5 ms·

Genuine question, why is this called a "prediction market" and not just a gambling exchange? As far as I can tell, this is no different from BetFair et al who

Genuine question, why is this called a "prediction market" and not just a gambling exchange? As far as I can tell, this is no different from BetFair et al who let punters bet against each other on the outcome of the next football match? (apart from "oooh! blockchain!" and "oooh! decentralised!") I've read a lot of articles about this over the years and seen lots of lofty words about how this will change X/the world forever, or enable some new economic model Y or whatever, but as far as I can tell its just the same old grotty gambling we've had for thousands of years already except its better because blockchain? What have I missed?

SuoDuanDao 8y ago
I would expect a gambling exchange not to be transparent. The stock market is fundamentally a gambling exchange too, but it provides valuable information about the economy for free, funded by the gamblers taking part. I would say a prediction market and a gambling exchange are both built on gambling, but a prediction market has a purpose beyond money changing hands.
- nickles 8y ago
  > The stock market is fundamentally a gambling exchange too, but it provides valuable information about the economy for free, funded by the gamblers taking part. A stock exchange is no more a gambling den than a flea market is, although one may choose to engage in speculative activities at both. I feel it's also a stretch to say that an equities market provides information about the economy. The information produced by trading activity on a stock exchange is principally indicative of what price people are willing to trade given stocks at. Without augmenting the transaction data with other sets of data (company fundamentals, economic reports, etc.), it's hard to draw meaningful conclusions about the economy from these transactions alone. If you consider the valuation of a stock according to a standard modeling technique (DCF), in which the price paid for a stock is equal to the net present value of all future cashflows, you can see how a change in a stock's price may indicate nothing at all about current economic conditions. Consider, for example, a company that is prohibited from selling widgets for a year due to a patent dispute with another firm. The price of that company's stock will fall, even though we know nothing about levels of widget consumption in the economy.
adilmoujahid 8y ago
[1] provides a good answer to this question. "The outcome becomes more predictable over time. This is because the payoff depends on the accurate prediction of an outcome of an event. Therefore, people will put in more effort to come to the most accurate conclusion. As a larger number of people do more market research to come to the most likely conclusion, the predicted outcome will lean more favorable to one side. If you place a bet on a coin flip, the outcome will always be 50% heads, 50% tails. There are no external market conditions that will influence the outcome. Luck plays a major role, and this is called gambling. But prediction markets rely on the collective wisdom held by a group of people on the probability of a future event materializing." [1] https://cointelegraph.com/explained/prediction-markets-explained https://cointelegraph.com/explained/prediction-markets-expla...
- pbhjpbhj 8y ago
  Can you show that predictions are true rather than just being perturbations. To me it looks like trading drives markets to respond (beyond large obvious fundamentals changes), rather than providing usable predictions. Moreover, assume they are predictive, do they target funds to where society needs them. Finally if people are good at prediction, using algorithms for example, then those algorithms provide the required prediction and we should use those to target resources and retain wealth in the market rather than giving out 40% of the wealth (UK) just to get some predictive power. I think the value added by the market is vastly over-stated in the present model.
  - CryptoPunk 8y ago
    >>To me it looks like trading drives markets to respond Respond to what? The markets are about events that have not happened. The payout is directly proportional to the predictive power of the market purchase. >>Finally if people are good at prediction, using algorithms for example, then those algorithms provide the required prediction and we should use those to target resources and retain wealth in the market rather than giving out 40% of the wealth (UK) How do we incentivize people to generate these predictive methods, let alone release them for public use, without a compensatory scheme like a prediction market?
repomies6999 8y ago
You have missed nothing. It is just another traditional business implemented "on blockchain", and as usual the blockchain here doesn't add value.
- RexetBlell 8y ago
  It actually does add value in this case. It makes it impossible for governments to shut the market down because it's decentralized (Unlike Intrade which was shut down). Also, anyone in the world can participate, even people with no access the financial system or a government ID.
- coralreef 8y ago
  Actually from what I can tell, it is a more liquid model. In Augur you buy shares of an outcome, and the value of those shares can change day to day, and you can sell at any time. Whereas with a bookie, you bet on the outcome with fixed odds. Bookie lines may shift, but your bet will be locked in and unable to appreciate in value. I'm not sure why bookies haven't implemented this share model, maybe its needlessly complicated.
  - joosters 8y ago
    Bookies have implemented this. Betting exchanges have existed for over a decade now, you can lay off your bets to lock in a profit if the odds have moved. Even 'traditional' bookies offer various forms of cashing out a bet.
    - coralreef 8y ago
      Could you name some of these exchanges? One problem is that they may not service certain jurisdictions as well.
      - kluge 8y ago
        Betfair is the biggest one.
- 8y ago
rocqua 8y ago
