainly can't have liquid ones.
I don't think ideology really works like this. I've even shown obvious lies within the Rationalist community and only a handful of people updated their priors.
Short reports don't have to be even remotely true to make a ton of money, and the first amendment in the US makes it next to impossible to successfully sue.
This is such a stunningly, obviously bad take that it's not worth taking the time to detail all the reasons that it is misguided and unworkable (and I assume the earlier comments have done so).
But what I did find interesting and worth commenting on is how this pieces beautifully illustrates the shortcomings of libertarianism. Investigative reporting is a public good. There clearly isn't a market mechanism that will fund it, but there are plenty of non-market alternatives one can imagine from non-profits to rich benefactors to government subsidies. The fact that this essay instead tries to posit this utterly ridiculous predictions market scenario is telling. It's a sign of someone who is unable to confront the shortcomings of their ideology.
Are we measuring instantaneous life satisfaction ratings, or aggregate life satisfaction ratings over the next N years? I can boost the former by abolishing tests/grades/classes and subsidizing parties. The latter will tend to be less liquid because there's a lot more opportunity cost to an N year investment. If N covers the entire lifetime of the students, most of the people with money to spare for prediction markets will be dead before they get paid. There's a tradeoff between the liquidity and the meaningfulness of the market.
Wall street struggles to get adequate liquidity on 1-year futures of major global commodities. So it seems absurd to expect liquidity of futures for 20-year life satisfaction of female students at school X.
Do we really want to live in a world where it's common to have a prediction market on you, specifically, being fired? I realise this already exists for public figures, but extending it to a vastly higher percentage of society seems like a huge social negative. Worse, it would obviously be gamed - as soon as we start to measure something, it becomes useless for its original purpose. The unintended consequences of this idea would be massive.
If investigative journalism is a public good, why not support it with grants?
I'm not sure how you would allocate it specifically, but given the incentives market based journalism already face, adding more market seems like a weird solution.
Who decides who gives out the grants? This has been a criticism of BBC news reporting recently (idk if it's true or not): the government wants to reform the BBC's funding model so the BBC is alledgedly reluctant to bite the hand that feeds them.
> For example, our current model incentivizes fake news - if something is exciting and outrageous enough, it'll sell a lot of papers, and even if a few spoilsport researchers come out a few years later with definitive proof it was wrong, by that time nobody will care. In a prediction market, once you're wrong a couple of times, traders will stop updating on your reports and you'll lose most of your power to move the market. You'll have no particular reason to care whether what you write is outrageous or exciting, only that it's true and relevant to something that people care about.
your model incentivizes fake news equally as well. Remember we're not betting on "Candidate X did something bad" we're betting on "candidate X is not going to be reelected". You can prevent reelecetion equally well with sufficiently convincing fake scandals as with real scandals. If a fake story sells the papers, there is no reason to assume it won't move the polls.
I could see how (by keeping the money at stake low enough) you could prevent companies from shorting and then firing their own CEO, but how would you stop self reported levels of happiness from being gamed by the students given that they have the ability to self organise and there's nothing else at stake.
But isn't the risk that this year's crop of new female students (or indeed all the female students) get together and arm-twist the administration into "give us this demand, if you don't want complaints to the people judging the level of female-student-life-satisfaction for the prediction market, which will rate it as "low" and you as "lousy sexist misogynist pigs" which will in turn affect your reputation and you'll never get hired anywhere else after you're fired from here".
Also, how do you realistically compare dissatisfaction? If I'm a female student at a University in the Catholic Tradition and I'm vocal in my complaints about "they don't even say the Angelus at noon!" while another female student is complaining about "they made us read Scripture in comparative religion studies!", who measures which of us is more dissatisfied? Do we both get equal marks on "unhappy with the quality of female student life"? Or, as I suspect, would the complaints about Scripture-reading get counted while the complaints about the Angelus get quietly shoved into the bin?
As usual, you did predict my main concern with this, but I feel like maybe you didn't take the negative outcomes far enough. This doesn't seem dangerous while we're talking about agents as large as investigative reporting teams, but this (potentially) degenerates into individuals doxxing each other for the profit they can make off any drop in status. At that point, we're all suddenly living in the hellish world you found yourself in for a few months last year, where some people can make a few dollars publishing things about you which you'd rather they didn't. I want to be very careful with this line of critique though, because at the end of the day, it IS just a slippery slope argument. I just wanted to offer the hopefully balanced view that I don't think we know how slippery it really is, or how unpleasant the bottom of that hill. Who knows, maybe it's still a better world, due to improved investigative reporting being worth more than whatever is lost.
All that said, I do really like the idea of this. It seems to reward positive behaviour, at least right up until it potentially doesn't.
I like the system, and would like that it be tried. But I think that the potential problems are larger than what you make it seem. For instance, prediction markets are markets for entropy & chaos, i.e., you are very incentivized to cause unexpected things to happen.
a) If you subsidize markets (as suggested by comment below), you also subsidize fake news. If you can move "the market" with a bit of fake news, and "the market" is actually one trader + millions in subsidies then that's free money, basically. I mean we do have a market for news, and fake news seem to be doing quite well. Maybe it isn't "about" credibility?
b) Insider trading. This isn't as bad as everyone thinks (it was legal in parts of Europe until quite recently), but probably not great for liquidity. But also, the kind of insider trading where the school principal shorts his stock for millions and then goes on a "I have fuck you money now, fuck you all" spree.
c) Weird incentives to move markets as opposed to delivering the truth. We already kind of have these, but I'm kind of happy with the current situation where a lot of the smart people are happily modelling things in finance instead of being worried about how to manipulate prediction markets on things that actually matter.
"Then everyone could just ignore the first thing and go about their lives" that's _got_ to be a typo, surely you meant that everyone would ignore the _second_ thing, the way they do now. But yes, this totally reminds me of the Court of Values and the Bureau of Boringness and seems equally a good idea despite the tongue-firmly-planted-in-the-cheekness https://meaningness.com/virtue-court
"I want a world where protesters march into colleges and ask them why, if they claim to care about female students, they don't have a subsidized female-student-life-satisfaction prediction market, so that they can credibly set targets for gender equality"
Yeah, that's just what we need, discriminating on the basis of gender. I thought that was illegal. Oh, right: the law may be written that way (the Civil Rights Act of 1964 and numerous other laws) but we all know that it now means, discrimination is illegal if done by the wrong people for the wrong reasons but legal (and wonderful!) if done by the right people for the right reasons.
"Even if their dirt isn't quite that good - even if it only makes Adams seem a little bit worse than people thought - it would probably affect his chances by 1 or 2 percent. And that's still $250K to $500K - more than enough to hire a couple of good investigative reporters."
The market math doesn't work this way. The journalists can't trade $25M without moving the price. Perhaps they could trade $500K on the Adams bid, but I suspect it'd be closer to $50K before they moved the price more than 1%. I think their best case on such a story is ~$10K.
> In the far future, the news might diverge into an "infotainment" industry where people try to get clicks by accusing each other of being racist pedophiles, and a prediction-market-movement industry where people try to generate true information on important issues. Then everyone could just ignore the first thing and go about their lives.
I predict that the strong majority will prefer the first, and the desire (both top-down and consumer-driven) to appropriate some of the latter's prestige by aping the format will blur the lines for all but the most diligent consumers. I predict that the commercial success of the infotainment will be an inevitable draw for the market-makers, and some of the compromise will come from that direction, too - gamification of results, clickbait to promote certain markets, maybe outright corporate consolidation with the editorials.
In short, I predict that even if one could snap their fingers and establish such a division, it would largely collapse within a few decades. But it won't get that far, because those forces would already be at work when trying to set up such a system.
Or by analogy - how much do you care about the extant division between reporting and opinion? You'll get more of that, for better and for worse.
1. This only funds journalists who end up finding controversial stories. Lets say that I'm a reporter and I get a tip that politician X had a sketchy affair; in the current model I can safely investigate it since I know I'm salaried and I'll get paid either way. In your model, I get substantial compensation (likely) if I find out that the affair actually happened, but nothing if I find out that the tip was bogus, or if it wasn't bogus, but I just can't prove it. Beyond the substantial pressure that would put on reporters to just claim the most controversial interpretation of the facts it means that reporters would be incentivized to only follow leads they're pretty sure are already true. It's a good thing when a reporter spends 4-5 months investigating a rumor and finds out it isn't true and your system doesn't reward that.
2. The current system has an maximum compensation ceiling for lying reporters. Sure, if they lie well enough they'll get a promotion or two and maybe an award, but in bounds with their existing compensation levels. In your system, however, the right report at the right time could be worth hundreds of thousands or even millions of dollars depending on the market. If I can do that a few times, hell, if I can do that even once I'm set for a while. Sure, maybe my stuff gets discounted in the future, but who cares? I've already made bank. This incentivizes everyone to be maximally controversial at all times. The normal reaction to that is, "ok, let's just pay less attention to controversial reporting," but now you've set up a system where controversial reporting is dismissed out of hand.
There's also the problem that if you're trying to fund the investigative reporting by making a profit on the drop in electability of the candidate, running a story about "Congressperson Jones found canoodling an aide in a romantic getaway!" might elicit "so what? yawn, call me back when something interesting happens" from the public, Jones' chances of being re-elected aren't hurt or are even improved ("wow, they managed to pull a hottie like that? I'm impressed and definitely voting for them!") and now you've impoverished yourself by doing your job.
So you don't do any investigative reporting, or only of the most lurid, attention-grabbing, tabloid style, which is not making society better for anyone.
Even there, he got in trouble (1) for breaching social distancing rules after being very strict with the general public (2) for putting his mistress on the public purse.
If Jones can demonstrate that all parties involved have been regularly tested for Covid-19 and that all measures have been followed ("my aide is, naturally, part of my household bubble") and that not a single penny of taxpayers' money has gone on flowers, dinners, fancy jaunts or expensive bling, they well could weather this and come out looking even better on the other side of it.
"Why should I believe this report on Eric Adams accepting bribes, the paper that revealed it has a huge financial stake in him losing the general election after all!"
“But it's hard for investigative reporters to capture the value they produce.”
"It's hard for them to profit from the damage they inflict." FIFY
Fusion GPS figured out how to fund investigative journalism. You just work on commission generating dirt on a target that someone with money wants to take down. IIRC, I think they got something like $25 million from Hillary and the DNC to set up Trump with the Steele Dossier (or maybe that was just Steele alone).
The dirt little secret is that 95% of investigative journalism by the Legacy Media always consisted of just getting data dumped in their in-boxes by someone with a vested interest in having them publish it. The main sources are: (a) Plaintiffs' attorneys giving you the litigation files they accumulated through court-ordered discovery in order to help pressure a defendant corporation into settling; (b) official government operatives trying to spin the public narrative; and (b) disgruntled "whistleblowers" who are trying to either CYA themselves or take down their enemies.
Woodward and Bernstein's epic "investigation" consisted of having a guy name Mark Felt contact them and give them the whole story to print, because Felt was pissed that Nixon passed him over for a job. https://en.wikipedia.org/wiki/Mark_Felt
> In a prediction market, once you're wrong a couple of times, traders will stop updating on your reports and you'll lose most of your power to move the market.
Is that true, though ? I understand that, currently, prediction markets work more or less this way -- but the current prediction markets are niche, boutique affairs. What happens when they go mainstream ? There does not appear to be any mechanism that prevents prediction markets from succumbing to the same failure modes as the stock market -- with all the insider trading, CDS tranches, high-frequency algorithmic trading, and a myriad of other financial instruments and tricks essentially designed to decouple the value of the trading token from any real-world considerations.
You could pick a group of institutions and bet against any member of the group being successfully prosecuted by whatever authority for whatever crime you think might be happening.
It seems like this is a good way to fund investigative research, but also to amplify little-known stories and to fund negative advertising that has no basis in fact. Not checking the facts is cheaper.
As long as the transactions in the market aren't anonymous, telegraphing your nefarious plans via market moves would be a reliable counter to bad behavior.
If 99% of people are going long, and you put $1,000,000 into a short position days before it tanks (and then sell for massive profit), you stick out pretty good.
"Suppose some kind of media property uncovered evidence that Adams took bribes or committed some other career-ending indiscretion. In a world where prediction markets were as liquid as stock markets, they could short Adams, reveal his dirty laundry, crash his election prospects, and collect some portion of $25 million."
What a bad idea, and a surefire way to push journalists into smear campaigns and moral outrage "exposes" even worse than they already do today, which hurting politics and business in the process...
"In the far future, the news might diverge into an "infotainment" industry where people try to get clicks by accusing each other of being racist pedophiles, and a prediction-market-movement industry where people try to generate true information on important issues. Then everyone could just ignore the first thing and go about their lives."
We sort of already have this; the financial press (e.g. FT, WSJ, Bloomberg, Reuters to some extent) is generally much more sober and reality-oriented than most of the rest of the media, although their focus is obviously on existing markets. I suspect the FIRE sector is the last real market for non-sensationalist factual news.
As someone else mentioned here in the comments, though, the financial press is much smaller than the markets themselves. Of course, the public financial press cannot profit in the markets by using their own research, while the banks, hedge funds etc. (that probably do more investigation of markets overall and commission a lot of private research) can, and are much bigger, but I don't think much of what they uncover is classifiable as investigative reporting. That you have a small, in principle unbiased public financial press and lots of large profit-seeking institutions that keep their research private for market advantage is unlikely to be an accident. For instance, I suspect that in most markets it better to go for trades on things that don't need 2+ years of investigative reporting to maybe pay off.
A good example might be the Wirecard scandal. More than one hedge fund voiced their skepticism, published reports outlining problems, and shorted the stock, but it's to find info on any of these original shorters making much money, since there was no consensus on the reports being true. In the end, it took several Financial Times reporters years of digging, travelling to various places in Asia, meeting with established contacts, following up on leads etc. in order for their evidence to be compelling enough for an audit to be commissioned revealing the fraud, pushing Wirecard into bankruptcy.
All during this time Wirecard was making both public and private accusations of the FT working with short sellers, even getting the German financial regulator to open investigations into the main reporters on the story. This was not a very credible accusation, although not totally impossible. But how would the story have been received if the FT had said "Yes sure we're shorting Wirecard in order to found our investigative journalism", even if that hadn't been illegal? Even if that had been fine, for years there was no clear evidence that the irregularities at Wirecard were anywhere large enough to tank the company. Would it have made sense for the FT to dedicate years of work on this if the highly uncertain payoff of shorting Wirecard at the opportune time was the only possible reward?
Investigate reporting depends on sources willing to talk. Why they do this can be complicated - to feel important, to fight their own battles within the organization, etc. - but a big element is that blowing the whistle feels like a noble and righteous action. This turns it into something more like insider trading. Perhaps investigators will still find sources by offering sufficient cuts of the booty. But I don’t think anyone will be compelled by conscience to share information with someone who intends to profit from it. And their peers will _definitely_ see them as selling out. To say nothing of the increased investives to lie.
