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Wisdom of the crowd has some fatal flaws that are especially important when it comes to things like IPOs. - Most significantly, most scientific research focuse

by WJW 7mo ago

Wisdom of the crowd has some fatal flaws that are especially important when it comes to things like IPOs. - Most significantly, most scientific research focuses on things that are actually amenable to guesses with a normal distribution, like "amount of jellybeans in a jar" or "length of the border between country A and country B". An IPO is a binary choice where it either goes public or not. There is no correct value to converge to. - It has been shown that as bettors gain more information about the bets of others, predictions lose accuracy and bettors converge to a consensus value instead. It seems to me that online prediction markets would be extremely prone to this as the bets of other people are all there in the market price. - Prediction markets generally become more accurate as the diversity of the bettor pool grows. The users of polymarket and Kalshi heavily skew towards young men from certain socioeconomic groups, who may be biased towards one or the other outcome. In the case of an OpenAI IPO, it seems likely multiple of these would converge as people start to fall prey to groupthink because "everybody knows that they'll IPO soon" in their local media bubble.

some_random 7mo ago
The question isn't "will they IPO" the question is "when will they IPO" which is not a binary question. The rest of your point about Polymarket users now being mostly degenerate gamblers is true though.
- wat10000 7mo ago
  It’s two binary questions about whether they will IPO by specific dates. It’s not obvious to me that this maps to a more granular “when will they IPO?” question.
- smcin 7mo ago
  The relative timing, valuations (and float sizes) of the expected SpaceX, Anthropic and then OpenAI IPOs would still be highly correlated. Even allowing for moral degeneracy among most of the gamblers on this particular Polymarket market.
jpadkins 7mo ago
if you can identify where and how prediction markets are wrong, why aren't you applying that and making millions? > - Prediction markets generally become more accurate as the diversity of the bettor pool grows. The users of polymarket and Kalshi heavily skew towards young men from certain socioeconomic groups, who may be biased towards one or the other outcome. Citation? If your small population is high IQ, accurate predictors and you diversify to average IQ population, won't the accuracy go down not up?
- fwip 7mo ago
  > why aren't you applying that and making millions? Knowing that something is a lousy predictor doesn't mean that you have a better one.
  - jpadkins 7mo ago
    A lot of predictions are binary. If you know the market is wrong, then you take the other side of the prediction.
lelanthran 7mo ago
> An IPO is a binary choice where it either goes public or not. There is no correct value to converge to. Of course there is - they are betting on the "when". > It has been shown that as bettors gain more information about the bets of others, predictions lose accuracy and bettors converge to a consensus value instead. I dunno how to reply to this - that is exactly my point, but it appears (to me, anyway) that you are saying this in disagreement? Let me clarify - my point is that wisdom of the crowd converges on to a value that is quite near the actual value. > In the case of an OpenAI IPO, it seems likely multiple of these would converge as people start to fall prey to groupthink because "everybody knows that they'll IPO soon" in their local media bubble. Sure, if everyone is in the same local media bubble, that once again, that is unlikely, because these are people who don't make money from the result, they make money from correctly predicting it, hence they are exactly the demographic that will seek out more and more information outside of any bubble they may be in. It's one thing when proponents of $FOO spend time boosting their PoV/wishes/hopes on a forum. It's quite another when they have to put their money where their mouth is: then they are open to new information!
- wat10000 7mo ago
  They’re not betting on when, they’re betting on if with a time limit.
- WJW 7mo ago
  > I dunno how to reply to this - that is exactly my point, but it appears (to me, anyway) that you are saying this in disagreement? Yes. The research shows that they do (almost) always converge, but that they DON'T always converge to an accurate value. In particular, there can be behavioral biases at work that warp the perception of bettors in one direction or the other. A well documented case of this is when fans of a sports team pile in and bet for their favorite team, causing the price to shift too much towards the more popular team. Exposure to the predictions by other bettors then causes the total market to converge to the biased price. Interestingly enough, people still do this even though this phenomenon is well documented and they have to put their money on the line. People just don't care enough about their $10 bet to do thorough research. In a similar way, I would not at all be surprised if some people are such fanboys of OpenAI that they start to display cultlike behavior. You can easily find such people online even on this very site. It's not such a weird thing to consider that people at the peak of a hype cycle don't always behave in rational ways, especially when they're just betting $10 when drunk on a Saturday evening.
sph 7mo ago
> It has been shown that as bettors gain more information about the bets of others, predictions lose accuracy and bettors converge to a consensus value instead. This makes intuitive sense to me; is there a name for this phenomenon? A prediction platform’s biggest value is publicising information from possible insiders, who at some point will work harder to maintain secrecy not to lose their informational advantage. So all that remains are people gambling on public info. That said, greed from insiders looking to make a quick buck will always skew the price towards ‘truth’

