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prediction markets are not well regarded academically , outside of the cristall ball economics. the academic consensus is that as soon as you create a second i
by gcb0 8y ago
prediction markets are not well regarded academically , outside of the cristall ball economics.
the academic consensus is that as soon as you create a second incentive (the prediction market itself) you lose all the insight you could gain from external factors. At that point they are no better than simply looking at the stocks (the predicted market). hence prediction markets are by definition, useless.
the cristall ball people still trying to make it happen are now trying to see how much they can limit the prediction market itself for it to not affect itself (hence the limitations you don't like on the one you mention)
- ansiton 8y agoDo you have citations for this? The academic papers I've read on prediction markets are (broadly) positive.
- gcb0 8y agoyou are probably reading crystal ball economists. do they also write about other means to pick stock besides analyzing the company?
- skilgarriff 8y agoMind suggesting the economists to read, rather than just suggesting he is reading the wrong economists? I'm admittedly naive in this subject, but the name calling doesn't help. On the second point - there is solid evidence that, yes there are ways to pick stock besides JUST analyzing the company - see Momentum investing https://www.aqr.com/Insights/Research/Journal-Article/Fact-Fiction-and-Momentum-Investing https://www.aqr.com/Insights/Research/Journal-Article/Fact-F... I've seen plenty of critics of the efficient market hypothesis, and Fama himself has said that the market is not efficient.
- skolsuper 8y agoMaybe you're agreeing with GP? Analysing the companies would not be a profitable way of picking stocks in a genuinely Efficient Market.
- cryptobeanbaby 8y agoTo quote a prior Senate Minority Leader Tom Daschle on the floor of the Senate: "How long would it be before you saw traders investing in a way that would bring about the desired result?" As in, if one found a way to bet against your car remaining in tact and realized sabotaging your car was cost effective to manipulate their bet, then they reap the market pay out. Is this good? https://en.wikipedia.org/wiki/Information_Awareness_Office#Futures_Markets_Applied_to_Prediction_(FutureMAP) https://en.wikipedia.org/wiki/Information_Awareness_Office#F...
- nyolfen 8y agothis is the idea behind assassination markets
- goldenkey 8y agoInteresting...so when enough "life insurance" has been taken out on someone, it becomes more profitable to protect them or to kill them, depending on what the relative odds are, and which side the potential assassins have placed their money?
- allenlavoie 8y agoWe already have a much more liquid terrorism futures market, i.e. the regular stock market. Worrying about incentives for a large attack from a prediction market is missing the ocean for a hypothetical raindrop. Incentives in smaller markets (e.g. local elections, or personal car crashes as you say) are super interesting though.
- nybble41 8y ago> As in, if one found a way to bet against your car remaining in tact and realized sabotaging your car was cost effective to manipulate their bet, then they reap the market pay out. You just described insurance fraud. And just like in insurance, the fix is to be very careful about how you describe the "win" condition—not just "will the car become damaged" but "will the car become damaged through no fault of the owner" (to begin with; the actual terms would be much more complex).
- zodiac 8y ago> At that point they are no better than simply looking at the stocks (the predicted market). Are you assuming that prediction markets are only over stock prices? What about a market about the winner of the next US presidential election?
- gcb0 8y agoif you have a market where I can make tons of money of it, at which point do you expect me to start contributing to PACs just to win the bet? see the problem?
- zodiac 8y agoSorry, I don't understand what you're trying to say.
- hndamien 8y agoThe thing is it is supposed to solicit insider information exactly like this. Potentially it incentivises people to change outcomes if the have the resources available, but at least we will all know in advance.
- AznHisoka 8y agoWhat’s the problem? Public companies with the majority of shares owned by the executives have this same incentive.
- dragonwriter 8y ago> What about a market about the winner of the next US presidential election? IIRC, those exist, were the focus of attention a few cycles back (because cherry picked just right they were arguably better than polling in the cycle preceding the attention), but as soon as media started paying attention to them, people started diverting money to them to manipulate the results, because there are plenty of people that care more about influencing the result of that question (and it's one where perceived likelihood influences the actual behavior that controls the result) more than predicting it. That kind of thing is actually a significant problem in many of the areas where prediction markets have been hyped.
- modeless 8y agoThe stock market is already a prediction market. Using a prediction market to predict a prediction market is a silly idea. But that doesn't make prediction markets bad at other things, like predicting the weather.
- stcredzero 8y agoThe stock market is already a prediction market. Using a prediction market to predict a prediction market is a silly idea. If you have a prediction market on a prediction market, that mess reduces to a prediction market. Quelle surprise!