Some gambling (e.g poker, blackjack, roulette) doesn't give predictions about the real world. Prediction markets are a specific form of gambling that yields predictions about the real world. So all prediction markets are gambling, but not all gambling is a prediction market. One noteable difference between 'prediction markets' and the normal operation of bookies is who sets the prices. Usually, bookies offers odds on a bet, and for every new bet, they can set new odds taking the previous bets into account. This is called 'fixed-odds' betting. In 'prediction markets' people on all sides of a bet put money into a pool. Suppose the total pool has a value of $Z, you put in $X on outcome A, and in total people put $Y on outcome A, then if outcome A is the true outcome, you get $ Z * (X / Y) for your bet. This is called parimutuel betting. Beyond parimutuel betting, the idea is that once the pool is fixed, you can sell your bet. So in the above scenario, I could sell my X/Y share in outcome A to someone else. Later, the price of such shares allow us to track the markets opinion on changing odds. In reality, I think they tend to skip the parimutuel part, and instead just auction of an equal amount of shares for each outcome. The proceeds of this initial auction then become the shared pool.
adawes 8y ago
Prediction markets are a form of gambling, but there is a key difference; whilst the purpose of traditional gambling markets is entertainment, the purpose of a prediction market is information discovery. Some prediction markets can even be subsidised in order to incentivise participants, where the house (ie the entity running the market) expects to lose money in exchange for the information that the market is revealing. It is extremely rare to find this in a traditional gambling setting, where the house usually always reserves an edge. This fact seems to have been largely missed by the guys behind Augur though, who seem to have focused more on the "blockchain" part of "prediction markets on the blockchain" than the "prediction market" part, and this shows through their clunky UX and relatively simple platform. Prediction markets have been around for decades (30 years ago the University of Iowa ran a market on the 1988 US election and is still running them today - https://iemweb.biz.uiowa.edu https://iemweb.biz.uiowa.edu) and Augur doesn't seem to offer anything new above decentralisation, which I dont think anyone was asking for.
- DennisP 8y ago
  From the IEM's FAQ: "The IEM is operated for research and teaching purposes. All interested participants world-wide can trade in our political markets. Other markets--such as the earnings and returns markets--are open only to academic traders." "Trading accounts can be opened for $5 to $500." These constraints are presumably why they got their no-action letter from the CFTC. If there's demand for markets other than political markets, or for larger accounts, then there's demand for a decentralized prediction market.
  - adawes 8y ago
    You seem to be suggesting that the point of decentralisation is to avoid legislation and regulation. While this might be true for Silk Road and other criminal transactions, that does not seem to me to be a valid argument for running a prediction market on blockchain software. Blockchain as a technology has a valid use-case where you cannot trust a third party to manage a centralised database and where you need an immutable history of events. I can just about buy into putting transactions for real-world things (eg property) onto a blockchain - after all its a lot easier to prove you own something in the case of a dispute if you can show on a distributed and trusted event log that you were the last person to purchase it than it is to dig out some old documentation and prove its not forged. There is an argument that applies to prediction markets, which is that you might not trust the market to actually pay out your winning contracts (though believing in this relies on a distrust of the regulators and court system). Augur is not actually solving this problem though, as neither oracle contracts nor the market owner defining the settlement conditions are trustworthy, and when you have user-defined markets such as "Does God Exist?" there is huge scope for arguing about the true outcome. At least with the centralised case you have an organisation with a reputation to maintain, that is therefore motivated to police and administrate the markets properly. You might also argue for long-running markets that the company running the market might collapse and be unable to pay out, but in the case of crypto there is simply a parallel that your currency could simply collapse and be worthless by the time your contract paid out. Given the volatility of most ETH and REP, your winnings are likely to either be dwarfed by gains in the currency or destroyed by a collapse in the currency. Prediction markets that trade using real money are gambling, and hence are controlled by various regulators. In addition, certain markets can also catch the attention of other regulators, for example if a market involves speculation on financial instruments or commodities. There are certain ways to avoid this, such as restructuring the incentives; for example, a market using credits instead of real money and run as a competition where the most successful players receive monetary prizes does not constitute gambling. Obviously in this case the players are not risking their own money, and this relates back to my previous points about subsidising prediction markets in exchange for valuable information. The regulation issues should be dealt with in an ethical way by developing the technology and working with regulators and not by avoiding the issue via decentralised blockchains.
tw1010 8y ago
Answer: branding.
infodroid 8y ago
Why couldn't you just fucking google it? https://en.wikipedia.org/wiki/Prediction_market https://en.wikipedia.org/wiki/Prediction_market Your inane rant disguised as a question doesn't add anything to the discussion.
- dang 8y ago
  Attacking someone like this will get you banned here, regardless of how ignorant they are. Please don't do it again. On HN, if someone doesn't know something, please either politely inform them or leave that for someone else to do. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
  - infodroid 8y ago
    Over the past few years, the increase in zero-effort contributions have all but destroyed the quality of discussions on HN. And you aren't doing anything about it. HN is looking more indistinguishable from Reddit and I'll be damned if I let that happen. Civility should be reserved for people who are looking to argue and discuss in good faith.
    - shawn 8y ago
      No, you're just having a bad day. There is no reason whatsoever to say "Why couldn't you just fucking google it?" on a site meant for intellectual curiosity. "Your inane rant disguised as a question" This kills the curiosity. Don't do that. By the way: And you aren't doing anything about it. You lose credibility with this kind of statement. I may deeply disagree with policy, but it would be ridiculous to accuse the mods of inaction.
    - dang 8y ago
      That's not what the site guidelines say; "be civil" has been there, unqualified, from the beginning.
      - infodroid 8y ago