The point of prediction markets is that they make testable predictions. I'm not sure what that would look like for a mayor, but it might be something like "buses run on time at least 80% of the time."[1]
[1] And then we have the obvious objections of how those metrics can be gamed.
I wonder if that would create an incentive to cause things to be true? I can try to foment dissatisfaction with Eric Adams or the head of a military school - I don't even necessarily have to lie. That might be cheaper and more reliable than investigating him in case he's dirty.
TL;DR: investigative journalism could be funded through the Universal Electronic Library.
It's an interesting idea, one that clearly deserves to be investigated further. But I believe it can only work for a limited subset of kind of investigative journalism. To find a solution, I believe we need to look at the wider picture, and I think the core issue is this:
The everybody-pays-for-oneself model is bad for information goods.
This model is bad for journalism, it is also bad for science — ask any scientist about SciHub —, it is bad too for culture, including fiction.
When there is a good investigative article, I want to read it, of course, but not only: I also want that other people can read it, and be convinced by it. Therefore, when I pay for an article, I do not want to pay just for me, I want to pay for everybody. And the same applies to the other examples: I can read an awesome novel or watch an awesome series, but if my friends have not read/watched it, I cannot discuss it with them, and the fun is hugely diminished.
This is becoming a problem because of dematerialization. When we needed a hard copy to consume some information goods, I had to pay for mine, I could not pay for yours. But at the same time, once I had a hard copy, I was allowed to lend it to my friends.
The core of the issue, of course, is copyright, because it is the legal tool to make information goods scarce, the precondition for the everyone-pays-for-oneself business model.
Copyright was invented to let authors have bargaining power against the publishers (and theatre troupes), but nowadays it has been completely perverted: the likes of Apple and Disney use it to leverage a few hugely popular assets they have in exclusivity to force customers to subscribe to their own service, even though it would probably be widely redundant with services they already have.
I acknowledge and respect the need and right of creators to get material gratitude for their works, but I do not accept they have the right to limit who can enjoy it. Nobody should be allowed to monopolize culture.
In the short run, we can probably fix that with mandatory sharing of catalogues, possibly after some embargo time. In short, now that it's been six months, I should be able to watch Baby Yoda with my Netflix subscription, with the provision, of course, that if many more people watch Disney shows on Netflix than Netflix shows on Disney, then Netflix has to pay Disney.
But in the long run, we need to acknowledge that the system is broken and fix it.
We have to get rid of copyright and replace it with something better.
I understand that this blog leans a lot towards libertarian ideology, which I find rather enjoy, but also that many people confuse libertarianism with propertarianism, which is a tragedy. The libertarian-propertarian solution for issues like this is to expect people to invest what they no longer pay in taxes into their own vision of the public good. To invest in subsidizing a prediction market for investigative journalism, maybe.
Unfortunately, the urge to invest in the public good, if we ever had it, has been negatively selected by two thousand years of mercantile society. Building that kind of mentality would take generations, and only if there is a massive adhesion to the project.
What we have now to foster the public good is Democracy and the Public Service. If we want to fix culture, we need to work with it.
The way the Public Service handles culture is libraries.
And on this, most of the public who enjoys culture and most of the authors agree: libraries are awesome. Libraries spread culture, libraries increase social fabric.
And libraries, in some jurisdictions, have an interesting feature: Public Lending Rights. This is money that is sent directly to creators when their works is borrowed a lot, even when no new copy needs to be bought because of wear-and-tear. Neil Gaiman, among others, has many good things to say about Public Lending Rights.
We could democratically decide to create the Universal Electronic Library: everything that is offered gratis on the Internet. Blogs. Journal websites, when they are not paywalled. Torrents! That means no prosecution for “piracy”, of course, but more importantly it means adequate funding for Public Lending Rights on what gets “borrowed”, i.e. browsed/downloaded a lot.
There would a few technicals hurdles to solve, but not that much. How do we know what gets perused a lot? I think just asking people would mostly work.
There is the issue of funding, of course. For that, I suggest a modern equivalent of the idea of a Land Value Tax transposed to intellectual property.
This idea of an Universal Electronic Library, made from everything gratis on the web and subject to Public Lending Rights could, I think, solve a lot of the problems we have with the funding of culture and information goods in general. Spread it!
> In the short run, we can probably fix that with mandatory sharing of catalogues, possibly after some embargo time. In short, now that it's been six months, I should be able to watch Baby Yoda with my Netflix subscription, with the provision, of course, that if many more people watch Disney shows on Netflix than Netflix shows on Disney, then Netflix has to pay Disney.
This is called "compulsory licensing" and versions of it exist in the music business...
If an organisation is subsidising a prediction market in a specific area that may warrant investigative reporting, then they are subsidising that prediction market in order to encourage investigative reporting (in a world of free online content). If this is the sole goal of subsidising the prediction market, why don't they just use the money to directly fund the investigative unit of media outlets, which can then investigate things they think are worth investigating?
I think that subsidising a prediction market would be more useful than the above only if said prediction market was very, very broad. For example, a prediction market in "Non-voting occurrences at schools". Various 'events' (which are still somewhat broad themselves) can be placed within this market (e.g. "Sexism scandal at school X", and "Shooting at school Y", and "Finance scandal at school Z", etc.). As the prediction market gains liquidity, people will begin to place bets across different events within the category. It would take longer to build liquidity, but is the only way I could see it being more useful than just directly funding media outlets over time. I don't do much betting, but I think this is pretty much how it works in sports betting markets.
Two points: 1) FYI you may be interested to know that the problem raised in your military school example is partially solved by the litigation finance market. Basically, this is the market of cross-collateralized debt financing for law firms, often used for financing portfolio's of contingency cases. It acts to facilitate litigation of uncertain claims like your example. If these suits end up public and are notable then the work of the lawyers will trickle into new, and at the least they provide a stick against bad actors for victims who otherwise might not have a means of legal organization. Suboptimal in many ways, but a partial solution to the problem. 2) as Luke G and a couple others have mentioned, P-markets are only politically stable long-term with strict insider trading regulation similar to that of public financial markets. With no insider-trading regulation you end up with a major alignment problem that makes p-markets a political non-starter, and which also would make many organizations less functional. With proper regs, you provide outsiders with the right incentive to uncover information, without actually corrupting the incentives of the underlying institutions. This also includes dishonest market manipulation i.e. you can publish a short report that you believe to be accurate, but you can't (as an investor) legally publish a short report with information you know to be wrong with the intent of damaging the price of a security. Ideally, these markets enable information discovery and accountability without incentivizes participants to encourage bad outcomes
Is the Eric Adams example correct? If investigative reporting lowered the likelihood of his election by 1-2% (as reflected in a market), I don't think a reporter could realistically monetize the $250-500k swing. Wouldn't that 250-500k be spread across the entire "No he won't be elected" side of the market? I think so. The better example is that a news organizations invests, let's say $100,000 on the NO vote side at a value of $0.25. When that moves to $0.27, they'd make a profit of $2k, right? So, it's not really funding a reporter. Plus they'd need to come up with the $100k and run the risk of being wrong or of no one caring about their reporting.
But the news itself causes the market decline regardless of its truth, for examlle, publish horrible lies about an election candidate and their prespects drop.
I dunno. The underpants gnome business model had a ??? step. This one seems sketchy.
Is there a concept of insider trading on prediction markets? Also, I can see this type of bets going very wrong on things like "elections" (everyone with money on A. Hitler winning the election is likely to vote for him no matter what).
I am sure that this is addressed somewhere and that I have missed it though, as mine looks like a "day one" objection to prediction markets and everyone else is very excited about them.
Your vote has a very small chance of affecting the outcome of the election - from a bit of Googling, it looks like under very favorable conditions for a US presidential election you might get as high as a 0.0001% chance to decide things (and much worse, if you're not in a swing state). So if you bother to vote at all, it is probably for reasons other than the extremely small amount of profit it generates in expectation, like a sense of civic duty or a deontological/acausal decision theory argument or multiplying 0.0001% by the vastly larger utilitarian benefit to the world of the best candidate winning and finding the product exceeds your personal inconvenience of getting to the polls.
Right, yes, this is valid only until you are dealing with a large scale and a small number of voters. What happens when Robinhood enables the average Joe to take part in prediction markets, so everyone "bets" on their favourite candidate winning and then votes for it?
On the other hand, what happens when 45 of the 60 townspeople of Little Town in Nebraska have stakes in the local military director not being fired, and he rapes a cadet?
This is just where "rule of law" comes in, right? Presumably whoever knows first moves all their money and makes a bundle, and whoever isn't plugged into the news loses their money.
Many arguments against markets become more plausible in the absence of rule of law.
Hmmm I think there is a definite danger for prediction markets to become self-fulfilling on stuff like elections and jurisprudence. If the sheriff has money on the military director's promotion... well, probably the girl is lying and it was consensual.
Oh and what if the girl had money bet against him being promoted?
Bets in a prediction market aren't locked in until the market resolve, you can freely trade them at any time. If the sheriff has money on the military director's promotion, the sheriff can sell those positions, put the cash into the opposite prediction, and make *even more money*.
This does incentivise the sheriff to maintain secrecy until they have a chance to log into their account and punch in the trades though. And possibly cause them to do that right away instead of rushing to arrest the director, incidentally allowing the director to escape.
Well, yes, but he would sell them at less than he paid for them in light on the new information. I am talking about a scenario where everyone knows about the rape, and everyone has interest in the guy being acquitted or they're left holding bags.
There will always be someone on the other side of the bet. If so many bet on the win that it can impact the result it would seem that their payoff would be low...maybe below what they paid for the "win" option.
I think my bigger concern would be Candidate B running for a position, shorting his own chances of winning, and then bombing intentionally to cash in on his bet. The US has at least proven itself willing to elect people without political credentials, so I could imagine some enterprising businessman doing this, and perhaps trading on a margin to rake in an extra profit.
This would make an interesting TV show
Would it be a replay of The Producers?
I now plan to write this story.
Insider trading is a feature, not a bug. The reason is this:
In any market where insider trading is prohibited, the market is likewise prohibited from knowing the truth. There's no other way to get the insider's knowledge into the market unless they participate.
A second reason, which is better in my view, is that when insiders participate in the market they, too, become incentivized by the truth. This is very different from the current situation, where insiders are motivated almost entirely by internal political concerns and the outside world is pretty much irrelevant.
I am still confused between "I know the company is firing the CEO so I short it" insider trading and "I am firing the CEO because I shorted the company a month ago and it went up too much" insider trading. Stocks mostly do not get the second type, random events might.
I have a vague sense this is a solved problem, mostly having something to do with it being hard to bet enough money to make such a gambit worthwhile when you are already a big shareholder the way boardmembers are. That being said, relating it to prediction markets, a similar objection was raised when Robin Hanson proposed them for use in intelligence agencies; the congressmen who opposed it were very concerned that a terrorist would predict their own attack or assassination, follow through, and then collect taxpayer dollars to boot.
They could not be persuaded that this is also a hilariously desirable outcome, because they would have to collect their winnings....from US intelligence. If memory serves, the people who bombed the World Trade Center the first time got caught because they tried to collect the deposit on the van they blew up.
So in keeping with my original feature-over-bug position: wouldn't you, as a predictor in the market, want to know that information? It's a little different in the prediction market than in the stock market because the payoff doesn't come from an outside mechanism like stocks, but in the end it feels like what we really want is for insiders to bet hard they will do X, and then do precisely X. It's what we'd want in the case of a new project; why not a firing decision?
Insider trading (in the US) is about theft, not fairness. If you know something material & nonpublic incidental to an obligation you have to a public company, that information is the property of the company and you are not allowed to personally profit from it; if what you know something material & nonpublic through another means, go nuts.
Contrived example: assume a near future where SpaceX has IPO'd and Starlink is fully operational. You spot signs of an impending coronal mass ejection that would cripple the network. If you are employed by SpaceX to monitor space weather, you can't trade on this; if you're just some random hobby astronomer, then you're free to trade.
Your example of shorting + CEO firing is probably insider trading in the first case (it's implausible you could learn that information without it having been misappropriated from the company), but definitely not in the second case; you can always trade on your own intentions. That said, if you have the power to fire the CEO you're probably a board member and have other duties to the company which such a course of action would breach.
>Insider trading (in the US) is about theft, not fairness.
Though the rest of what you wrote accords with my understanding, the SEC has stated they're trying to enforce fairness as well. I think it's better to think of insider trading in terms of fraud, rather than IP theft.
>A second reason, which is better in my view, is that when insiders participate in the market they, too, become incentivized by the truth.
How do you prevent people from being incentivized to do things you don't want them to do, like making decisions that let them get more money through insider trading even when their decisions are suboptimal for the company?
The short version of my opinion is that there is no way to construct a prediction market that things will get worse; the floor of badness is that people will do the exact same things they are doing now.
I have a hard time imagining the prediction market for a company exceeding the market cap for that company; as a consequence I expect that there isn't anything people generally don't do now (like bet against the company in the market and then tank the critical project they are working on) that they will start doing when participating in the prediction markets.
> making decisions that let them get more money through insider trading even when their decisions are suboptimal for the company?
In deadly earnest: this is exactly the situation we are in now. It is how executive careers operate along all dimensions, and that would not change even if insider trading of any kind in any endeavor were quashed with extreme success.
This doesn't mean it wouldn't happen, mind you - it definitely would. It just wouldn't make things any worse than they are now, is all.
"The prediction market for a company exceeding the market cap for a company" is kind of what happened in the subprime mortgage crisis...
Cantor-Fitzgerald started the Hollywood Stock Exchange prediction market game for forecasting box office revenues of movies with the long term plan of making it into a real futures market using real money. Sadly, there office was on top of the WTC, so they were delayed by about a decade. But when they finally did make an official proposal, the relevant federal regulator wouldn't take them up on it.
One obvious problem is that HSX works best on inside information: the pool guy overhears the producer raving about the dailies, that kind of thing. Should the feds try to police that kind of harmless (and in fact helpful) gossip?
I imagine that for prediction markets to really get traction with regulators, they'll probably need some guards against insider trading. There's some wiggle room for how to define "insider", but at a minimum, it would include people with substantial influence over the result.
There are legitimate arguments on both sides for whether insider trading is desirable. On one hand, allowing insiders to trade allows their information to flow into the market. On the other hand, a lot investors will be (or, perhaps more importantly, *should* be) scared off if they know they're betting against insiders. Also, in some cases, insiders could be incentivized to perform actions with negative social consequences by betting on their outcome (though there's a lot that could be said about whether this is actually a problem, or something that market forces can compensate for).
Though I'm sympathetic to both points of view, I think regulators and the general public are more concerned with fairness than with optimal information aggregation.
How much liquidity can/will there be in a life-satisfaction-of-female-students-at-this-particular-school prediction market?
A lot if it's subsidized. My proposal (I think stolen from Robin Hanson or someone) is that if the school cares about this, it would put some amount of money into subsidizing the market, such that on average you expect to make money by playing (but still a lot more money by being right than wrong). I don't know how the subsidy level would map to the accuracy of the price signal, but presumably for a fraction of what schools currently spend on diversity they could get a pretty liquid prediction market.
