16 ms·

Prediction markets would influence the processes they're supposed to be impartially observing. When there's a lot of money riding on something happening, it te

• iakh 5y ago
  I hadn't heard that before. Can you give an example? Or do you mean in the "fixed game" way?
  • robertk 5y ago
    I feel like this is left as an exercise to the reader and no proof is needed. Bettors in a prediction market are not divine speculators causally divorced from the real world. They are embedded, and when there are a lot of them and their financial incentives are towards a particular outcome, they might act in ways that aggregate to a greater likelihood of the event transpiring than in the counterfactual setting where they are pure observers of the simulations waging in a vacuum. It seems to me there are multiple ways to formalize and prove this and this contributes to my perception the original comment seems self-evident. If that is not the case then something is wrong in my intuition.
  • spaetzleesser 5y ago
    Markets are not based on fixed principles but are basically a game of psychology mixed with a few principles. So expectations play a big role in market outcomes.
  • azta6521 5y ago
    If I had 500M to manage, I may just buy a lot of real estate in a specific place to drive up the prices in that area. I want prices to increase and with money I can create circumstances that would favor my preferred outcome.
  • pjc50 5y ago
    Years ago there was a libertarian proposing this as "assassination politics": simply create a system that allows people to bet that "politician X will be assassinated before time T". People who want X assassinated take the other side of that bet. Eventually there may be enough money in the pot that someone considers it worth making the hit and collecting the bet, and the people on one side have paid for it without directly paying for it.
    • unyttigfjelltol 5y ago
      Yes. The market facilitates payment for crime, e.g., you can't buy a company's secrets from employees directly but in a free predictions market leakers would be paid. Looks like a cynical way to expand the scope of what you can buy with gobs of money, beyond the current boundaries of law, decency and fair play.
      • Enginerrrd 5y ago
        >you can't buy a company's secrets from employees directly but in a free predictions market leakers would be paid. Conversely though it creates an incentive for information to flow to everyone in the market instead of just to insiders. Despite shitty motives, it seems like it forces more transparency which seems like a net positive.
  • PragmaticPulp 5y ago
    Imagine a prediction market had an entry for whether or not someone would streak across the field during a Super Bowl. Someone might see this, buy into the market, and then go streak across the field to force the outcome to favor their position. It’s not even theoretical. This actually happened (or rather was attempted with traditional betting markets, not prediction markets): https://www.insider.com/super-bowl-streaker-bet-on-himself-prop-bet-2021-2 https://www.insider.com/super-bowl-streaker-bet-on-himself-p... Prediction markets give financial incentive to force specific outcomes. They aren’t just observations: They become incentives to influence the outcome. The bigger the market, the bigger the incentive.
    • tshaddox 5y ago
      This is also the fundamental idea behind an assassination market. https://en.wikipedia.org/wiki/Assassination_market https://en.wikipedia.org/wiki/Assassination_market
  • chaboud 5y ago
    You can find many simple but observed real world examples of unintended consequences from indexing on observation by searching for examples of Goodhart's Law (which, as commonly generalized, should actually be called Strathern's Law): "When a measure becomes a target, it ceases to be a good measure." See Wikipedia to get started, then google search for examples: https://en.m.wikipedia.org/wiki/Goodhart%27s_law https://en.m.wikipedia.org/wiki/Goodhart%27s_law
  • inter_netuser 5y ago
    Numerous scandals in european soccer. an endemic problem in any big popular sport, really. https://en.wikipedia.org/wiki/French_football_bribery_scandal https://en.wikipedia.org/wiki/French_football_bribery_scanda... https://www.dw.com/en/police-expose-european-soccer-bribery-racket/a-4909629 https://www.dw.com/en/police-expose-european-soccer-bribery-... etc etc etc
  • colinmhayes 5y ago
    There was a prediction market on the number of times celebrities tweet a week. Someone found one of the celebrities live streaming and kept paying them to delete their tweets.