SuoDuanDao 8y ago

I would expect a gambling exchange not to be transparent. The stock market is fundamentally a gambling exchange too, but it provides valuable information about the economy for free, funded by the gamblers taking part. I would say a prediction market and a gambling exchange are both built on gambling, but a prediction market has a purpose beyond money changing hands.

nickles 8y ago
> The stock market is fundamentally a gambling exchange too, but it provides valuable information about the economy for free, funded by the gamblers taking part. A stock exchange is no more a gambling den than a flea market is, although one may choose to engage in speculative activities at both. I feel it's also a stretch to say that an equities market provides information about the economy. The information produced by trading activity on a stock exchange is principally indicative of what price people are willing to trade given stocks at. Without augmenting the transaction data with other sets of data (company fundamentals, economic reports, etc.), it's hard to draw meaningful conclusions about the economy from these transactions alone. If you consider the valuation of a stock according to a standard modeling technique (DCF), in which the price paid for a stock is equal to the net present value of all future cashflows, you can see how a change in a stock's price may indicate nothing at all about current economic conditions. Consider, for example, a company that is prohibited from selling widgets for a year due to a patent dispute with another firm. The price of that company's stock will fall, even though we know nothing about levels of widget consumption in the economy.

adilmoujahid 8y ago

[1] provides a good answer to this question. "The outcome becomes more predictable over time. This is because the payoff depends on the accurate prediction of an outcome of an event. Therefore, people will put in more effort to come to the most accurate conclusion. As a larger number of people do more market research to come to the most likely conclusion, the predicted outcome will lean more favorable to one side. If you place a bet on a coin flip, the outcome will always be 50% heads, 50% tails. There are no external market conditions that will influence the outcome. Luck plays a major role, and this is called gambling. But prediction markets rely on the collective wisdom held by a group of people on the probability of a future event materializing." [1] https://cointelegraph.com/explained/prediction-markets-explained https://cointelegraph.com/explained/prediction-markets-expla...