I think subsidies work well for large-scale moderately important effects on reasonably large institutions who care about their public image, but it might run into trouble with investigations of extremely important impacts on small institutions. For instance, if Riverdale Elementary School is secretly using their students to ferry illegal drugs across state borders on field trips, this is clearly worthy of investigative reporting attention, but there will probably not be hundreds of thousands of dollars of liquidity in the "Riverdale Elementary School horrifying drug scandal" prediction market, so it isn't worth the effort.
Perhaps you want to spread this kind of rare-but-important event across some larger entity? E.g. in this case, the state school board has a subsidized prediction market for “number of incredibly bad scandals in our education system unearthed in the next 5 years”. But this solution would work less well for e.g. small companies or other independent groups worthy of investigation.
Or to go even smaller-scale, what about individuals? At some threshold of notability, you’d like to incentivize figuring out if e.g. your congressperson or a rich and powerful celebrity is secretly doing something evil, but any given person isn’t much incentivized to subsidize markets heavily, or investigative reporters will disproportionately look into them. Maybe a tax on all sufficiently-high-income individuals to fund personal prediction markets? Feels vaguely Orwellian somehow.
"Will a public employee of Riverdale be named in a petition for removal signed by 33% of the voting-eligable residents fo Riverdale" would get me putting cash down on the table if I lived in Riverdale. Lots of strange incentives to work through on that though.
objection - that's not objective!
response - no, but democracy is not objective eather, and if you want to measure a democratic institution, 'does it piss of the voters enough to sign a petition" is a good metric.
objection 2 - but people will just take the yes, and then sign even though they don't think this person did a bad job.
response - that's a feature, not a bug. Imagine a crazy world where, get this, elected officials have to maintain the favor of the voters. I know, crazy.
I would have lost this one though. My local public school superintendant left under the cover of darkness while the state was conducting an audit so we never had the chance to recall. So, long way of saying I'm bias here.
Wait wouldn’t I just make a bunch of opposite bets to extract that money for free? Like a hedge fund looking for uncorrelated or risk free alpha but in this case it’s just explicitly there? That seems bad
In real life, fees would make that impossible. I don't know about the spherical cow world where prediction markets actually work.
Can’t you make fees pretty arbitrarily low using computer? Yeah though, anything where fees are roughly comparable to the subsidy won’t actually encourage using the market much.
Prediction markets as they exist today have high fees (as well as trading limits and liquidity issues) that make it extremely difficult to make money. The consensus has to be ridiculously off to make it worth your while, thus leading to large inaccuracies in the markets.
Are there any technical reasons that fees and trading limits couldn’t be reduced significantly?
> Wait wouldn’t I just make a bunch of opposite bets to extract that money for free?
There's a board game I like to play, in which there's a stock market including shorting. You're prohibited from owning both short shares and normal shares at the same time.
A decree that you're not allowed to own both "yes" and "no" shares in real (subsidized) prediction markets looks, after doing 0 seconds of careful thought, like it might prevent this exploit. [Someone should consider this hypothesis.]
Maybe there's some kind of arbitrage that's supposed to fix incoherent markets which can only happen by the arbitrageur owning both "yes" and "no" shares at one or more points in time. [Someone should consider this contrary hypothesis.]
not sure that works, just take random long or short positions and hope they average out, or take long positions and have sekrit swaps with another hedge fund so that they take the short position and then each is exposed to half the others returns
in general it still seems quite and
Is there any reason the female students wouldn't just secretly band together to predict the result will be X this year, then all fill out X on the survey?
I mean, I understand that stock markets have massive bureaucratic and regulatory edifices developed over centuries to prevent this type of manipulation, and prediction markets likely need the same and it's not a failure that we can't say exactly what will be needed before they even exist.
But a. I'm not sure how well those measures work on the stock market to begin with, seems like bad stuff still happens, and b. I never seem to hear any prediction market advocates talking about the need for these measures, which worries me.
I don't see a reason why they couldn't in theory, but in practice that sounds like a great deal of effort for extremely little benefit. It'd be difficult to coordinate in secret, if they did it out in the open all the other investors would be able to make the same prediction and their payout would go way down, and even if they did manage to coordinate it secretly, it'd probably still be a pretty trivial amount of money per student; they wouldn't be able to coordinate such a thing unless *all* the female students on campus were involved after all. Plus, in doing this, they'd be obviating the ability of the prediction market to effect positive changes in their satisfaction, which is almost tautologically something they have a vested interest in.
If they were all cynically pragmatic self-interested people, that sort of conspiracy just doesn't seem worthwhile. And if they weren't cynically pragmatic self-interested people, that sort of strategy probably wouldn't appeal to them on the face of things.
If the benefit to fixing the result is so little, how much of a reward could it offer? I could easily see a group of students agreeing to dramatically tilt the market in exchange for $100 each to go out and celebrate at the end of a particular course.
There doesn't seem to be any practical cost to doing this - the changes made to the course, assuming that they were even effective, would affect future students while the money is a definite personal gain, and probably pretty good fun to do.
It's a lot easier for the reward to be enough to justify a meaningful return for the fraction of people who're right among the sort of people who'd take part in a prediction market than it is for it to be meaningful among the entire population the question is concerned with. Only a small fraction of the population is ever likely to participate in prediction markets, just as only a small fraction of the population engages in speculation on the stock market (a prediction market shouldn't be able to offer index fund type investment, because unlike the stock market, the return should always average to zero.)
A prediction market could be liquid on a question like the expected levels of satisfaction of female students at a particular university without trading an amount of money which would be meaningful to the entire female student population. Let's say that a thousand people are trading on the question, with investments averaging ten dollars each. In order to even address questions on this level of specificity, the market would probably have to be trading on at least tens of millions of different questions, many of them trading in far larger volumes than this, so you might see this sort of volume in a prediction market trading on the order of trillions of dollars.
In that situation, if the entire female population of the school numbered a few thousand, and they decided to coordinate to take part in the prediction market together, they'd mostly just be redistributing their own money amongst themselves. There would only be a few dollars worth of other people's money left over for each of them. How many would have to participate for them to bring in a return of $100 each? On the face of it, 100, enough to swing just a few percent of the vote. But in fact, because they're also competing against other people in the prediction market who can make reasonable guesses themselves, they're not actually going to get that much unless they can change the answer to something which none of the people already invested in the question are betting on... which they have to accomplish with only a few percent of the total vote.
What happens if someone starts a social media campaign the same way we get cancel culture mobs right now, and all of a sudden there's a spike in the number of students who use the prediction market?
I would actually be more worried for people to manipulate the market to make a point. If you want X to happen, you could coordinate with all the other girls to give a low rating on the survey. Even if the market predicts the survey result correctly, it would predict something ultimately meaningless.
You could, of course, say that it would be possible to rig the survey without the market. But having a whole market for the survey would surely make it a more attractive target to tamper with
That's a good point, money isn't the only incentive that might produce the level of coordination needed to distort the results. In fact it seems like the lesser of the two possibilities, assuming the prediction market is set up properly, because participants respond to financial incentives in a more or less rational and predictable manner which can be accounted for, unlike spontaneous mass action driven by external motivations, like the recent Game Stop stock rally. Still, such aberrations seem to be exceptionally rare because people are passive by default and feel they have better things to do most of the time. It's only in rare instances that capture people's collective attention and imagination that such disruptions can occur.
Subsidized or not, I think the vast majority of the direct investment in that market is going to come from the faculty, alumni, and wealthier students at that particular school, because who else A: cares and B: has money? And they're probably going to make Tesla fans look well-informed and cold-bloodedly rational in their investment decisions. That's going to make it doubly risky for a reporter to invest a great deal of their time in an investigation that A: may not reveal anything and B: may not move the market the way it "should" even if it does.
Scratch that, *triply* risky because the reported has to put their own money into the market up front, and their reporting will annoy the probably much richer people who already dominate that market. They won't just behave in some random irrational manner; they'll collude to punish and discredit(*) the reporter even knowing it will cost them money - because the money they've invested in the school-specific prediction market is not their primary interest in the school.
* or, if aggrieved female students, reward and validate the muckracking journalist even if her work is as bogus as Sabrina Erdely's "A Rape On Campus".
How do you solve the problem where people who don't know and don't care about the probability of the event in question eat up all the subsidies by betting both sides (arbitrage)?
Scott, do the math here. For every long-term winner there is a long-term loser (or long term subsidizer). If people are rational, there are no long-term losers. So all the money for the investigative journalists MUST come from the subsidies themselves; there is no other source.
Your proposal is a strictly worse version of the school just directly saying "if an investigative journalist reveals something important, we'll give them $X".
Yeah I came to the same conclusion in some comment chain, the good version of this is various groups just directly funding what they want to see. Solves the problem of market participants not knowing anything, and the problem of the market itself not knowing anything, because participants only do so if they can satisfy the goal & the proposer actually cares about the goal. And has none of the other mess that the prediction market necessitates.
Being able to construct some system doesn’t mean the system works. Even if it’s consistent or supposed to be interesting!
"In a prediction market, once you're wrong a couple of times, traders will stop updating on your reports and you'll lose most of your power to move the market."
I don't know about this. Does this happen to people who try to pump and dump stocks? Why would it be different for prediction markets?
I don't think people making fraudulent pitches to investors keep a consistent identity and online presence by which their past statements can be identified and assessed (as opposed to news organizations). Also, it's typically harder to short a stock than it is to bet on the other side of a prediction market, and an overhyped stock can keep rising beyond the point at which you can maintain solvency (as opposed to a prediction market which settles to some "ground truth" at a fixed date and doesn't typically take more than your initial investment), so those not taken in by the fraudulent claims have a harder time betting against them than they would in a prediction market scenario. And pump-and-dump schemes are much harder in highly liquid markets with lots of volume, so to the extent this would be a concern it would probably only occur for events of fairly low importance.
Some modern pump and dump scammers have hundreds of multiple accounts on reddit, twitter, facebook, youtube, discord, and stocktwits, and just spam messages into the void from these nobody accounts. But this is probably not a very effective method compared to cultivating a cult with one consistent online presence or becoming a mod of r/wallstreetbets
I read once that in the 80s, Donald Trump repeatedly did pump and dumps by publicly claiming he was thinking about acquiring a company. After the first few times, investors wised up and started ignoring him.
Yes, that also seemed wrong to me. In a prediction market for an election, what matters isn't whether investors think a scandalous story is true, but whether they expect that enough people can be made to believe it for long enough to affect the result. If a news organization regularly published unconvincing stories--i.e. poorly written and/or false ones--they would be punished by the prediction market, but only slightly more than they already are by the regular market (slightly more because people sometimes read news sources that they don't trust, and therefore give them money/views but not the short-term political influence that can be used on the prediction market). So we should expect about the same amount of fake news under the proposed system as the current one.
If the prediction market is for the actual truth of the story as determined at some future date, i.e. it's ability to convince a second round of investigators rather than the general public, the problem disappears. The female-student-life-satisfaction pollsters in Scott's example are pretty close to filling that role, assuming "culture of sexism" is the only plausible cause of widespread unhappiness among women but not men. I'm not sure how practical it would be to extend that to every issue, though. I'm not sure it's practical in the sexism-at-a-particular-school case, in fact. And of course the second set of investigators needs to be kept honest, too.
Agreed. It's probably not feasible to have a prediction market that's asking exactly for the information the investigative journalist is supplying (e.g. is this school sexist - how would you even evaluate that?). But then you have to take some proxy question that is expected to react to your information - but I suspect in many cases it would be easier to move the needle on the proxy question by other means. If your plan is to increase life satisfactions of the students there by replacing the head of the school, it doesn't actually matter if your report is true. Only that the head is sufficiently smeared to be (forced) to resign.
I think the bigger issue lurking behind Scotts idea is that prediction markets might allow you to benefit if you find a way to CHANGE THE WORLD IN ANY WAY THAT MOVES PREDICTION MARKETS. If that is a good thing or not depends on if you change the world for the better or worse. By the law of entropy, my guess would be that most of the easy stuff would change the world for the worse.
Exactly, what's to prevent a GameStop style short squeeze? Why would the market care if the underlying prediction is true or false if there's money to be made in simply taking the more profitable position en masse?
Because unless someone is shorting a position on a prediction market, I can't think of a setup that would allow that to work. Usually, a lot of people taking the same position in a market makes that position *less* valuable, not more.
> If we've gotten so polarized that no conceivable fact could change who we vote for, then investigative reporting should have the same status as golf
I think this is underselling the value of investigative reporting. Suppose I'm an American reporter investigating Putin or Xi. There's value in my reporting news about them, but not many immediate results. Perhaps the prediction market could measure "American sentiment toward China" or something like that, but I suspect that on predictions that large any given investigation is too small to make the averages pay out in a reasonable timespan. If my investigation makes the result 0.1% more likely, then my newspaper only gets the payout after many investigations on average, making it probably not worth their while. A national-level newspaper like the NYT or the Washington Post might be okay, but anyone smaller won't bother.
In addition, this means that a newspaper could only have one position on a given issue. Suppose I'm a nonpartisan newspaper who wants to investigate the election. If I accurately report on both a Republican-favoring issue and a Democrat-favoring issue, then the election odds are the same as before, but the voting population is better off. This would encourage partisanship in reporting, which seems like a poor result.
I suppose your hypothetical newspaper could get around that by staggering there reports so that the market has time to respond to one before the next comes out.
But if it's known that they do this and that each party has some typical amount of scandals, the releases won't change a lot, because it's factored into the market that some novel revelations will come out after the current ones. Insufficiently scandalous reports would actually drive the market the other way, for the evidence they provide that more-scandalous things weren't around to be reported on instead.
"I'm looking at the front page of today's Washington Post, which has something about how there's a culture of misogyny in some important military school. This could charitably be termed investigative reporting - we can imagine the journalist painstakingly tracked down women at that military school, heard their stories, hunted down documents proving that this school discriminated against women in some way, et cetera."
Why "charitably"? Paywall and all that so I'm at a disadvantage, but this sounds like a central example of investigative reporting, and you seem to be straining to "imagine the journalist painstakingly tracked down...", which seems like exactly how I'd expect that reporting to work.
Yeah I thought the tone of that was weird. Plus the "even assuming it's true," aside. Which seems needlessly disparaging unless there is some reason to think this particular peice is bad. Feels like Scott is letting his feelings about journalists and sexism override his normal commitment to kindness and charitability
Thirding. A story like that wouldn't be the hardest sort of investigative journalism, but it's still in the category.
I went and read the article. I would say it deserves some disparaging, because if there is such a thing as "assault porn" I would rather not encounter it accidentally in a news story, but they clearly aren't concerned with that. Don't read it, but this is not a normal article. If I believed conspiracy theories I would say this is a piece of some type of psy-op warming us up for whatever dose they will deliver tomorrow.
My guess is after reading it I am supposed to hate the military.
Are you supposed to "hate" the military, or do you just now know more facts about them?