• naasking 5y ago
  The solution seems simple: predictions should be blind until the deadline. This also exploits the "wisdom of the crowd", where crowds are smarter when each individual's decision is independent of the others. What am I missing?
  • miketery 5y ago
    The price of a prediction depends on what people are currently predicting. So you can't keep it blind. Well I guess one way would be to put in limit orders on odds you're willing to take, and not revealing the market price. However I don't know if such a market condition / feature would have people using the prediction market.
  • dragonwriter 5y ago
    > What am I missing? That by so preserving the independence of predictions, you’ve also removed their utility, which is predicated on their availability.
  • karpierz 5y ago
    What do you mean by predictions are blind? The issue the parent is describing is (as an extreme case): I go on a prediction market for when someone will die, put all of my money on tomorrow, and then kill the person tomorrow. You could imagine a lighter version where I ruh for some public office, bet a billion against me winning, and then drop out of the race.
    • gunshai 5y ago
      The latter example is easily taken care of though, because there has to be a market to take your bet if the market has no reason to believe you would win your odds are really low thus your winnings over your billion are really low. On top of that your risk is not symmetric as you've exposed your self for some to now spend what millions to campaign for you and thus bet against that pool. My point is your example is contrived and not really useful.
  • PragmaticPulp 5y ago
    Prediction markets are literally markets. You can’t have a market if the price is secret. The goal isn’t to have people place bets and see who is right later. The goal is to expose the predictions to market forces and make people put their money on the line, thereby (theoretically) improving the quality of predictions.
• aazaa 5y ago
  This is why, for example, decentralized life insurance policies have been compared to hit contracts.
• bchjam 5y ago
  "An engine, not a camera" is a great book about this effect in financial markets. https://mitpress.mit.edu/books/engine-not-camera https://mitpress.mit.edu/books/engine-not-camera
  • robocat 5y ago
    Review: http://quixoticfinance.com/the-perennial-criticism-a-review-of-an-engine-not-a-camera-by-donald-mackenzie/ http://quixoticfinance.com/the-perennial-criticism-a-review-...
  • hogFeast 5y ago
    He has written a new book about HFT which covers some of the same ground.
• hugh-avherald 5y ago
  That's where Hanson's idea of futarchy (as opposed to prediction markets) comes into play. You don't bet on an event A, you bet on A given B or on A given not B. So the prediction market wouldn't be for an asset paying $1 if there's a streaker, but for two assets: one which pays $1 if there's a streaker given there's 100 or more security guards and $1 if there's a streaker given there's fewer.
  • lvass 5y ago
    So the potential streaker has one extra step, discovering the amount of guards, before placing the bet? How does this solve the problem instead of creating even more of a plutocracy? Gaming the system will always be possible, except for a smaller amount of people.
    • hugh-avherald 5y ago
      The market is closed before the number of guards is decided. Indeed the whole point of the market is to decide the number of guards. The potential streaker would have to bet in both markets, so won't affect the difference in prices between the markets.
      • Imnimo 5y ago
        Well, but the reason we want to decide the number of guards in the first place is that we want to prevent a streaker. If, in order to decide the number of guards, we use a process that increases the odds of a streaker, isn't that counterproductive?
  • pdonis 5y ago
    I don't see how this helps any with the underlying problem. All it does is introduce an additional incentive for another party to manipulate the outcome in order to win money by betting: whoever runs the security guards.
    • hugh-avherald 5y ago
• hamburga 5y ago
  Yet we still use financial markets. Isn't the idea that we put up regulations to minimize this, just like we have restrictions on insider trading?
• hamburga 5y ago
  From the transcript: Richard: They say Bin Laden is just going to put all his money in the market and then attack? Robin: Well, that was crazy because these were relativity thin markets, and they have a lot of money at stake. Basically a fact that people don’t know about the markets is that many people criticize by saying, “Well, somebody will try to manipulate the markets by betting on one side not because they know better, but because they’re willing to lose money in order to distort the market price.” That is true. There are people willing to manipulate markets, but that actually makes the prices more accurate. For example in the fire the CEO market you say, “Well, the CEO wants to keep his job, so he will bet in these markets in order to make himself look like the price will be higher if he stays, and lower if he leaves.” Yes he would have an incentive to do that, but when other traders know that somebody will be trying to manipulate in the market they know to increase their trading and their efforts and that compensates, and actually on net makes the prices more accurate. That’s something we see in theory and we’ve seen in the lab, and we’ve seen in the field. These markets are robust to attempts to manipulate. In fact people who want to manipulate them make the prices more accurate.