pbhjpbhj 8y ago
Can you show that predictions are true rather than just being perturbations. To me it looks like trading drives markets to respond (beyond large obvious fundamentals changes), rather than providing usable predictions. Moreover, assume they are predictive, do they target funds to where society needs them. Finally if people are good at prediction, using algorithms for example, then those algorithms provide the required prediction and we should use those to target resources and retain wealth in the market rather than giving out 40% of the wealth (UK) just to get some predictive power. I think the value added by the market is vastly over-stated in the present model.
- CryptoPunk 8y ago
  >>To me it looks like trading drives markets to respond Respond to what? The markets are about events that have not happened. The payout is directly proportional to the predictive power of the market purchase. >>Finally if people are good at prediction, using algorithms for example, then those algorithms provide the required prediction and we should use those to target resources and retain wealth in the market rather than giving out 40% of the wealth (UK) How do we incentivize people to generate these predictive methods, let alone release them for public use, without a compensatory scheme like a prediction market?

repomies6999 8y ago

You have missed nothing. It is just another traditional business implemented "on blockchain", and as usual the blockchain here doesn't add value.

RexetBlell 8y ago
It actually does add value in this case. It makes it impossible for governments to shut the market down because it's decentralized (Unlike Intrade which was shut down). Also, anyone in the world can participate, even people with no access the financial system or a government ID.
coralreef 8y ago
Actually from what I can tell, it is a more liquid model. In Augur you buy shares of an outcome, and the value of those shares can change day to day, and you can sell at any time. Whereas with a bookie, you bet on the outcome with fixed odds. Bookie lines may shift, but your bet will be locked in and unable to appreciate in value. I'm not sure why bookies haven't implemented this share model, maybe its needlessly complicated.
- joosters 8y ago
  Bookies have implemented this. Betting exchanges have existed for over a decade now, you can lay off your bets to lock in a profit if the odds have moved. Even 'traditional' bookies offer various forms of cashing out a bet.
  - coralreef 8y ago
    Could you name some of these exchanges? One problem is that they may not service certain jurisdictions as well.
    - kluge 8y ago
      Betfair is the biggest one.
8y ago

rocqua 8y ago

Some gambling (e.g poker, blackjack, roulette) doesn't give predictions about the real world. Prediction markets are a specific form of gambling that yields predictions about the real world. So all prediction markets are gambling, but not all gambling is a prediction market. One noteable difference between 'prediction markets' and the normal operation of bookies is who sets the prices. Usually, bookies offers odds on a bet, and for every new bet, they can set new odds taking the previous bets into account. This is called 'fixed-odds' betting. In 'prediction markets' people on all sides of a bet put money into a pool. Suppose the total pool has a value of $Z, you put in $X on outcome A, and in total people put $Y on outcome A, then if outcome A is the true outcome, you get $ Z * (X / Y) for your bet. This is called parimutuel betting. Beyond parimutuel betting, the idea is that once the pool is fixed, you can sell your bet. So in the above scenario, I could sell my X/Y share in outcome A to someone else. Later, the price of such shares allow us to track the markets opinion on changing odds. In reality, I think they tend to skip the parimutuel part, and instead just auction of an equal amount of shares for each outcome. The proceeds of this initial auction then become the shared pool.

adawes 8y ago

Prediction markets are a form of gambling, but there is a key difference; whilst the purpose of traditional gambling markets is entertainment, the purpose of a prediction market is information discovery. Some prediction markets can even be subsidised in order to incentivise participants, where the house (ie the entity running the market) expects to lose money in exchange for the information that the market is revealing. It is extremely rare to find this in a traditional gambling setting, where the house usually always reserves an edge. This fact seems to have been largely missed by the guys behind Augur though, who seem to have focused more on the "blockchain" part of "prediction markets on the blockchain" than the "prediction market" part, and this shows through their clunky UX and relatively simple platform. Prediction markets have been around for decades (30 years ago the University of Iowa ran a market on the 1988 US election and is still running them today - https://iemweb.biz.uiowa.edu https://iemweb.biz.uiowa.edu) and Augur doesn't seem to offer anything new above decentralisation, which I dont think anyone was asking for.