Well, those aren’t the only two choices. I looked at the Barnes&Thornburg report a little more and it looks like it was requested by the state (commonwealth) of Virginia. It has analysis.
Whereas the Post:”She awoke and he was in the room, staring at her. I’m going to kill you, he said. And you’re going to die.”
If I were one of the people the Post quoted I would feel used. It was sensationalism.
And factually it doesn’t make the jump to indicting the military. Agglomeration of sensationalism indicting the school, but that’s as far as it really goes. I was just searching for a plausible explanation for the creation of that article, since there seem to me to be more effective ways to address any aspect of it, except for the goal of creating fear and revulsion in the reader. They did that very well. I knew most of the facts presented or knew that those things can exist, in general terms. I didn’t need convincing in terms of “assault and harassment are bad” and I’m guessing most Post readers don’t either. But regardless it didn’t change my feelings about the military, just made me feel disgust toward the Post for taking a substantive issue and making it demeaning and lurid. The continuum isn’t “love the military” on one side and “believe the Post” on the other.
This will be my last response on this thread.
I don't see how that's demeaning or lurid. It might make some people update their priors about the military, since it is a fact that these types of things occur.
To a normie, posting negative things like that creates negative feelings towards the group they are prominently associated with in the article, even if from a logical point of view the negative things are not actually the fault of that group.
And you ignore normie social games at your peril.
This is understandably not clear given the name of the school, but Virginia Military Institute and all the other state-level "military" academies are not actually part of the military (i.e. Texas A&M, Citadel). They require all of the students to participate in ROTC, but they don't have to sign contracts, they don't have to accept commissions and actually join the military when they graduate, and they're not subject to UCMJ. Only the actual national service academies are part of the military.
It's interesting to see how strict VMI is. Not sure disallowing cadets from having consensual sex is all that good an idea. They're still college students, and I would expect a lot are meeting future spouses in college. We divorced years ago now, but I did meet *a* wife in ROTC. They're not an actual military unit, have no command relationships to each other, and are not serving or fighting together. They're just classmates playing pretend and wearing uniforms. Many of them do join up, of course, but it's only after doing so that they can actually be held to any real military conduct standards with real consequences beyond what any other college student would face at any other school.
Or we can imagine the journalist decided s/he wanted a story about misogyny at a military school, went to one, asked leading questions intended to elicit the appropriate response, selectively reported the answers, and created the narrative s/he wanted.
It wouldn't necessarily be an honest piece of work, but neither is other journalism. Or science.
However, the argument for honest investigative journalism as positive-sum does not apply to malicious propaganda (which is negative-sum because it makes the truth less clear).
Weirdly, this article was not paywalled for me (sometimes if you google the main search terms, the link from the google results will not be paywalled).
The investigation was done by a law firm, Barnes & Thornburg, and released earlier this summer. 6/01 "Marching Toward Inclusive Excellence: An Equity Audit and Investigation of the Virginia Military Institute." Why they did the audit is not clear to me yet. It was released just after the first female cadet was promoted to a significant leadership role at the university.
Then the Post interviewed women graduates of the school and yes, received multiple reports of assault, harassment, and rape, some of which had gone through the legal system to conviction and some of which had not. Read with care, they included more detail than I needed this evening.
In terms of funding investigative reporting, it seems to me that whoever hired the lawyers started this one, not the Post. I'm glad they did in terms of holding VMI accountable. I don't know if the Post added much though except for publicizing it, but not in an especially clear way. Methinks they got a press release about the release of the law firm's report (or the cadet's promotion). They are after all not far from VMI.
And the school only began admitting women in 1997 after a Supreme Court case. So yes, culture of misogyny. But is this similar to other military academies, or different from them, and in what ways?
Scott may have written "charitably" because he was banging his head into a wall trying to get the article off his mind, but he didn't want that to be discernible in this substack post, that he had to write to get the article out of his mind. (Dear Post: more thinking and less traumatic detail, please.)
You should be able to read the article at https://archive.is/Lb0f0 .
WaPo just recycled the content from the law firm’s report and cherry picked the spicy bits. They didn’t do the investigating or “break” any news here. I’d bet a fair amount of money that a PR person for the law firm called someone at WaPo who realized this was a lay up. Responding to PR agents for stories a client wants pushed isn’t investigative journalism.
I’m not saying it’s bad journalism. Signal boosting is important. But it’s definitely not a “central example of investigative reporting”.
Well if the problem is that it's not doing its own investigation then he should say that, not cast vague aspersions
There's no problem. It's just a standard piece of journalism. Charitble to call it "investigative" for the reasons stated above. And the content isn't central to his argument as it's just a placeholder for demonstrating how this predictive market busines model might work.
There's also no "vague aspersions" when only 27% of Americans trust the media. Light skepticism is a reasonable starting position. The irrational position would be to accept one of these reports as the final world. It's classic one hand clapping.
Let's go through the article to see if it's investigative journalism. I'll bring up the points the article raises, then look for the sourcing.
Points in the article:
1. Anonymous posters on internal social networks are annoyed that a woman was picked to be the leader of the corps of cadets. Allegations that she was picked as a political stunt rather than as a result of her fitness for office. I can't comment on the veracity of these reports, but the leader of the school has stated he has a mandate for increased diversity, so it's not inconceivable that this is in the water.
2. There are reports of sexual assault on campus. This is reprehensible.
3. Some males on campus have joked about the sexual diversity trainings they've had to go through. Someone also made off-color jokes about sexual assault and wasn't publicly condemned (this gets 10 paragraphs).
4. VMI doesn't offer amnesty for drug/alcohol offenses for victims of sexual assault (IE, if someone takes illegal substances then gets sexually assaulted, they get in trouble if they report the assault since their decision to take illegal substances would come out. This may be controversial, but this is a good thing. You're at a military academy, don't do drugs.)
5. The school helps facilitate parties at which sexual assault has happened.
6. More vivid descriptions of sexual assault.
7. Description of VMI's history of not admitting women until being forced to do so.
8. More descriptions of sexist behavior.
From the article's sourcing, points 1-6 all came from a report recently issued by a law firm about diversity climate on campus.* Point 7 is information you'd get off Wikipedia and point 8 is the result of what appears to be a couple phone calls.
Overall, I would not call this investigative reporting, it is a summary and transcription of an investigation, not an investigation itself.
*source - https://schev.edu/docs/default-source/documents/vmi-special-investigation-team-final-reporta8b3c750bece61aeb256ff000079de01.pdf
This is a good and fair response to my original comment and I want to acknowledge it, although I have nothing in particular to add.
I like this idea, but running some numbers - it might work out? (My original claim was that it didn't, but on second thought I'm not sure).
Let's go with the military school example. A damning study on inequality there might move betting markets on the firing there by, say, 10%. So if you're willing to pay an investigative reporter $x for that story, you need to invest $10x into the betting market to have enough liquidity for this to be worth the reporter's time.
But it's actually worse than that - most investigative reporters' investigations will (hopefully) not turn up firing-worthy offenses. so if say 1/12 month-long investigations come up with something, x needs to be about a year's salary for a reporter. And this 10x (which is now on the order of a million dollars) isn't buying you improvement, it's just buying you insurance that you'll probably catch anything too egregious going on in that particular guy's watch (since you have to get this insurance for every single employee).
So putting all these numbers together - you'd need about a million dollars' worth of insurance per senior employee, that would cover all-cause scandal, and would pay out if the betting market resolves (I'm assuming the school takes most of the money if they don't fire the guy). That... Actually seems kinda doable, I think, at least for senior employees.
The economics for the market provider don’t make much sense with these types of niche products.
Won't this run into the same issues highlighted in Inadequate Equilibria for multi-stage funding, where you're rewarded not for predicting what will happen, but for what other people will think will happen given some news? Ie. the longer the time horizon in play, the more a market has to worry about whether it's predicting outcomes or "just" future market sentiment.
There's also a problem that you can change people's perception with falsehoods just as easily as with truth. Eg it is probably cheaper for me to spread rumors that politician x is a pedophile than it is for me to do an in depth investigation into them that exposes some kind of financial fraud. And even if the rumors are baseless and disproven they will move the market in the short term. So I can profit off them. Which incentivises the opposite of what this system is designed for
Yeah, this was my thought too. Just as it'd fund actual the exposure of actual problems, it'd just as effectively fund baseless mudslinging, and in fact, probably more effectively.
I suppose a counter-argument is that if you slander someone to profit off their predictive market, you can probably be sued for defamation/slander/libel but that depends on being able to 1) identify the person/group who initiated the slander (probably not hard to 'cover your tracks') and 2) actually win a defamation suit.
And even then if the market is high volume enough and the damage is enough, you might make a profit after paying damages for defamation. (Which is tort not criminal law)
---
And hey, why not cut out a middle-man? There's probably a potential scheme where someone shorts their own position, then swan-dives their own career to "cash out".
... but perhaps these hypothetical markets would have "insider trading" regulations against these sort of schemes.
I think that's the biggest problem with this - Scot suggests a separation of profitable slander and valuable investigative reporting, I expect them to continue to overlap.
Life satisfaction markets seem dubious to me. Could it incentivise companies to avoid hiring people with histories of depression? Also, could a bad actor "short" such a market, then attempt to reduce the life quality of the market's subjects by nefarious means?
What if you paid your employees in stock options of Company Satisfaction Measures. It would be similar to giving your employees regular options, with more skin in the game for day-to-day office interactions.
If they employees are being paid in such stock options, what incentive would they have to self-report their life satisfaction as negative?
Even if they're not being paid in those options, they can buy the stocks themselves and then be incentivized to report positively.
> Could it incentivise companies to avoid hiring people with histories of depression?
So, by exposing the reality of life satisfaction of employees, for PR reasons, the companies will try to boost that reality by hiring happy people, or pressuring their employees to appear happy, etc. Is this what you mean?
Yes, that is what I mean; rather than actually trying to improve life satisfaction of existing exployees, they would try to influence this by their hiring decisions. It's also an incentive to fire employees who appear unhappy. I don't think I would want to work for such a company where I had this pressure to constantly appear happy! Furthermore, would anybody give a true report of their life satisfaction in such circumstances? It sound kind of similar to "anonymous" company surveys...
Yeah, agree! I wonder how one could reframe that prediction market to be more robust against this.
More directly: it's hard for me to imagine a way that you measure this, where the measurement itself doesn't get captured by the people who stand to profit of of it. Whether that's your boss telling you 'fill in high satisfaction or else', or the satisfaction being measured by an independent agency that's paid by your company and has incentive to return positive results, or by an independent company which itself is betting on the market and has an incentive to turn in surprising results that shift the market in ways it can profit from.
Hmmm ...
1. It helps the negative or expository reporting, but less ones which are in depth views of topics which don't necessarily have a fireable culprit.
2. Stock markets work because they normalise equities (same re other mkts), each equity looks/ feels/ smells roughly similar to others. That's the hard bit in moving the concept to more esoteric markets.
3. The infotainment industry prediction would sure make TV a hell of a lot more fun. Or at least CNN ! I'd even settle for realtime betting alongside news broadcasts.
That said, I like the idea of fire the CEO markets, even if illiquid, though I'd also note that Glassdoor exists, often with horrible CEO reviews, and the Board rarely takes that into account barring properly illegal conduct.
All in all, I'm very supportive of prediction markets. However, I do see a key flaw here.
Right now, the media has a vague incentive to be partisan - it helps them get more clicks and slowly builds up an audience with a consistent ideology. I would say that this is Not Great - the utility that most people get out of the media is unbiased information, which partisanship is at odds with.
With prediction market being the key to fund them, they have an explicit, definite incentive to be partisan and write as many hit-pieces as possible, take every quote as out-of-context as possible. What if Cade Metz could make $50K, contingent on Scott's blogger approval rating decreasing by 5 points?
Interestingly, this flips the onus of The One Unbiased Truth from the old school media to prediction markets. Culturally, it might take a bit for people to get used to changing where they get unbiased information from, but I'd argue we're going through that already.
The hope is that markets will learn who to trust and how much. And outlet/reporter would be competing among each other in trust, since with the same info, the more trusted outlet/reporter would make more money.
Maybe you are right and they would exaggerate, but somehow, their actions have to convey to the people with money the truth. (in the sense that some people claimed that Trump was the biggest liar in history but not really because you often could tell what was truth and what was exaggeration or nonsense in his statements).
I think this is wrong but I'm not sure?
The issue isn't about whether the market trusts a report - the people with money on the line may well be able to sniff out fraudulent accusations, and dismiss them.
But I think that's irrelevant?
Because what the market is betting on is - in the case of a politician - how the *general public* reacts to the fraudulent claim, eg whether it changes the outcome of an election. And the general public doesn't have the same profit motive to discern whether the claim is fraudulent.
So basically, the financial incentive for the market is not to determine whether an accusation is *true*, but whether it is *convincing* to the general public.
Yeah. The more general financial incentive is to do whatever you can to change the winning chances of the candidates. That sounds like the same incentive that the political campaigns have, all together in the same place (Russia happy)... They don't tend to focus on truth. This would enrich the best at the wrong thing. What was I thinking? Thanks!
The problem is that the market doesn't care what should happen, only what will happen. Assuming for the sake of argument that QAnon is false, its falsity didn't zero out its effect on "will Hillary Clinton get elected" and as such Q could have made money from it.
To get prediction markets to give zero effect on slander, slander would have to have zero political effect, which would be such an amazing accomplishment that it's pretty much begging the question.
Yeah, right. Thanks!
Apologies; I'd messed up the timeline. I mixed up Pizzagate's beginning (prior to the 2016 election) with the posts by Q (2017). The basic idea still holds, though.
I am consistently astonished by this.
Pizzagate was a right-wing conspiracy theory which suggested that the democratic elite were secretly pedophiles to a much greater degree than the general population, and they used their affiliation with hollywood to groom desperate starlets in cali, and to then traffic these underaged girls to sex parties attended by the most powerful folks on earth
And people mocked and laughed and said that this was absurd and literally the dumbest thing they'd ever heard
And then epstein happened and we learned that the true objection to pizzagate is that actually it's a *bipartisan* pedophilia grooming ring!
But NOBODY updated on this evidence
I *did* say "assuming for the sake of argument".
Updated on it in favor of what? The specifics of Pizzagate were profoundly implausible, but there's no shortage of people who already believed, and may have believed more strongly post-Epstein, that wealthy people often exploit their money and connections to break the law for personal advantage or satisfaction.
The crux of Pizzagate was essentially "my political enemies are, as a generalizable group, overwhelmingly and willfully evil in a way that departs from the sort of contentious moral questions that form the basis of political disagreement, and my political group stands in opposition to that." As far as I can see, the revelations of Epstein's wrongdoing don't bear in favor of that.
The details of what Epstein did came to light 16 years ago. They just didn't bother to punish him until more recently. No new information came out of that.