by WJW 7mo ago

some_random 7mo ago

The question isn't "will they IPO" the question is "when will they IPO" which is not a binary question. The rest of your point about Polymarket users now being mostly degenerate gamblers is true though.

wat10000 7mo ago
It’s two binary questions about whether they will IPO by specific dates. It’s not obvious to me that this maps to a more granular “when will they IPO?” question.
smcin 7mo ago
The relative timing, valuations (and float sizes) of the expected SpaceX, Anthropic and then OpenAI IPOs would still be highly correlated. Even allowing for moral degeneracy among most of the gamblers on this particular Polymarket market.

jpadkins 7mo ago

if you can identify where and how prediction markets are wrong, why aren't you applying that and making millions? > - Prediction markets generally become more accurate as the diversity of the bettor pool grows. The users of polymarket and Kalshi heavily skew towards young men from certain socioeconomic groups, who may be biased towards one or the other outcome. Citation? If your small population is high IQ, accurate predictors and you diversify to average IQ population, won't the accuracy go down not up?

fwip 7mo ago
> why aren't you applying that and making millions? Knowing that something is a lousy predictor doesn't mean that you have a better one.
- jpadkins 7mo ago
  A lot of predictions are binary. If you know the market is wrong, then you take the other side of the prediction.

lelanthran 7mo ago

> An IPO is a binary choice where it either goes public or not. There is no correct value to converge to. Of course there is - they are betting on the "when". > It has been shown that as bettors gain more information about the bets of others, predictions lose accuracy and bettors converge to a consensus value instead. I dunno how to reply to this - that is exactly my point, but it appears (to me, anyway) that you are saying this in disagreement? Let me clarify - my point is that wisdom of the crowd converges on to a value that is quite near the actual value. > In the case of an OpenAI IPO, it seems likely multiple of these would converge as people start to fall prey to groupthink because "everybody knows that they'll IPO soon" in their local media bubble. Sure, if everyone is in the same local media bubble, that once again, that is unlikely, because these are people who don't make money from the result, they make money from correctly predicting it, hence they are exactly the demographic that will seek out more and more information outside of any bubble they may be in. It's one thing when proponents of $FOO spend time boosting their PoV/wishes/hopes on a forum. It's quite another when they have to put their money where their mouth is: then they are open to new information!

wat10000 7mo ago
They’re not betting on when, they’re betting on if with a time limit.
WJW 7mo ago
> I dunno how to reply to this - that is exactly my point, but it appears (to me, anyway) that you are saying this in disagreement? Yes. The research shows that they do (almost) always converge, but that they DON'T always converge to an accurate value. In particular, there can be behavioral biases at work that warp the perception of bettors in one direction or the other. A well documented case of this is when fans of a sports team pile in and bet for their favorite team, causing the price to shift too much towards the more popular team. Exposure to the predictions by other bettors then causes the total market to converge to the biased price. Interestingly enough, people still do this even though this phenomenon is well documented and they have to put their money on the line. People just don't care enough about their $10 bet to do thorough research. In a similar way, I would not at all be surprised if some people are such fanboys of OpenAI that they start to display cultlike behavior. You can easily find such people online even on this very site. It's not such a weird thing to consider that people at the peak of a hype cycle don't always behave in rational ways, especially when they're just betting $10 when drunk on a Saturday evening.

sph 7mo ago

> It has been shown that as bettors gain more information about the bets of others, predictions lose accuracy and bettors converge to a consensus value instead. This makes intuitive sense to me; is there a name for this phenomenon? A prediction platform’s biggest value is publicising information from possible insiders, who at some point will work harder to maintain secrecy not to lose their informational advantage. So all that remains are people gambling on public info. That said, greed from insiders looking to make a quick buck will always skew the price towards ‘truth’