5 ms·

What's the difference between using prediction markets for politics and having a direct democracy?

the_cat_kittles 8y ago
not sure how they are comparable to begin with, since one is people guessing an outcome, and another is people voting for an outcome. in the first, you are trying to guess how everyone will vote, in the second you say what you want. sorry if thats not what you are actually asking.
- throwawaylolx 8y ago
  Also one is weighted roughly by number of individuals and one is weighted by the amount of $ that individuals are willing to pay
IMTDb 8y ago
In direct democracy, you vote for what you want to happen. In a prediction market you vote for what you think will happen. The whole point is that a sufficiently large and diverse groupe of people is better at predicting the future using those system than an individual. Being able to correctly predicting the future can lead to better decisions.
- djhworld 8y ago
  Is there evidence of this working though, or is it the same concept as the 'wisdom of the crowds'
  - gowld 8y ago
    Yes, both. For context: https://en.wikipedia.org/wiki/The_Wisdom_of_Crowds https://en.wikipedia.org/wiki/The_Wisdom_of_Crowds
  - packet_nerd 8y ago
    The stock markets are basically prediction markets. Over the short term they are wildly inaccurate and are determined mostly by fear, greed, and crowd psychology. But averaged over the long term they are very accurate.
    - radarsat1 8y ago
      but are they accurate in a predictive sense, or only in their reaction to events? If the latter, which I think is more likely, it seems kind of a useless way to try and answer questions...
      - nostrademons 8y ago
        The idea is that they create an incentive to discover all possible information that may effect the price of the stock in the future, and so the eventual market price ends up reflecting all that information. That in turn lets people use that price as a signal for how to allocate capital and make decisions in the future. It's not that they're totally accurate, it's that they're as accurate as it is possible to be. Why? Because if you knew of a better way to determine the truth, you would do so, trade on that information, bump up (or down, if shorting) the price to reflect that information, and take your profits so you could do so again. Conversely, if you're just trading randomly, somebody with better information will take all your money and you won't be able to continue trading. The price that's reflected in a market could be considered residual uncertainty that nobody knows, i.e. if the prediction market for "Will Donald Trump win the 2020 election ?" sells at $0.60 on the $1.00, it means that after all the market participants have crunched their models, aggregated their polls, gone out and canvassed neighborhoods, ran their economic analyses, spoken to campaign insiders, and whatever else they can do, the equilibrium price assumes he has a 60% chance of winning. You don't have to actually perform all those information-gathering tasks to figure this out, you can assume that other people have been incentivized to do so and their results are now reflected in the price.
        deleted 8y ago
        [deleted]
  - GreenPlastic 8y ago
    Yes, it works very well but not for the 'wisdom of the crowds' effect. It works because the people with the most information and best models sharpen up the price. Over time, the sharpest bettors grow their bankrolls or capital exponentially and place larger bets and have a disproportionate weight on the markets and their opinions matter more, making markets more efficient.
    - adam 8y ago
      In theory you're right - but this isn't how it works in practice. The people who earn the most money are the best traders, not necessarily the people with the "most information and best models." The overall forecasts tend to be accurate, but you cannot look to individual participants, see who has the most money, and assume they know the most about the subject at hand.
      - merinowool 8y ago
        How can one make money with that knowledge put to work?
      - skolsuper 8y ago
        Both right: on an individual level the people with the most money might or might not be the smartest, but in aggregate the money moves towards the smarter bettors, weighting their votes higher in future rounds, improving the aggregate intelligence of the market.
  - deleted 8y ago
    [deleted]
  - turingcompeteme 8y ago
    The Signal and the Noise by Nate Silver talks about this a lot. From predicting politics to economics to sports to climate change, group predictions are almost universally better than individual expert predictions.
- rishav_sharan 8y ago
  Is there any well established study which outlines this? It feels very counter intuitive that masses are better at prediction than specialists of that domain.
  - ALittleLight 8y ago
    You should visit the good judgment project website. They've studied this for a while and have documentation outlining and explaining their claims. The idea is not that an untrained mass of people are necessarily better than experts. Instead, it's that some people, with training, can learn how to make good predictions about many different fields. These predictions exceed the predictions of domain experts.
  - jonnycomputer 8y ago
    Well, a simple average is a pretty reasonable ways to make predictions when you have no better information... like a regression model with 0 predictors. But really the idea is more about a feedback mechanism in which successful predictors those who are successful at making predictions end up with more money to invest back into the market making more predictions. So its a weighted average of the masses, in which those who are successful predictors get weighted more heavily in virtue of their having more financial capital with which to invest. For that to work well, you really need a reasonable level of participation. Also, if the inputs from new participants continually outweighs those from experienced quality participants, you are not going to get good predictions. Also, you have to have a rock-solid mechanism to decide the market, or it will be gamed.
  - chrisweekly 8y ago
    Sorry, no citation handy, and this might be semi-tangential (more "wisdom of he crowds" per se), but I recall a study that reviewed those "guess how many jellybeans are in this jar" -type contests, in which the guesses' median value converged with the correct answer...
- ulrikrasmussen 8y ago
  Isn't that going to turn into a voting system as soon as those predictions are used for making political decisions?
  - kevinwang 8y ago
    Then those who can make actual realistic predictions can simply predict the truth and exploit them
  - arisAlexis 8y ago
    that's called futarchy
- axaxs 8y ago
  In theory. But from my experience, it's the opposite, and you can tell by the comments. I made a lot of money betting on Trump to win PA, FL, and POTUS on predictit. The only one I was unsure of was POTUS, but it was good odds so I took a gamble. The fact that FL, and to a lesser extent PA, had underdog odds meant people weren't betting logically. And the comments were akin to youtube comments.