The true objection to Pizzagate is the same as it always was: that Pizzagate would involve an implausibly large and broad group of conspirators committing a particularly blatant and heinous crime that only a tiny fraction of them would be likely to enjoy or profit from, in spite of this group having numerous well-organized enemies who are constantly looking for weaknesses to pounce on.
Epstein ran a much smaller conspiracy committing crimes of much lesser moral valence, for the benefit of a small and select clientele who can themselves maintain a level of plausible deniability, none of whom are the constant focus of vetting and opposition research and investigative journalism.
That Epstein was able to run a tight little conspiracy, is little cause to update one's priors on someone else being able to run a big messy one.
Again an instance of “everything good will, by increasing people’s capability and power, make the culture war worse because people like the culture war”. The media is already monetarily incentivized to be mean to the people they don’t like, so whatever.
I think the opposite of this is true. If a source is obviously partisan and constantly doing bad hit jobs, nobody will pay attention to their nth hit job. If a source is clearly neutral, or attacks someone on "their side", then we'll take it more seriously.
Like clickbait news sites do now? They only work because there's a sufficient subset of the public that pays attention to them, and often believes them, regardless of how many hit jobs they publish.
(And remember that the prediction market depends on the public's reaction, so whether you personally are smart enough to think the site is not credible is irrelevant.)
> Very few of the people who cared about Watergate bought subscriptions to the Washington Post
Are you sure - breaking such large controversies, in a pre internet era, could significantly drive purchases and subscriptions of newspapers. It also dramatically raises the status and just direct power of the investigators, which is its own motivation and desire.
Also this seems to be precisely the same as insider trading
> Maybe then we should just accept that the market is correctly telling people not to bother investigating Adams
How on earth is this a good predictor of whether or not someone is corrupt? Even if it’s “the sum of the knowledge of the smartest people everywhere” I don’t see how a bunch of common market participants will have any clue whatsoever how likely it is some particular guy out of a million is corrupt or has dirt hidden, and even then how that helps you investigate (investigation is something you do about a person in particular areas for particular reasons, not just abstractly, you have to know what about them to investigate and why, and also there are politics involved that probably drive this stuff way more than abstract likelihood and price)
Also this is legal? One guy in a few weeks could create a prototype investigation market or ceo firing market on the internet or using one of the many crypto platforms.
> Also this seems to be precisely the same as insider trading
Honest ignorant question: what's the problem with insider trading (other than it can incentivise an insider to boycott the company, which doesn't apply to the investigative journalist case in general)?
> How on earth is this a good predictor of whether or not someone is corrupt?
I'm not understanding what you mean here. The market Scott was talking about here was whether the politician would win. If it happens to be the case that such a market doesn't move with new revelations of corruption, then yeah, the market doesn't give you info on whether that person is corrupt, at least on the margin. Scott's point is that, if we only care about his corruption to the extent that it affects his election chances, then this is a sign it may not be worth the work to find and expose the corruption, if it exists.
> I don’t see how a bunch of common market participants will have any clue whatsoever how likely it is some particular guy
It seems to me you have deeper differences with Scott than this in particular. E.g., see here https://slatestarcodex.com/2013/05/02/if-its-worth-doing-its-worth-doing-with-made-up-statistics/ and how he views partial information vs no information; in that sense, we all "have a clue" even before doing any investigating.
> One guy in a few weeks could create a prototype investigation market or ceo firing market on the internet or using one of the many crypto platforms.
I'm not sure those platforms are good and reliable enough yet, nor if they support conditional prediction markets (i.e., how will a company do if X ceo gets fired, vs how will it do if he doesn't -- which is what they were talking about here). Also, it needs to be subsidized to attract money. And Robin Hanson would like it to happen mainly because he believes it might be a good idea for companies and so it would catch on. As a market, it couldn't be more boring to me or you or anyone other than the company or prediction market activists.
Insider trading both reduces the market’s response to new information, as only the insider has it, while allowing them to extract large amounts of value from people without the information, rendering their participation in the market dangerous. In this case, due to relatively illiquid markets that are highly dependent on complex information relationships, having more information would let you arbitrarily take advantage of other market participants, making the whole thing questionable. In a stock market, an insider who knows information before the shareholders would effectively be able to extract value from the supposed on paper “owners” of the company - the stock shareholders - by executing trades before they can. The shareholders there are supposed to be owning the company and directing the behavior of insiders - but then the insiders are acting for their own benefit instead of for the shareholders. Here, liken “shareholder” to “betting market user” and “insider” to “investigator or subject of investigation” - and latter parties can pretty arbitrarily dictate the outcome of the formers held value in bet positions while enriching their own held bet positions - without even the incentive normal executives and employees have of working for or owning stock or reputation in the same company.
> It seems to me you have deeper differences with Scott than this in particular. E.g., see here
No I mean in practice “will KVZ Steel Industries be profitable in ten years” is way more tractable for someone who is moderately interested, say via mandatory public company financial disclosure and also economic activity generally, than “what is the happiness level of black students in grade 11 of Mullberry Elementary” or “Does josh Hawley have a mistress or is he gay”
> I'm not sure those platforms are good and reliable enough yet, nor if they support conditional prediction markets
They’re not. That would be the task, implementing conditional prediction markets and the platform. You’re not restricted by political or sports betting being illegal though, and there are plenty of platforms that are reliable enough for those in jurisdictions allowing that activity.
A bigger problem is just that there are so many people that you’d have markets for investigating that I don’t think that helps you pick targets. In general it’s just so different than company investing or even the bit clout slash human ipo “invest in a person” thing that has some alignment and knowledge from market participants, which is plausible in a way this isn’t. I can’t see previous market participants in the “did US diplomat #67 trade a college scholarship for his kid for diplomatic favors” market - even if it’s just for he person generally - really helping in either targeting or funding such an investigation. Not even counting measuring that and resulting incentives!
I can see why organizations might want to prohibit their own insiders from trading before they can, leaking information and capturing gains for themselves. It's far less clear why anyone outside the organization would want to help said organization prevent leaks and concentrate benefits according to their own rules. I've never seen any opponent of insider trading provide evidence that, say, liquidity/trading dries up in the presence of insiders or the reverse happens when there's a crackdown on insider trading.
To clarify, are you talking about insider trading in the prediction market context or the irl stock context? If the second, if I’m a stockholder of a company, and I own 10% and the CEO owns 10%, I don’t want the CEO to get better returns than me by buying the stock before good news when I can’t. I also don’t want the CEO manipulating news disclosures to distort the price to his advantage. Groups of said investors might want insider trading laws, as might the whole economy! Liquidity probably wouldn’t dry up, but it would potentially discourage investment - and even if it didn’t (likely if there’s really no other investment with said returns other than big stocks), it’s still probably bad for insiders to just rake in money like that
That's an argument for a firm to make & enforce insider trading rules so as to attain investments, not so much for the rest of society to have any stake in it. The latter would seem to require some externalities.
> for a firm to make & enforce insider trading rules so as to attain investments
For a *firm*, but emphatically not for any individual involved in the firm, hence a society wide law. There are laws in a lot of cases where “extremely capable individuals” could, via intelligent deal making, solve it, but because they didn’t in practice and insider trading abuse was rife, legislation fixed it instead. In principle the Free Market could solve housing safety regulation, but it didn’t, so we have building codes.
Practically, I think both ability and incentives would be lacking to effectively enforce such a policy. Companies can only see the trades you disclose to them, and the harm of insider trading is so diffuse, few individuals are motivated to pursue difficult cases.
So, there's a situation where both companies and investors might want insider trading enforcement, but can't provide it effectively by themselves.
Regulating insider trading provides a solution: regulators can look at everyone's trades, and they represent all investors so don't have the coordination issues. Also unlike the private sector, they have the power of criminal penalties to provide even more deterrent.
> reduces the market’s response to new information, as only the insider has it
Wouldn't the insider be incentivesed to reveal that information soon after shorting with all the money he can gather, so that he gets his earnings as fast as possible? Wouldn't this be more profitable than waiting it out or delay the revelation?
> No I mean in practice [...]
Ah, oka. Maybe you mixed up Scott examples? The conditions are that (i) the market reflects well what X cares about, and (ii) X subsidizes the market. In the Adams elections example, to the extent that we care about that outcome, the price will move when new info is revealed that changes his chances; and if some info doesn't change them, then maybe it wasn't worth investigating (or so was Scott's point which led to your comment). In the "female student happiness" case, I agree, people don't know very much to bet on that, but doesn't that just give the investigator the opportunity to keep more of the subsidy to himself?
> there are so many people that you’d have markets for investigating
> I can’t see previous market participants in the “did US diplomat #67 trade a college scholarship for his kid for diplomatic favors” market - even if it’s just for he person generally - really helping in either targeting or funding such an investigation.
I have hopes that subsidized legal markets that happen routinely, in a reliable and accessible low-fee platform, after everything settles, would make people mobilize to investigate new markets, and new companies appear that do so. And intermediate companies that pay people for pieces of relevant data. And companies that validate the data staking their reputation. Etc. I wouldn't expect all that to happen overnight and without challenges.
> Wouldn't the insider be incentivesed to reveal that information soon after shorting with all the money he can gather, so that he gets his earnings as fast as possible
Yeah but he then captures most of that value from people he’s supposed to be an agent of, which is bad! And in practice I don’t think insider traders do that. You could claim that “CEO shorts stock, reveals company was hiding secret, market gains new information that it wouldn’t otherwise” but that’s a ridiculously big moral hazard and way to cheat that everyone would prefer wasn’t allowed.
> subsidized market ...
If there’s no information about Josh Hawley’s private proclivities with underaged boys, I don’t think a market would be very interesting. And if I’m a PI for that, I’d just sell the pictures directly to the campaign or news org, as I believe is current practice, and maybe make a bet against his future election odds on a betting market (that already exists now albeit constrained by regulations). But anything more fine grained than “bet against future election odds or stock price” is IMO just a bad fit for information and liquidity properties of markets.
I don’t think subsidizing markets works? People with money would just play all sides, extract risk free/hedged returns, and not improve much of anything for the market while getting free money.
I mean I don’t think the mass wealth transfer from trumpers to blues last election had much Predictive Utility or anything, and I think low information high volume stuff would dominate.
> Yeah but he then captures most of that value from people he’s supposed to be an agent of, which is bad
Right. But also, if I understand what you are saying correctly, then this concern doesn't apply in the journalist case. The same probably applies to the CEO example: it wouldn't be a "cheat" in the prediction market case, but the whole point. No one is cheated. It's like an early resolution of the market. If you bought and committed to keep it until resolution, none of these seems to matter to me. The journalist would gain money only from the subsidy and the people that decided to sell early when they saw the price of their shares go up, so they won less by being risk averse, even knowing that it might be driven by someone who knows more (since "insider trading" would be legal). I'm not claiming these have no effect on the market health; just that I don't see yet why you treat it as a somewhat bottomless pit of cheater gold.
> I don’t think subsidizing markets works
Ok, this explains a lot.
> I don’t think the mass wealth transfer from trumpers to blues last election had much Predictive Utility or anything
I'd expect, next time, less reds would be willing to bet for politically stupid reasons, and more people would be ready to put money into these opportunities. All which will make it better. But even then, the markets were never more than ~10% wrong (which is a lot in a question like "is water wet?", but if a market like "does ivermectin help with covid?" was at 90%+-10%, I wouldn't still appreciate the data..
You have a market for Fred being CEO at PezCo. It’s an active market for whatever reason, with a few million bucks on both sides. Fred makes.a deal with someone who has some capital or uses his own, takes out a “leveraged position” on it, resigns as CEO, and transitions to being a board member, picking up free cash.
That’s an example of how “insider trading” is still bad here.
> I don’t think subsidizing markets works Ok, this explains a lot.
I meant this specific subsidy. Subsidies in general can work lol
> I'd expect, next time, less reds would be willing to bet for politically stupid reasons
Betting markets aren’t new, there’s been plenty of maturity and experience taking in the past 100 years, and yet we’re still here. Market irrationality didn’t stop GME, and it continues now and indefinitely in bets. There’ll be a new political nonsense next year with plenty of money to be made.
*I would
Basically the 1929 stock market crash kicked off a bunch of financial reforms around capital formation and trading. So insider trading is illegal. But only for equities. Sorta.
I’m no fan of FDR but those reforms were reasonable at the time. Super Wild West shit back in those days. We just have updated those laws in the most crony capitalist ways you can imagine.
>How on earth is this a good predictor of whether or not someone is corrupt? Even if it’s “the sum of the knowledge of the smartest people everywhere” I don’t see how a bunch of common market participants will have any clue whatsoever how likely it is some particular guy out of a million is corrupt or has dirt hidden, and even then how that helps you investigate (investigation is something you do about a person in particular areas for particular reasons, not just abstractly, you have to know what about them to investigate and why, and also there are politics involved that probably drive this stuff way more than abstract likelihood and price)
Election forecasters are already going to extreme lengths to gain an edge on the Adams market, and we are talking about max 6 figure profits. I wouldn't be surprised if some of them are actually looking for dirt in Adams, Garcia, etc.
Yeah for an adams reputation or investigation market it already is, but then there’s already an Adams
market to bet on. This is for investigations in general, where I think it fails as a market.
The dirt seekers for adams and Garcia are presumably mostly paid for (and more importantly connected to, pushed) by campaigns and other politically involved groups. I don’t think a big “predict X for Y” market is interesting here, maybe something where a campaign can put out a bounty for interesting dirt? But not as a market, more direct transaction style.
I'm not a lawyer or expert, but I think insider trading has to be done by insiders, eg employees at a company. See https://www.bloomberg.com/opinion/articles/2020-01-27/everything-might-be-insider-trading . The legal theory is that as an employee (or executive) of the company, shareholders have deputized you with the right to know information, and if you profit from it personally you are betraying your obligation to the shareholders. If you're some random person with no obligations to a company's shareholders, usually it's okay.
Maybe a more concerning question would be something like - does this make it illegal for a company's employees to leak information to an investigative reporter? It seems like there *could* be a clear law where as long as the employee doesn't personally profit from it it's fine, but I don't know if that's how the actual law works. Also, this might already be illegal, I'm not sure. It sure seems bad to sign a confidentiality agreement (which I assume most employees/execs do) and then spill everything to a journalist.
"How on earth is this a good predictor of whether or not someone is corrupt? Even if it’s “the sum of the knowledge of the smartest people everywhere” I don’t see how a bunch of common market participants will have any clue whatsoever how likely it is some particular guy out of a million is corrupt or has dirt hidden"
I'm claiming that if you know Adams has dirt, but you also (expect) that revealing the dirt won't change the market at all, this presumably corresponds to "won't affect the relevant political events at all", and so you are assuming that spilling dirt on Adams doesn't change anything. This is different from expecting the prediction market to know if Adams is corrupt or not.
Is there any study that calculates the Brier score of all of PredictIt?
Not that I know of, but there are fun subset analyses out there: https://www.metaculus.com/questions/5502/comparing-538-and-predictit-forecasts-in-2020/
This incentivizes journalism which is effective at influencing outcomes, which isn't necessarily the same thing as accurate journalism.
