3 ms·

It's worth pointing out that X% of people betting an event will happen is not the same thing as an event having X% chance of happening. The former is an estimat

It's worth pointing out that X% of people betting an event will happen is not the same thing as an event having X% chance of happening. The former is an estimate of occurrence and the latter is a measure of the occurrence. This is a common conflation with statistics I hear when people talk about predictions.

drdeca 10y ago
> X% of people betting an event will happen You may be well aware of this, but in case you aren't, that isn't the value that prediction markets give. The value that prediction markets give is based on the odds people are willing to bet at, not the proportion of people willing to bet in what direction. If any risk neutral (in terms of currency) individual believes that their predictions are better than the prediction market, and the transaction costs and time costs are low enough, etc., it should be rational for them to participate in it. And if they are better at predicting, the prediction market prediction should improve. So, yes, prediction markets might not always make the best possible predictions, but if anyone claims to be better than them, it opens the question of why they aren't participating. So, if I don't have any special knowledge about the possibility of something, and think that a substantial amount of people know better than I do, I generally expect the market's prediction to be better than mine. (Assuming the people better informed than me make up a reasonably large part of the market, which I think they usually do.)
- nhaliday 10y ago
  Interestingly enough, even idealized prediction markets don't produce accurate probability estimates, but generally overweight bad events like collapse of the market itself: https://ordinaryideas.wordpress.com/2011/12/16/risk-arbitrage/ https://ordinaryideas.wordpress.com/2011/12/16/risk-arbitrag....

3 ms·

It's worth pointing out that X% of people betting an event will happen is not the same thing as an event having X% chance of happening. The former is an estimat

by dreamdu5t 10y ago

drdeca 10y ago
> X% of people betting an event will happen You may be well aware of this, but in case you aren't, that isn't the value that prediction markets give. The value that prediction markets give is based on the odds people are willing to bet at, not the proportion of people willing to bet in what direction. If any risk neutral (in terms of currency) individual believes that their predictions are better than the prediction market, and the transaction costs and time costs are low enough, etc., it should be rational for them to participate in it. And if they are better at predicting, the prediction market prediction should improve. So, yes, prediction markets might not always make the best possible predictions, but if anyone claims to be better than them, it opens the question of why they aren't participating. So, if I don't have any special knowledge about the possibility of something, and think that a substantial amount of people know better than I do, I generally expect the market's prediction to be better than mine. (Assuming the people better informed than me make up a reasonably large part of the market, which I think they usually do.)
- nhaliday 10y ago
  Interestingly enough, even idealized prediction markets don't produce accurate probability estimates, but generally overweight bad events like collapse of the market itself: https://ordinaryideas.wordpress.com/2011/12/16/risk-arbitrage/ https://ordinaryideas.wordpress.com/2011/12/16/risk-arbitrag....