  • jstanley 5y ago
    That's actually a slightly different thing. The quote from the transcript is talking about attempts to manipulate the market. optimalsolver is talking about manipulating reality in order to win money in the market.
    • hamburga 5y ago
      > manipulating reality in order to win money in the market. Analogy: working extra hard to make your company succeed because it'll increase the value of your company stock. I think the idea is that these prediction markets are set up in a way so that the outcomes are generally deemed desirable (increase GDP for example) and it's OK to manipulate reality (do work) to achieve them while making money.
      • 0xcde4c3db 5y ago
        How do you set up a market for "increase GDP" without counterparties taking the "decrease GDP" position?
• DINKDINK 5y ago
  >Prediction markets would influence the processes they're supposed to be impartially observing. Who said anything about impartiality (/cordially a strawman)? Changing behaviors is a feature not a bug. Your health insurance writer (who's bought "No optimalsolver will not get sick") loses money if you do in fact get sick. Your fire insurance writer has an incentive to provide you free fire inspections because it reduces their payouts. A farmer plants a lucrative but fragile crop because a meteorologist can better price weather risks than they can. Swapping exposure across space and time is a productive act.
  • dwohnitmok 5y ago
    Swapping exposure is only productive if you have many guardrails outside of the system that absolutely constrain what actions players inside the system are allowed to do. Otherwise, and this has been borne out it in reality, you end up with very distorted incentives. This is covered today by what we call fraud (whether that be insurance fraud or market manipulation fraud), which tries to set bounds on what acceptable behavior is so that you can try to eliminate pathological edge cases. I don't see how this would be handled if everything at a top-level is handled through prediction markets.
    • cinquemb 5y ago
      More important than guard rails (which makes a value judgement on what actions are "allowed") is a way to determine how to settle the thing that bets are being made on ("did these actions that have stakes on them, actually happen"), auger[0] does this by: "Once a Market’s underlying event occurs, the Outcome must be determined in order for the Market to Finalize and begin Settlement. Outcomes are determined by Augur’s Decentralized Oracle, which consists of profit-motivated Reporters, who simply report the actual, real-world Outcome of the event. Anyone who owns REP may participate in the Reporting and Disputing of Outcomes. Reporters whose Reports are consistent with consensus are financially rewarded, while those whose Reports are not consistent with consensus are financially penalized." Where the market here can take these states/phases: > Pre-Reporting > Designated Reporting > Open Reporting > Waiting for the Next Fee Window to Begin > Dispute Round > Fork > Finalized [0] https://v1-docs.augur.net/ https://v1-docs.augur.net/
• bobbyd2323 5y ago
  A lot of dynamic Econ models have some condition where my choice today depends on an expectation of the future. Like how much I choose to eat today depends in part on my best prediction of how much I’ll eat tomorrow. For aggregate decisions, getting better predictions should improve welfare.
• __MatrixMan__ 5y ago
  The alternative to putting your money into the prediction market to influence the outcome is to try to influence the outcome in some other way (e.g. a disinformation campaign). At when if bad actors put their money into the prediction markets, they draw further attention to their false claim--something that can't be said for the alternatives.
• ddp26 5y ago
  This is true, but in practice a very small problem. People who can control or majorly influence these big outcomes - elections, sports matches, acquisitions, etc. - generally have a much, much larger stake in the outcome itself than any side bets.
• IMAYousaf 5y ago
  It also creates adverse incentives for bad behavior. If I have a stake in a prediction, I am incentivized to make that happen by hook or by crook.