This is a very important point. Each candidate/party is already maximally incentivized to put out whatever stories will maximally influence election outcomes in their favor, but this doesn't make their output true or interesting. I'm not sure anything would be gained from throwing more money at incentives to produce Steele Dossier and Birther tier opposition research.
Another problem is that single stories with big impacts are generally scandals about personal lives, which are less important than the candidate's overall policy and competence. I couldn't care less about whether Bill Clinton got his dick sucked in the oval office, but I care a great deal about his policies. Investigative reporting is likely to focus on the former because the policies are already public knowledge.
I wonder how this would relate to stories with multiple possible impacts. Suppose someone does a story which turns up that Florida condos aren't inspected adequately. Does this win only if there's a deadly collapse? If inspections are improved and a deadly collapse is averted? Or a building is found to be in bad shape, evacuated, and repaired?
"This reporting has been brought to you by conflicts of interest!"
I am deeply skeptical of this proposal. If I learned that some newspaper today was shorting the corporations criticized in its pages, I would be shocked and appalled, and I would deeply discount its reporting. I don't think I'd feel better if everyone was doing it officially.
It's possible that in some future age our present norms against this sort of conflict of interest will seem quaint and absurd, like the historic prohibitions of usury. But I suspect not.
Why shouldn't you deeply discount their reporting if their motives are less obvious?
How did prediction markets become such a “thing” in the rationalist community? Is there some notable origin story?
Rationalists need to be able to explain why real markets failed to predict [insert Enron, WorldComm, or GFC example here] but how esoteric, illiquid derivatives will do better. Or why there’s liquidity problems in credit markets (the world’s 2nd largest asset class?) but a prediction market subsidy will work super great.
These ideas sound compelling but market construction is really hard. There’s still not a real exchange for bonds. Bond tickers have wide spreads and are thinly traded (despite Matt Levine’s smartass quips, bond market liquidity is a big issue!). The derivatives this community postulates over have similar complexity bond covenants so one would expect huge challenges in getting these ideas to trade to a point where they’re “predictive”.
I’m not going to address the batshit moral hazard opportunities because I expect others will jump on those.
>How did prediction markets become such a “thing” in the rationalist community? Is there some notable origin story?
The short answer is Robin Hanson.
Why do so many rationalists like Robin Hanson?
He was Eliezer Yudkowsky's co-blogger when he was writing The Sequences.
I agree the idea is analogous to thoroughly digested biological matter in utility, but just to be contrarian:
If anything the extended participation of the financial community in options, derivatives, and complex financial instruments suggests they might be useful here! That despite said information issues and illiquidity they still are traded in the billions of dollars means there might be hope for these.
But yeah, illiquidity and especially total lack of information for potential traders seems bad
Don't commit the nirvana fallacy. Rather pointing to examples of prediction markets not predicting things (Trump's election was a recent example), point to something that does a better job. If nothing does, than these markets are the best predictions available.
TBF, coin toss / uninformative prior / etc might be “better examples” in those cases, if nobody involved really knows what’s gonna happen, which is the case there
You've got "might be" (uncertain) and "which is the case" (certain). Is the latter just referring to coin-tosses themselves? Because prediction markets on, for example, elections, do far better than coin-tosses.
Existing markets do a better job of predicting big events than these niche websites. If you want to add a product on CME, knock yourself out but don’t think you’ve invented your way out of all the problems that similar instruments have already. The term “Prediction Market” is redundant.
Speculative markets are essentially predictive, yes, but they are typically based around things like the stock of publicly traded companies or fungible commodities. Prediction markets are an attempt to expand that to things that aren't currently being traded on. I don't recall CME having any listings on whether Trump would be elected, though admittedly I have never been a trader in commoditities and would have been prohibited from trading any time I did work for a financial company (which was not the case when I bet an internet commenter that Trump wouldn't be elected in 2016).
Fundamentally I think “prediction markets” are retail websites circumventing the regulatory burden of public securities. And that’s fine. It’s just not some sort of financial, one size fits all panacea to world suffering as it’s being made out.
My point is that we already know enough about how complex products trade to not get caught down the rabbit hole of “let’s make a product for everything and also make it a business model for a segment of a struggling industry!”
I need to google why there aren’t more cash settled, event based derivatives. My guess is something to do with the 34 Act or exchanges just not wanting the PR headache. But I’m almost certain it’s not an issue with a lack clever people with half clever derivative product ideas. You can bet on women’s water polo in Europe.
I should note that one of Hanson's ideas is that these markets should be subsidized in order to produce the information that will be used, and that many of them would be internal to an organization rather than public.
Wild, sweeping statement ahead!
I think a lot of people in this whole intellectual sphere are, at heart, frustrated game designers. I don't have a list, but about a half dozen times in the last month I've heard some idea for a new law or rule and thought "that sounds more like a clever game rule than a good idea for a law." Maybe I should keep that list and write it up someday, although it might end up sounding like a pileon.
Anyway, prediction market, game.
"Rationalists need to be able to explain why real markets failed to predict [insert Enron, WorldComm, or GFC example here]"
They won't. That's not what a prediction market is for.
A prediction market is an unbiased and unbiasable way of aggregating the information that the public has. So if nobody knows that Enron is collapsing, the prediction market can't say Enron is collapsing, but it might be able to specifically pinpoint the public's probability that Enron will collapse in the next year as 5%. This number is wrong, but precise. There are lots of cases where having a precise number representing the state of the smartest people's belief in a certain thing is really useful, because even though the smartest people aren't always right, their beliefs convey nonzero information.
Most existing ways of figuring out what the smartest people believe about something involve things like asking the top expert, or having the relevant organization draft a consensus statement. Prediction markets are better because they're non-gatekept, unbiasable, and precise. That having been said, if the smartest people are still wrong about something, the prediction market will also be wrong.
(although a prediction market incentivizes people to get less wrong quickly in ways that some other things don't)
>A prediction market is an unbiased and unbiasable way of aggregating the information that the public has.
It's the "unbiasable" part that I'm not sold on. Every other sort of market we know about can be biased or manipulated. And the ones most vulnerable to manipulation are the small fringe markets, e.g. "penny stocks", where the normal market capitalization is too small to justify smart outsiders maintaining a consistent, independent focus so that they can hypothetically step in to quickly correct any bias for fun and profit. So I can *maybe* believe that a prediction market for e.g. presidential elections would be robust against bias even when a billionaire presidential candidate decides to put his thumb on the scale, but prediction markets for e.g. the fortunes of the leaders of small private schools with well-heeled but loyal alumni, I'm going to need more convincing on. Yes, there are hypothetical mechanisms for correcting bias, but will they work well enough and fast enough to prevent the hypothetical investigative journalist from missing rent when the alumni don't like someone dissing their favorite school? Needs more than an assertion that the correction mechanism exists.
Is this weather derivative a prediction market? https://www.cmegroup.com/trading/weather/
There were CDS on Enron (underwritten by Citi and later contested). Was that a prediction market? What's the difference between that and what you just described above?
What is a prediction market that a public market isn't? What is a prediction market that a betting market isn't?
I'm confused if a prediction market is a 1) niche website like PredictIt 2) a financial instrument that has a winner-take-all construction expressed as a percentage and is continuously traded? 3) some non monetary voting market 4) a more accessible, compliance friendly, and easily creatable form of current derivatives we have today.
Back when media was all broadcast over public airwaves, as a condition to use bandwidth media companies had to carry content in the public interest, which mostly meant news. And, this mostly meant the news bureaus were quite independent. So, this journalism was essentially publicly subsided (the FCC could have charged more for bandwidth use otherwise).
Now that media delivery is all private, this doesn't work. Fully supporting news with advertising and treating at a profit center is problematic. So, I say go back to directly subsidizing journalism. Support local newspapers according to the population. Establish a national board of journalistic standards, much like those for medical standards, and yank the subsidies if they violate them. Etc.
As you say, it is a public good. Why not treat it like other public goods?
I don’t think we can put the genie of common carriers back in the jar. We live in a new content paradigm now and local news organizations need to figure out how to make ends meet. If people don’t care about local content enough for it to be a viable business then I guess that’s the world we live in.
> Fully supporting news with advertising and treating at a profit center is problematic.
Newspapers have worked that way since forever. They were great assets to own till rather recently relative to their long history. Seemed to work alright until they believed they were “above” being a profit center.
I don't think the demise of newspapers is due to them "believing they were 'above' being a profit center". I think it has a lot more to do with the unbundling problem mentioned in the article (nobody needs the newspaper for the classifieds or sports reporting or hot takes anymore) and the fact that online ads are doing a better job capturing value for ad-tech companies than the sites they appear on.
My interactions with newspaper executives and journalists has lead me to believe there was (and is) a ton of arrogance in the industry. It was quite visible in the amount of corporate excess at these firms before Craigslist came along. The corporate culture looked a lot like record companies. Even today, traditional content creators (journalists) find business matters beneath them. Literally truly not worth their time to learn as it would taint the purity of their craft.
Do you work with people in the news industry a lot? I would be interested in hearing more about it; it's something I have a particular interest in.
I don't doubt your assertion, but it sounds like it was true both when they were more successful and now.
Not a lot. On the business side, I had a close look at a deal maybe 5+ years ago and have a close friend whose did a bunch of those transactions back when that was a thing.
On the journalist side I lived in DC for a bit and interacted with a bunch of them.
I’d say Matt Taibbi does a good job capturing the zeitgeist of journalists and all the inside baseball that comes with it. On the business side, I’d have to think about it. Most of the depictions I’ve seen are pretty self aggrandizing or play into the journalist versus management trope.
The problem with this is that it only works if there is a lot of money in the prediction markets. But you can only get there if people already care a lot about prediction markets and put a lot of money in them. Why would any investor want to put money into anticipated life satisfaction for a random demographic slice, when they could put it in index funds, or even more lucrative prediction markets.
Also I'm not sure that the math works out for how much money you need in the system for it to work. How much money would need to be being bet on military school principals firings for a swing in the numbers for a particular one to be big enough that it's enough to fund anything meaningful?
In fantasy prediction market land, I don’t know.
I was just talking to a guy who launched an ETF. His was $500k but he already had the platform setup and the trade execution was pretty straightforward. My guess would be that it’s ~1M to setup and 500k/yr in compliance overhead. So makes some assumptions around expense ratios and AUM and that’s how liquid it needs to be.
I love the idea. Towards its feasibility in the news space, it might be necessary to invent defences against litigation. Media organisations currently can't expose every piece of material that comes their way due to legal costs. They have to pick their battles, which is part of the reason the best investigative reporters like Sy Hersh didn't stay in one place for long. (It also had something to do with his uncompromising personality)
Perhaps it'd be possible for power structures or corporations to tie up reporters in legal battles while denying them funds from their prediction market win, pending court ruling, which could take years. WikiLeaks is a great example of how far a financial blockade can be taken. It may be necessary for a reporter using prediction markets to rely on donations for legal battles in the short term post-release, or maybe it'd be possible to operate through some third party organisation built specifically to protect them in this way.
Another problem to solve would be getting people to take notice in the first place. There've been revelations about fossil fuel companies and the DOJ recently that haven't made a dent in the public discourse because traditional media won't talk about it. Mainstream signal boosting these days depends on being highly partisan or something both sides agree on. A report that harms a bipartisan narrative (such as the US' involvement in Venezuela being defined as "aid", or most other pro-empire narratives) is fighting a massively uphill battle.
No thanks. We should not be funding the Woke Olympics in this way. In fact, this sounds like it could accelerate the "find people who have heterodox opinions and cancel them" movement. I do miss the investigation of things like mistreatment of animals in factory farms. However, the cynical part of me knows that this would be used to attack people with minority. We shouldn't be encouraging paparazzi to "investigate" Chris Pratt and find that he's a devout Christian in order to maybe attack Disney's next film.
Impressive form in tying prediction markets to the woke sjws politics menace!
My “steelman” of OP is just directly funding media entities or like crowdfunding campaigns to target people you don’t like. Imagine if substack had a tip button! There’s already a crowdfunding platform for “I will pay $creator $xxx if they write $topic”, so that but for either targeting a specific person or company. That solves the misalignment and illiquidity problem a bit by just having people directly pay for things they want. Still don’t really see it, but maybe!
Obviously that also makes the “culture war” worse, but I can’t really imagine anything not doing that. Free access to all newspaper articles without paywall makes the culture war worse! YouTube Twitter Reddit substack, even just the internet! Utopia for all and UBI will leave nothing else left for anyone to do but argue about drag robots teaching children gender nanobots!
In response to your "steelman" I was thinking more of "Wall Street has a mechanism to investigate people they don't like". This is in comparison to the "Substack" model - Wall Street can already afford to pay these people and already had mechanisms to find these people. So Wall Street has the same capabilities, but now the "common person" at least has an option to fund the people he likes, outside of this pipeline. In a game of strategy, the other player's position is unchanged while you gained another tactical option - which is why I consider the new model a "Good Thing" (tm)
This scheme incentivises investigations, and then to reveal the new juicy info in a way that reliably changes what is knowable by people with money who honestly want to find the truth, so that markets adjust. Note though that this isn't the same as convincing the mainstream or publishing honest articles in NYT. We know already that there can be a big disconnect between what is knowable and what info reaches the mainstream. But one can hope it pushes in that direction at least.
(*the truth about whatever the prediction market is about)
It's an interesting concept for sure. I wonder if it could work for all public office holders. Public corruption is where the stakes are highest for citizens, and it's best investigated by local media.
https://www.denverpost.com/2021/04/02/colorado-judicial-department-sexism-allegations/
I'm very glad you're writing about prediction markets, as they sound like a great possible answer to the messed up situation right now with public narrative machines, and the absence of a functioning entity that does what 'the news' is ostensibly doing.
Hanson's fire-the-CEO-market is based on the stock market price of the company, conditional on the CEO being fired or not. It's not a bet that the CEO will in fact be fired, although certain differentials would suggest that's what the board should do. So a fire-the-head-of-military-schools market would need to be based on some measurement, and it's unclear whether a poll of the satisfaction of students is actually at all a desirable measure. Student evaluations of university teachers are notoriously awful and just incentivize easy classes rather than actual learning.
Intriguing, but I would distinguish between incentives to inform, and incentives to convince (or provoke, or startle). My main concern would be that this system may incentivize actors to promote a *perspective or belief*, which doesn’t have the same positive externalities as detached investigative journalism.
Once you’re wrong a couple of times people will stop trusting you and your predictions will stop moving markets. A perfect incentive to go Big, even if there’s a chance you’re wrong, because you can cash out even an eventually wrong position if you can move the “stock” down, but you might turn out to be wrong later and people will stop believing you, so bet big. Incentive for over-confidence.
What happens when every voter in Tinytown, Randomstate receives $100 worth of shares in "Candidate 2 wins" anonymously in their mailbox?
Sounds similar to Candidate 2 promising a UBI of $100 if they win, except in this case you can sell the shares and keep the money even if the other guy wins.
"A one-time UBI of $100 conditional on me winning" sure is a unique way of saying "buying your vote for $100".