DennisP 8y ago
From the IEM's FAQ: "The IEM is operated for research and teaching purposes. All interested participants world-wide can trade in our political markets. Other markets--such as the earnings and returns markets--are open only to academic traders." "Trading accounts can be opened for $5 to $500." These constraints are presumably why they got their no-action letter from the CFTC. If there's demand for markets other than political markets, or for larger accounts, then there's demand for a decentralized prediction market.
- adawes 8y ago
  You seem to be suggesting that the point of decentralisation is to avoid legislation and regulation. While this might be true for Silk Road and other criminal transactions, that does not seem to me to be a valid argument for running a prediction market on blockchain software. Blockchain as a technology has a valid use-case where you cannot trust a third party to manage a centralised database and where you need an immutable history of events. I can just about buy into putting transactions for real-world things (eg property) onto a blockchain - after all its a lot easier to prove you own something in the case of a dispute if you can show on a distributed and trusted event log that you were the last person to purchase it than it is to dig out some old documentation and prove its not forged. There is an argument that applies to prediction markets, which is that you might not trust the market to actually pay out your winning contracts (though believing in this relies on a distrust of the regulators and court system). Augur is not actually solving this problem though, as neither oracle contracts nor the market owner defining the settlement conditions are trustworthy, and when you have user-defined markets such as "Does God Exist?" there is huge scope for arguing about the true outcome. At least with the centralised case you have an organisation with a reputation to maintain, that is therefore motivated to police and administrate the markets properly. You might also argue for long-running markets that the company running the market might collapse and be unable to pay out, but in the case of crypto there is simply a parallel that your currency could simply collapse and be worthless by the time your contract paid out. Given the volatility of most ETH and REP, your winnings are likely to either be dwarfed by gains in the currency or destroyed by a collapse in the currency. Prediction markets that trade using real money are gambling, and hence are controlled by various regulators. In addition, certain markets can also catch the attention of other regulators, for example if a market involves speculation on financial instruments or commodities. There are certain ways to avoid this, such as restructuring the incentives; for example, a market using credits instead of real money and run as a competition where the most successful players receive monetary prizes does not constitute gambling. Obviously in this case the players are not risking their own money, and this relates back to my previous points about subsidising prediction markets in exchange for valuable information. The regulation issues should be dealt with in an ethical way by developing the technology and working with regulators and not by avoiding the issue via decentralised blockchains.

tw1010 8y ago

Answer: branding.

infodroid 8y ago

Why couldn't you just fucking google it? https://en.wikipedia.org/wiki/Prediction_market https://en.wikipedia.org/wiki/Prediction_market Your inane rant disguised as a question doesn't add anything to the discussion.

dang 8y ago
Attacking someone like this will get you banned here, regardless of how ignorant they are. Please don't do it again. On HN, if someone doesn't know something, please either politely inform them or leave that for someone else to do. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
- infodroid 8y ago
  Over the past few years, the increase in zero-effort contributions have all but destroyed the quality of discussions on HN. And you aren't doing anything about it. HN is looking more indistinguishable from Reddit and I'll be damned if I let that happen. Civility should be reserved for people who are looking to argue and discuss in good faith.
  - shawn 8y ago
    No, you're just having a bad day. There is no reason whatsoever to say "Why couldn't you just fucking google it?" on a site meant for intellectual curiosity. "Your inane rant disguised as a question" This kills the curiosity. Don't do that. By the way: And you aren't doing anything about it. You lose credibility with this kind of statement. I may deeply disagree with policy, but it would be ridiculous to accuse the mods of inaction.
  - dang 8y ago
    That's not what the site guidelines say; "be civil" has been there, unqualified, from the beginning.
    - infodroid 8y ago