not sure how they are comparable to begin with, since one is people guessing an outcome, and another is people voting for an outcome. in the first, you are trying to guess how everyone will vote, in the second you say what you want. sorry if thats not what you are actually asking.

throwawaylolx 8y ago
Also one is weighted roughly by number of individuals and one is weighted by the amount of $ that individuals are willing to pay

IMTDb 8y ago

In direct democracy, you vote for what you want to happen. In a prediction market you vote for what you think will happen. The whole point is that a sufficiently large and diverse groupe of people is better at predicting the future using those system than an individual. Being able to correctly predicting the future can lead to better decisions.

djhworld 8y ago
Is there evidence of this working though, or is it the same concept as the 'wisdom of the crowds'
- gowld 8y ago
  Yes, both. For context: https://en.wikipedia.org/wiki/The_Wisdom_of_Crowds https://en.wikipedia.org/wiki/The_Wisdom_of_Crowds
- packet_nerd 8y ago
  The stock markets are basically prediction markets. Over the short term they are wildly inaccurate and are determined mostly by fear, greed, and crowd psychology. But averaged over the long term they are very accurate.
  - radarsat1 8y ago
    but are they accurate in a predictive sense, or only in their reaction to events? If the latter, which I think is more likely, it seems kind of a useless way to try and answer questions...
    - nostrademons 8y ago
      The idea is that they create an incentive to discover all possible information that may effect the price of the stock in the future, and so the eventual market price ends up reflecting all that information. That in turn lets people use that price as a signal for how to allocate capital and make decisions in the future. It's not that they're totally accurate, it's that they're as accurate as it is possible to be. Why? Because if you knew of a better way to determine the truth, you would do so, trade on that information, bump up (or down, if shorting) the price to reflect that information, and take your profits so you could do so again. Conversely, if you're just trading randomly, somebody with better information will take all your money and you won't be able to continue trading. The price that's reflected in a market could be considered residual uncertainty that nobody knows, i.e. if the prediction market for "Will Donald Trump win the 2020 election ?" sells at $0.60 on the $1.00, it means that after all the market participants have crunched their models, aggregated their polls, gone out and canvassed neighborhoods, ran their economic analyses, spoken to campaign insiders, and whatever else they can do, the equilibrium price assumes he has a 60% chance of winning. You don't have to actually perform all those information-gathering tasks to figure this out, you can assume that other people have been incentivized to do so and their results are now reflected in the price.
      - deleted 8y ago
        [deleted]
- GreenPlastic 8y ago
  Yes, it works very well but not for the 'wisdom of the crowds' effect. It works because the people with the most information and best models sharpen up the price. Over time, the sharpest bettors grow their bankrolls or capital exponentially and place larger bets and have a disproportionate weight on the markets and their opinions matter more, making markets more efficient.
  - adam 8y ago
    In theory you're right - but this isn't how it works in practice. The people who earn the most money are the best traders, not necessarily the people with the "most information and best models." The overall forecasts tend to be accurate, but you cannot look to individual participants, see who has the most money, and assume they know the most about the subject at hand.
    - merinowool 8y ago
      How can one make money with that knowledge put to work?
    - skolsuper 8y ago
      Both right: on an individual level the people with the most money might or might not be the smartest, but in aggregate the money moves towards the smarter bettors, weighting their votes higher in future rounds, improving the aggregate intelligence of the market.
- deleted 8y ago
  [deleted]
- turingcompeteme 8y ago
  The Signal and the Noise by Nate Silver talks about this a lot. From predicting politics to economics to sports to climate change, group predictions are almost universally better than individual expert predictions.
rishav_sharan 8y ago
Is there any well established study which outlines this? It feels very counter intuitive that masses are better at prediction than specialists of that domain.
- ALittleLight 8y ago
  You should visit the good judgment project website. They've studied this for a while and have documentation outlining and explaining their claims. The idea is not that an untrained mass of people are necessarily better than experts. Instead, it's that some people, with training, can learn how to make good predictions about many different fields. These predictions exceed the predictions of domain experts.
- jonnycomputer 8y ago
  Well, a simple average is a pretty reasonable ways to make predictions when you have no better information... like a regression model with 0 predictors. But really the idea is more about a feedback mechanism in which successful predictors those who are successful at making predictions end up with more money to invest back into the market making more predictions. So its a weighted average of the masses, in which those who are successful predictors get weighted more heavily in virtue of their having more financial capital with which to invest. For that to work well, you really need a reasonable level of participation. Also, if the inputs from new participants continually outweighs those from experienced quality participants, you are not going to get good predictions. Also, you have to have a rock-solid mechanism to decide the market, or it will be gamed.
- chrisweekly 8y ago
  Sorry, no citation handy, and this might be semi-tangential (more "wisdom of he crowds" per se), but I recall a study that reviewed those "guess how many jellybeans are in this jar" -type contests, in which the guesses' median value converged with the correct answer...
ulrikrasmussen 8y ago
Isn't that going to turn into a voting system as soon as those predictions are used for making political decisions?
- kevinwang 8y ago
  Then those who can make actual realistic predictions can simply predict the truth and exploit them
- arisAlexis 8y ago
  that's called futarchy
axaxs 8y ago
In theory. But from my experience, it's the opposite, and you can tell by the comments. I made a lot of money betting on Trump to win PA, FL, and POTUS on predictit. The only one I was unsure of was POTUS, but it was good odds so I took a gamble. The fact that FL, and to a lesser extent PA, had underdog odds meant people weren't betting logically. And the comments were akin to youtube comments.