People not valuing true information is a pretty well established problem, and I can see how prediction markets would incentivise people to value it more. But doesn't it suffer from a problem where the more professional the market becomes, the fewer people can realistically make any money from it? Only people with new unknown information can do that, and only people who expend a lot of resources can find new unknown information. It seems like there wouldn't be much of a reason for ordinary people to participate in or care about these markets.
I think the solution we should be looking for looks more like a culture where most people care about true information, not one where most people don't care but a few people do and make a lot of money out of it. Arguably, the latter is a pretty good description of what we already have.
This sounds like a brittle, complex, fraud-prone way of allowing schools or other institutions to offer financial bounties for verified reports of misconduct. Which they can do already if they want to.
I feel like prediction markets are Scott’s hammer for which everything looks like a nail.
Really great to see this idea raised, and Hanson's name invoked in context. He is likely the most knowledgeable person around on the subject of Prediction Markets. We talked about a very similar idea recently... there are a number of investment firms built around a very similar model as Hindenburg's, but focused on the fact that China's economy is what I like to call 'structurally inefficient'. (In very rough economic terms, efficiency means that the value of any given firm or entity is based on the public having relatively accurate knowledge about its activities and therefore its market value. It has been widely observed that the structure of Chinese bureaucracy means that any given layer of management is incentivized to give inaccurate reports of activity and value to those above it... this view has strong explanatory power in the context of 'ghost cities' and firms that have recently been delisted from western stock exchanges for deeply structural reporting fraud. Thus 'structurally inefficient'.)
Hanson observed that a prediction market that incentivized people lower in the bureaucracy to report true information relevant to market valuation (say, with untraceable cryptocurrency) could very well work, but as with all Prediction Markets, it would need someone to pay for it. Reading between the lines, I took this to mean a 'first mover' to kickstart such a market. Of course, something along these lines could be just as interestingly disruptive to Western companies as to those in China.
Anyone looking to throw money at the problem? Maybe a Kickstarter campaign? Maybe something something NFT market something?
> life-satisfaction-of-female-students-at-this-particular-school prediction markets.
I still don't understand why the most obvious outcome of this isn't people terrorizing the women at a given school in order to make a ton of money predicting they'll be very unhappy? That seems a lot easier and more reliable than doing a ton of investigative reporting and hoping that there's actually something to find.
Or, more generally: if you can make $25million by finding a scandal about a politician, can't you make $25million by inventing a convincing fake scandal? The 'infotainment industry where people try to get clicks by accusing each other of being racist pedophiles' seems like it would be more lucrative than investigative reporting, unless we somehow create a society where people do not respond to those accusations in ways that affect things measured by prediction markets.
Your fake scandal should be very convincing and hard to prove that it is fake. Yet, I think if the prize is $25 million, some will invent it. Think about Getty Kouros: https://en.wikipedia.org/wiki/Getty_kouros It even passed chemical analysis and probably some people still think that it is real.
Why don't people just short Google, then bomb Google offices? It's free money!
I assume the same things that keep people from doing this in the regular stock market (laws, ethics, etc) will also work for the prediction markets.
People don't short Google and bomb Google offices because bombing Google offices can land you in jail. Spreading fake stories doesn't land you in jail, and we have clickbait and fake reporting around already. Increasing the profit of fake reporting gets you more of it.
It can get you sued for libel, but it's damn hard for a politician to sue for libel in the US...
Well, we both know the answer to the ad absurdum is 'because they'll go to jail'.
As for the question, 'why doesn't someone short a company then make up false rumors about them', I think the answer is 'this happens all the time and is a big problem'?
But also, Google theoretically has a 'real' value based on the revenue-generating capability of their actual business, and investors have an incentive to care about this and return stock prices towards it.
But as far as I can tell, people in a prediction market don't have any reason to care about if a politician 'really' did crime X, only to care about whether rumors about crime 'X' will 'really' cause them to lose the election.
I'm not quite prepared to say this is the worst idea of yours I've read, but it certainly must be close.
I feel like you to some extent invented Bloomberg. Which isn't a bad thing to invent, since Bloomberg is something like a $20 billion company with $10 billion in annual revenues.
On the other hand, the stock market as a whole is valued around $40 trillion. Apparently Bloomberg has a few competitors like Thompson Reuters that are maybe collectively another $10 billion in revenue. So that would suggest that you can get about $1 of analytics value for every $2,000 of trade volume.
I can maybe believe that there's a future with predictive markets on whether the president of (say) Iowa State will be fired in the next year. I really struggle to believe, however, that more than, say, $1,000,000 could be invested in the prediction market (already double the president's salary). So that suggests about $500/year in potential investigative reporter revenues--to generate $100,000 in revenue, you'd have to provide a Bloomberg-esque product for 200 million-dollar questions.
For questions like "is there a culture of misogyny at school X," this seems unlikely. The reason the Washington Post cares about this isn't that their readers had a preexisting interest in school X, it's that they had a preexisting interest in cultures of misogyny, and are interested to hear about examples of those cultures. To the extent that that sort of reporting is useful for making predictions that the readers actually care about, it's in a very general, world-view building way, not in a specific, directly actionable way.
Apart from all the usual issues with prediction markets, the failure case here is that you can't have prediction markets for every possible scandal, and you certainly can't have liquid ones.
I don't think ideology really works like this. I've even shown obvious lies within the Rationalist community and only a handful of people updated their priors.
ok dis libertarian scott
Short reports don't have to be even remotely true to make a ton of money, and the first amendment in the US makes it next to impossible to successfully sue.
This is such a stunningly, obviously bad take that it's not worth taking the time to detail all the reasons that it is misguided and unworkable (and I assume the earlier comments have done so).
But what I did find interesting and worth commenting on is how this pieces beautifully illustrates the shortcomings of libertarianism. Investigative reporting is a public good. There clearly isn't a market mechanism that will fund it, but there are plenty of non-market alternatives one can imagine from non-profits to rich benefactors to government subsidies. The fact that this essay instead tries to posit this utterly ridiculous predictions market scenario is telling. It's a sign of someone who is unable to confront the shortcomings of their ideology.
This is the correct interpretation from someone I suspect I'd disagree with on many other topics.
Are we measuring instantaneous life satisfaction ratings, or aggregate life satisfaction ratings over the next N years? I can boost the former by abolishing tests/grades/classes and subsidizing parties. The latter will tend to be less liquid because there's a lot more opportunity cost to an N year investment. If N covers the entire lifetime of the students, most of the people with money to spare for prediction markets will be dead before they get paid. There's a tradeoff between the liquidity and the meaningfulness of the market.
Wall street struggles to get adequate liquidity on 1-year futures of major global commodities. So it seems absurd to expect liquidity of futures for 20-year life satisfaction of female students at school X.
As the saying goes "If you love something, put a financial derivative on it".
Do we really want to live in a world where it's common to have a prediction market on you, specifically, being fired? I realise this already exists for public figures, but extending it to a vastly higher percentage of society seems like a huge social negative. Worse, it would obviously be gamed - as soon as we start to measure something, it becomes useless for its original purpose. The unintended consequences of this idea would be massive.
Fighting cancel culture by monetizing it
If investigative journalism is a public good, why not support it with grants?
I'm not sure how you would allocate it specifically, but given the incentives market based journalism already face, adding more market seems like a weird solution.
Who decides who gives out the grants? This has been a criticism of BBC news reporting recently (idk if it's true or not): the government wants to reform the BBC's funding model so the BBC is alledgedly reluctant to bite the hand that feeds them.
yeh, that's the problem.
Then again, privately funded media is (Imo, atleast) about as bad.
> For example, our current model incentivizes fake news - if something is exciting and outrageous enough, it'll sell a lot of papers, and even if a few spoilsport researchers come out a few years later with definitive proof it was wrong, by that time nobody will care. In a prediction market, once you're wrong a couple of times, traders will stop updating on your reports and you'll lose most of your power to move the market. You'll have no particular reason to care whether what you write is outrageous or exciting, only that it's true and relevant to something that people care about.
your model incentivizes fake news equally as well. Remember we're not betting on "Candidate X did something bad" we're betting on "candidate X is not going to be reelected". You can prevent reelecetion equally well with sufficiently convincing fake scandals as with real scandals. If a fake story sells the papers, there is no reason to assume it won't move the polls.
I could see how (by keeping the money at stake low enough) you could prevent companies from shorting and then firing their own CEO, but how would you stop self reported levels of happiness from being gamed by the students given that they have the ability to self organise and there's nothing else at stake.
What might work would be a bet on the gender disparity of next year's intake. Something objective like that would be harder to fix.
But could that create perverse incentives with regard to admissions/hiring?
MIT is now about 50:50 male:female. Has the quality suffered as a result?
If admitting the best students doesn't already get you a 50/50 mix, it follows that achieving a 50/50 mix reduces the student quality.
The counter-argument is that they just weren't trying hard enough to find the women necessary to get to 50:50.
I know where my bias is. But I wonder if we could just check something quantifiable.
Probably, yeah
But isn't the risk that this year's crop of new female students (or indeed all the female students) get together and arm-twist the administration into "give us this demand, if you don't want complaints to the people judging the level of female-student-life-satisfaction for the prediction market, which will rate it as "low" and you as "lousy sexist misogynist pigs" which will in turn affect your reputation and you'll never get hired anywhere else after you're fired from here".
Also, how do you realistically compare dissatisfaction? If I'm a female student at a University in the Catholic Tradition and I'm vocal in my complaints about "they don't even say the Angelus at noon!" while another female student is complaining about "they made us read Scripture in comparative religion studies!", who measures which of us is more dissatisfied? Do we both get equal marks on "unhappy with the quality of female student life"? Or, as I suspect, would the complaints about Scripture-reading get counted while the complaints about the Angelus get quietly shoved into the bin?
As usual, you did predict my main concern with this, but I feel like maybe you didn't take the negative outcomes far enough. This doesn't seem dangerous while we're talking about agents as large as investigative reporting teams, but this (potentially) degenerates into individuals doxxing each other for the profit they can make off any drop in status. At that point, we're all suddenly living in the hellish world you found yourself in for a few months last year, where some people can make a few dollars publishing things about you which you'd rather they didn't. I want to be very careful with this line of critique though, because at the end of the day, it IS just a slippery slope argument. I just wanted to offer the hopefully balanced view that I don't think we know how slippery it really is, or how unpleasant the bottom of that hill. Who knows, maybe it's still a better world, due to improved investigative reporting being worth more than whatever is lost.
All that said, I do really like the idea of this. It seems to reward positive behaviour, at least right up until it potentially doesn't.
I like the system, and would like that it be tried. But I think that the potential problems are larger than what you make it seem. For instance, prediction markets are markets for entropy & chaos, i.e., you are very incentivized to cause unexpected things to happen.
A nice idea, but there are some serious issues:
a) If you subsidize markets (as suggested by comment below), you also subsidize fake news. If you can move "the market" with a bit of fake news, and "the market" is actually one trader + millions in subsidies then that's free money, basically. I mean we do have a market for news, and fake news seem to be doing quite well. Maybe it isn't "about" credibility?
b) Insider trading. This isn't as bad as everyone thinks (it was legal in parts of Europe until quite recently), but probably not great for liquidity. But also, the kind of insider trading where the school principal shorts his stock for millions and then goes on a "I have fuck you money now, fuck you all" spree.
c) Weird incentives to move markets as opposed to delivering the truth. We already kind of have these, but I'm kind of happy with the current situation where a lot of the smart people are happily modelling things in finance instead of being worried about how to manipulate prediction markets on things that actually matter.
"Then everyone could just ignore the first thing and go about their lives" that's _got_ to be a typo, surely you meant that everyone would ignore the _second_ thing, the way they do now. But yes, this totally reminds me of the Court of Values and the Bureau of Boringness and seems equally a good idea despite the tongue-firmly-planted-in-the-cheekness https://meaningness.com/virtue-court
"I want a world where protesters march into colleges and ask them why, if they claim to care about female students, they don't have a subsidized female-student-life-satisfaction prediction market, so that they can credibly set targets for gender equality"
Yeah, that's just what we need, discriminating on the basis of gender. I thought that was illegal. Oh, right: the law may be written that way (the Civil Rights Act of 1964 and numerous other laws) but we all know that it now means, discrimination is illegal if done by the wrong people for the wrong reasons but legal (and wonderful!) if done by the right people for the right reasons.
What a big, stinking pile of pigs**t.
"Even if their dirt isn't quite that good - even if it only makes Adams seem a little bit worse than people thought - it would probably affect his chances by 1 or 2 percent. And that's still $250K to $500K - more than enough to hire a couple of good investigative reporters."
The market math doesn't work this way. The journalists can't trade $25M without moving the price. Perhaps they could trade $500K on the Adams bid, but I suspect it'd be closer to $50K before they moved the price more than 1%. I think their best case on such a story is ~$10K.
> In the far future, the news might diverge into an "infotainment" industry where people try to get clicks by accusing each other of being racist pedophiles, and a prediction-market-movement industry where people try to generate true information on important issues. Then everyone could just ignore the first thing and go about their lives.
I predict that the strong majority will prefer the first, and the desire (both top-down and consumer-driven) to appropriate some of the latter's prestige by aping the format will blur the lines for all but the most diligent consumers. I predict that the commercial success of the infotainment will be an inevitable draw for the market-makers, and some of the compromise will come from that direction, too - gamification of results, clickbait to promote certain markets, maybe outright corporate consolidation with the editorials.
In short, I predict that even if one could snap their fingers and establish such a division, it would largely collapse within a few decades. But it won't get that far, because those forces would already be at work when trying to set up such a system.
Or by analogy - how much do you care about the extant division between reporting and opinion? You'll get more of that, for better and for worse.
Problems I see with this:
1. This only funds journalists who end up finding controversial stories. Lets say that I'm a reporter and I get a tip that politician X had a sketchy affair; in the current model I can safely investigate it since I know I'm salaried and I'll get paid either way. In your model, I get substantial compensation (likely) if I find out that the affair actually happened, but nothing if I find out that the tip was bogus, or if it wasn't bogus, but I just can't prove it. Beyond the substantial pressure that would put on reporters to just claim the most controversial interpretation of the facts it means that reporters would be incentivized to only follow leads they're pretty sure are already true. It's a good thing when a reporter spends 4-5 months investigating a rumor and finds out it isn't true and your system doesn't reward that.
2. The current system has an maximum compensation ceiling for lying reporters. Sure, if they lie well enough they'll get a promotion or two and maybe an award, but in bounds with their existing compensation levels. In your system, however, the right report at the right time could be worth hundreds of thousands or even millions of dollars depending on the market. If I can do that a few times, hell, if I can do that even once I'm set for a while. Sure, maybe my stuff gets discounted in the future, but who cares? I've already made bank. This incentivizes everyone to be maximally controversial at all times. The normal reaction to that is, "ok, let's just pay less attention to controversial reporting," but now you've set up a system where controversial reporting is dismissed out of hand.
