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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 the

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?
    - hamburga 5y ago
      1. Government body says "We are considering adding full Github-flavored markdown support to Hacker News. Please establish a market on whether or not this will raise GDP by 1% over the next year." 2. People place their bets, either in the "Yes please" pool, or the "No to markdown" pool. 3. "Yes please" gets the most betting money. Betting period ends. Government decides to add markdown. People in the "No to markdown" pool get their money back. 4. If GDP does in fact go up over that 1 year, people in the "Yes please" pool make money. If not, they lose their bets. There isn't a mechanism to make money by sabotaging GDP.
      - jbay808 5y ago
        Wait, that can't work; it's comparing against a counterfactual. Let's say Hacker News gets markdown. Also COVID disappears at the same time. GDP goes up by 1%, but maybe that's because COVID is gone. How do we know what GDP would have done if Hacker News didn't get markdown?
        ianferrel 5y ago
        >How do we know what GDP would have done if Hacker News didn't get markdown? We do not, but that's not the purpose of a prediction market. The purpose of the market is not to prove that the change caused the result, but to choose the best path forward in a world of uncertainty. You don't have to have a perfect crystal ball to make useful predictions about the future. Yes, sometimes a black swan event will cause a "good" prediction to not pan out, but on average if you can make better-than-chance predictions about the future and policies based on those predictions will personally gain predictors value, then people are incentivized to make good predictions on average. Just like someone who can count cards won't win every blackjack hand, if they play for long enough, they are a favorite.
RandomLensman 5y ago
Oddly enough, in financial markets people do not rely on self-correction for manipulation, but rather there is a tendency for it to be illegal. Market manipulation is in general not believed to make markets more accurate. Any kind of the suggested self correction here relies on the other traders having sufficient funds/capital/risk taking capacity to overcome the manipulator and to coordinate their views to some extent. In the CEO example, how would other traders even now that the CEO was making the bet? What if some other informed party made that bet? In small, open, and rather serene settings that might work out, but in a real market with fast movements, market makers, etc.?

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?
  - hamburga 5y ago
    1. Government body says "We are considering adding full Github-flavored markdown support to Hacker News. Please establish a market on whether or not this will raise GDP by 1% over the next year." 2. People place their bets, either in the "Yes please" pool, or the "No to markdown" pool. 3. "Yes please" gets the most betting money. Betting period ends. Government decides to add markdown. People in the "No to markdown" pool get their money back. 4. If GDP does in fact go up over that 1 year, people in the "Yes please" pool make money. If not, they lose their bets. There isn't a mechanism to make money by sabotaging GDP.
    - jbay808 5y ago
      Wait, that can't work; it's comparing against a counterfactual. Let's say Hacker News gets markdown. Also COVID disappears at the same time. GDP goes up by 1%, but maybe that's because COVID is gone. How do we know what GDP would have done if Hacker News didn't get markdown?
      - ianferrel 5y ago
        >How do we know what GDP would have done if Hacker News didn't get markdown? We do not, but that's not the purpose of a prediction market. The purpose of the market is not to prove that the change caused the result, but to choose the best path forward in a world of uncertainty. You don't have to have a perfect crystal ball to make useful predictions about the future. Yes, sometimes a black swan event will cause a "good" prediction to not pan out, but on average if you can make better-than-chance predictions about the future and policies based on those predictions will personally gain predictors value, then people are incentivized to make good predictions on average. Just like someone who can count cards won't win every blackjack hand, if they play for long enough, they are a favorite.

RandomLensman 5y ago

Oddly enough, in financial markets people do not rely on self-correction for manipulation, but rather there is a tendency for it to be illegal. Market manipulation is in general not believed to make markets more accurate. Any kind of the suggested self correction here relies on the other traders having sufficient funds/capital/risk taking capacity to overcome the manipulator and to coordinate their views to some extent. In the CEO example, how would other traders even now that the CEO was making the bet? What if some other informed party made that bet? In small, open, and rather serene settings that might work out, but in a real market with fast movements, market makers, etc.?