There's also the problem that if you're trying to fund the investigative reporting by making a profit on the drop in electability of the candidate, running a story about "Congressperson Jones found canoodling an aide in a romantic getaway!" might elicit "so what? yawn, call me back when something interesting happens" from the public, Jones' chances of being re-elected aren't hurt or are even improved ("wow, they managed to pull a hottie like that? I'm impressed and definitely voting for them!") and now you've impoverished yourself by doing your job.
So you don't do any investigative reporting, or only of the most lurid, attention-grabbing, tabloid style, which is not making society better for anyone.
Jones had better make sure that their affair is COVID-safe. (unlike a certain former health sec)
Even there, he got in trouble (1) for breaching social distancing rules after being very strict with the general public (2) for putting his mistress on the public purse.
If Jones can demonstrate that all parties involved have been regularly tested for Covid-19 and that all measures have been followed ("my aide is, naturally, part of my household bubble") and that not a single penny of taxpayers' money has gone on flowers, dinners, fancy jaunts or expensive bling, they well could weather this and come out looking even better on the other side of it.
"Why should I believe this report on Eric Adams accepting bribes, the paper that revealed it has a huge financial stake in him losing the general election after all!"
An investigation into a New York politician/public servant that *didn't* turn up something mildly grubby would probably be even more unbelievable!
Shit, prediction markets might incentivize forcing some really bad outcomes, right?
Say it's possible to sway a nation's election by burning that nation's crop fields -
Basically, we should never have big markets about outcomes that can be greatly influenced by cheap destruction.
On the other hand, this also kind of applies to stocks markets, and yet we're still alive.
You may be interested in the book "Democracy's Detectives: The Economics of Investigative Reporting," which discusses this issue (https://reason.com/2017/02/22/where-did-all-the-investigativ/)
“But it's hard for investigative reporters to capture the value they produce.”
"It's hard for them to profit from the damage they inflict." FIFY
Fusion GPS figured out how to fund investigative journalism. You just work on commission generating dirt on a target that someone with money wants to take down. IIRC, I think they got something like $25 million from Hillary and the DNC to set up Trump with the Steele Dossier (or maybe that was just Steele alone).
The dirt little secret is that 95% of investigative journalism by the Legacy Media always consisted of just getting data dumped in their in-boxes by someone with a vested interest in having them publish it. The main sources are: (a) Plaintiffs' attorneys giving you the litigation files they accumulated through court-ordered discovery in order to help pressure a defendant corporation into settling; (b) official government operatives trying to spin the public narrative; and (b) disgruntled "whistleblowers" who are trying to either CYA themselves or take down their enemies.
Woodward and Bernstein's epic "investigation" consisted of having a guy name Mark Felt contact them and give them the whole story to print, because Felt was pissed that Nixon passed him over for a job. https://en.wikipedia.org/wiki/Mark_Felt
> In a prediction market, once you're wrong a couple of times, traders will stop updating on your reports and you'll lose most of your power to move the market.
Is that true, though ? I understand that, currently, prediction markets work more or less this way -- but the current prediction markets are niche, boutique affairs. What happens when they go mainstream ? There does not appear to be any mechanism that prevents prediction markets from succumbing to the same failure modes as the stock market -- with all the insider trading, CDS tranches, high-frequency algorithmic trading, and a myriad of other financial instruments and tricks essentially designed to decouple the value of the trading token from any real-world considerations.
Wouldnt a social credit system work better for most of these problems?
Kalshi, the first regulated prediction market is now live in beta. Pretty awesome check it out. Only does yes/no questions for regulatory reasons.
https://kalshi.com/
Questions:
Will the Tokyo Summer Olympics be cancelled? Y: $0.05
Will the target federal funds rate be above 0.25%? Y: $0.08
Will more Americans get vaccinated this week than last? Y: $0.99
Will real GDP increase by more than 6%? Y: $0.87
Here's the link to Scott's post that mentioned previously.
https://astralcodexten.substack.com/p/metaculus-monday-2821
Scott, if you're interested in chatting w/ the founder feel free to ping me at rex dot salisbury at gmail.
You could pick a group of institutions and bet against any member of the group being successfully prosecuted by whatever authority for whatever crime you think might be happening.
Actually, firms could use this against competitors that they suspected of cheating.
That is kind of how mandatory reporting by public companies is supposed to work.
It seems like this is a good way to fund investigative research, but also to amplify little-known stories and to fund negative advertising that has no basis in fact. Not checking the facts is cheaper.
1) Short the relevant positions
2) Publish report that is subtly but fatally flawed
3) Earn money
4) Switch to long positions
5) Wait for the inevitable backlash
6) Earn more money
As long as the transactions in the market aren't anonymous, telegraphing your nefarious plans via market moves would be a reliable counter to bad behavior.
If 99% of people are going long, and you put $1,000,000 into a short position days before it tanks (and then sell for massive profit), you stick out pretty good.
"Suppose some kind of media property uncovered evidence that Adams took bribes or committed some other career-ending indiscretion. In a world where prediction markets were as liquid as stock markets, they could short Adams, reveal his dirty laundry, crash his election prospects, and collect some portion of $25 million."
What a bad idea, and a surefire way to push journalists into smear campaigns and moral outrage "exposes" even worse than they already do today, which hurting politics and business in the process...
"In the far future, the news might diverge into an "infotainment" industry where people try to get clicks by accusing each other of being racist pedophiles, and a prediction-market-movement industry where people try to generate true information on important issues. Then everyone could just ignore the first thing and go about their lives."
We sort of already have this; the financial press (e.g. FT, WSJ, Bloomberg, Reuters to some extent) is generally much more sober and reality-oriented than most of the rest of the media, although their focus is obviously on existing markets. I suspect the FIRE sector is the last real market for non-sensationalist factual news.
As someone else mentioned here in the comments, though, the financial press is much smaller than the markets themselves. Of course, the public financial press cannot profit in the markets by using their own research, while the banks, hedge funds etc. (that probably do more investigation of markets overall and commission a lot of private research) can, and are much bigger, but I don't think much of what they uncover is classifiable as investigative reporting. That you have a small, in principle unbiased public financial press and lots of large profit-seeking institutions that keep their research private for market advantage is unlikely to be an accident. For instance, I suspect that in most markets it better to go for trades on things that don't need 2+ years of investigative reporting to maybe pay off.
A good example might be the Wirecard scandal. More than one hedge fund voiced their skepticism, published reports outlining problems, and shorted the stock, but it's to find info on any of these original shorters making much money, since there was no consensus on the reports being true. In the end, it took several Financial Times reporters years of digging, travelling to various places in Asia, meeting with established contacts, following up on leads etc. in order for their evidence to be compelling enough for an audit to be commissioned revealing the fraud, pushing Wirecard into bankruptcy.
All during this time Wirecard was making both public and private accusations of the FT working with short sellers, even getting the German financial regulator to open investigations into the main reporters on the story. This was not a very credible accusation, although not totally impossible. But how would the story have been received if the FT had said "Yes sure we're shorting Wirecard in order to found our investigative journalism", even if that hadn't been illegal? Even if that had been fine, for years there was no clear evidence that the irregularities at Wirecard were anywhere large enough to tank the company. Would it have made sense for the FT to dedicate years of work on this if the highly uncertain payoff of shorting Wirecard at the opportune time was the only possible reward?
Investigate reporting depends on sources willing to talk. Why they do this can be complicated - to feel important, to fight their own battles within the organization, etc. - but a big element is that blowing the whistle feels like a noble and righteous action. This turns it into something more like insider trading. Perhaps investigators will still find sources by offering sufficient cuts of the booty. But I don’t think anyone will be compelled by conscience to share information with someone who intends to profit from it. And their peers will _definitely_ see them as selling out. To say nothing of the increased investives to lie.
*incentives
It’s not clear to me why this would approach Truth rather than “what everyone happens to agree is true” (but isn’t)
The point of prediction markets is that they make testable predictions. I'm not sure what that would look like for a mayor, but it might be something like "buses run on time at least 80% of the time."[1]
[1] And then we have the obvious objections of how those metrics can be gamed.
I wonder if that would create an incentive to cause things to be true? I can try to foment dissatisfaction with Eric Adams or the head of a military school - I don't even necessarily have to lie. That might be cheaper and more reliable than investigating him in case he's dirty.
TL;DR: investigative journalism could be funded through the Universal Electronic Library.
It's an interesting idea, one that clearly deserves to be investigated further. But I believe it can only work for a limited subset of kind of investigative journalism. To find a solution, I believe we need to look at the wider picture, and I think the core issue is this:
The everybody-pays-for-oneself model is bad for information goods.
This model is bad for journalism, it is also bad for science — ask any scientist about SciHub —, it is bad too for culture, including fiction.
When there is a good investigative article, I want to read it, of course, but not only: I also want that other people can read it, and be convinced by it. Therefore, when I pay for an article, I do not want to pay just for me, I want to pay for everybody. And the same applies to the other examples: I can read an awesome novel or watch an awesome series, but if my friends have not read/watched it, I cannot discuss it with them, and the fun is hugely diminished.
This is becoming a problem because of dematerialization. When we needed a hard copy to consume some information goods, I had to pay for mine, I could not pay for yours. But at the same time, once I had a hard copy, I was allowed to lend it to my friends.
The core of the issue, of course, is copyright, because it is the legal tool to make information goods scarce, the precondition for the everyone-pays-for-oneself business model.
Copyright was invented to let authors have bargaining power against the publishers (and theatre troupes), but nowadays it has been completely perverted: the likes of Apple and Disney use it to leverage a few hugely popular assets they have in exclusivity to force customers to subscribe to their own service, even though it would probably be widely redundant with services they already have.
I acknowledge and respect the need and right of creators to get material gratitude for their works, but I do not accept they have the right to limit who can enjoy it. Nobody should be allowed to monopolize culture.
In the short run, we can probably fix that with mandatory sharing of catalogues, possibly after some embargo time. In short, now that it's been six months, I should be able to watch Baby Yoda with my Netflix subscription, with the provision, of course, that if many more people watch Disney shows on Netflix than Netflix shows on Disney, then Netflix has to pay Disney.
But in the long run, we need to acknowledge that the system is broken and fix it.
We have to get rid of copyright and replace it with something better.
I understand that this blog leans a lot towards libertarian ideology, which I find rather enjoy, but also that many people confuse libertarianism with propertarianism, which is a tragedy. The libertarian-propertarian solution for issues like this is to expect people to invest what they no longer pay in taxes into their own vision of the public good. To invest in subsidizing a prediction market for investigative journalism, maybe.
Unfortunately, the urge to invest in the public good, if we ever had it, has been negatively selected by two thousand years of mercantile society. Building that kind of mentality would take generations, and only if there is a massive adhesion to the project.
What we have now to foster the public good is Democracy and the Public Service. If we want to fix culture, we need to work with it.
The way the Public Service handles culture is libraries.
And on this, most of the public who enjoys culture and most of the authors agree: libraries are awesome. Libraries spread culture, libraries increase social fabric.
And libraries, in some jurisdictions, have an interesting feature: Public Lending Rights. This is money that is sent directly to creators when their works is borrowed a lot, even when no new copy needs to be bought because of wear-and-tear. Neil Gaiman, among others, has many good things to say about Public Lending Rights.
We could democratically decide to create the Universal Electronic Library: everything that is offered gratis on the Internet. Blogs. Journal websites, when they are not paywalled. Torrents! That means no prosecution for “piracy”, of course, but more importantly it means adequate funding for Public Lending Rights on what gets “borrowed”, i.e. browsed/downloaded a lot.
There would a few technicals hurdles to solve, but not that much. How do we know what gets perused a lot? I think just asking people would mostly work.
There is the issue of funding, of course. For that, I suggest a modern equivalent of the idea of a Land Value Tax transposed to intellectual property.
This idea of an Universal Electronic Library, made from everything gratis on the web and subject to Public Lending Rights could, I think, solve a lot of the problems we have with the funding of culture and information goods in general. Spread it!
> In the short run, we can probably fix that with mandatory sharing of catalogues, possibly after some embargo time. In short, now that it's been six months, I should be able to watch Baby Yoda with my Netflix subscription, with the provision, of course, that if many more people watch Disney shows on Netflix than Netflix shows on Disney, then Netflix has to pay Disney.
This is called "compulsory licensing" and versions of it exist in the music business...
If an organisation is subsidising a prediction market in a specific area that may warrant investigative reporting, then they are subsidising that prediction market in order to encourage investigative reporting (in a world of free online content). If this is the sole goal of subsidising the prediction market, why don't they just use the money to directly fund the investigative unit of media outlets, which can then investigate things they think are worth investigating?
I think that subsidising a prediction market would be more useful than the above only if said prediction market was very, very broad. For example, a prediction market in "Non-voting occurrences at schools". Various 'events' (which are still somewhat broad themselves) can be placed within this market (e.g. "Sexism scandal at school X", and "Shooting at school Y", and "Finance scandal at school Z", etc.). As the prediction market gains liquidity, people will begin to place bets across different events within the category. It would take longer to build liquidity, but is the only way I could see it being more useful than just directly funding media outlets over time. I don't do much betting, but I think this is pretty much how it works in sports betting markets.
Two points: 1) FYI you may be interested to know that the problem raised in your military school example is partially solved by the litigation finance market. Basically, this is the market of cross-collateralized debt financing for law firms, often used for financing portfolio's of contingency cases. It acts to facilitate litigation of uncertain claims like your example. If these suits end up public and are notable then the work of the lawyers will trickle into new, and at the least they provide a stick against bad actors for victims who otherwise might not have a means of legal organization. Suboptimal in many ways, but a partial solution to the problem. 2) as Luke G and a couple others have mentioned, P-markets are only politically stable long-term with strict insider trading regulation similar to that of public financial markets. With no insider-trading regulation you end up with a major alignment problem that makes p-markets a political non-starter, and which also would make many organizations less functional. With proper regs, you provide outsiders with the right incentive to uncover information, without actually corrupting the incentives of the underlying institutions. This also includes dishonest market manipulation i.e. you can publish a short report that you believe to be accurate, but you can't (as an investor) legally publish a short report with information you know to be wrong with the intent of damaging the price of a security. Ideally, these markets enable information discovery and accountability without incentivizes participants to encourage bad outcomes
Is the Eric Adams example correct? If investigative reporting lowered the likelihood of his election by 1-2% (as reflected in a market), I don't think a reporter could realistically monetize the $250-500k swing. Wouldn't that 250-500k be spread across the entire "No he won't be elected" side of the market? I think so. The better example is that a news organizations invests, let's say $100,000 on the NO vote side at a value of $0.25. When that moves to $0.27, they'd make a profit of $2k, right? So, it's not really funding a reporter. Plus they'd need to come up with the $100k and run the risk of being wrong or of no one caring about their reporting.
There may be some parallels to (and lessons from) litigation finance: https://www.epsilontheory.com/litigation-finance/
But the news itself causes the market decline regardless of its truth, for examlle, publish horrible lies about an election candidate and their prespects drop.