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If they're appropriately priced, you can't win money at all, unless you have insider knowledge.
by jfengel 7mo ago
If they're appropriately priced, you can't win money at all, unless you have insider knowledge.
- okhobb 7mo agoThe purpose of prediction markets is to communicate insider knowledge.
- khimaros 7mo agohttps://en.wikipedia.org/wiki/The_purpose_of_a_system_is_what_it_does https://en.wikipedia.org/wiki/The_purpose_of_a_system_is_wha...
- eru 7mo agoCompare and contrast https://www.astralcodexten.com/p/come-on-obviously-the-purpose-of https://www.astralcodexten.com/p/come-on-obviously-the-purpo...
- viccis 7mo ago>The purpose of the Ukrainian military is to get stuck in a years-long stalemate with Russia. >These are obviously false. The purpose of the Ukrainian military is to exhaust the Russian army's materiel and test out our weapons. "Years-long stalemate with Russia? Yes, please." -the US. Seems like an overwhelmingly common Scott Alexander L.
- eru 7mo ago> The purpose of the Ukrainian military is to exhaust the Russian army's materiel and test out our weapons. Since when does country A decide what the purpose of country B's military is?
- viccis 7mo agoSince country A pays for country B's military.
- TeMPOraL 7mo agoIn practice, always. It's similar to the claim that during the cold war, US basically controlled USSR economy, and vice versa, and that US won because USSR economy just couldn't keep up. On smaller scale, this is the (in)famous "fire and motion"[0], which works in business as much as it does in military tactics. Make a move, forcing competitors to respond to it. If you're better at it than them (and lucky), you can choose your moves to make their responses go to your advantage. -- [0] - https://www.joelonsoftware.com/2002/01/06/fire-and-motion/ https://www.joelonsoftware.com/2002/01/06/fire-and-motion/
- verzali 7mo agoScott Alexander often seems surprisingly unaware of his priors, especially when speaking about things beyond the American shores.
- vasco 7mo agoIs the purpose of replying to Wikipedia with random substack drivel to get downvoted? Or is it a byproduct of the system?
- eru 7mo agoWell, that's not what the system does. So it can't be its purpose, I guess. In any case, the blog is well regarded in these circles.
- actionfromafar 7mo agoI was shocked at how shallow that take is. I expected more.
- Orygin 7mo agoWhy does the page have a non-removable blue filter? Feels like a popup shadow that doesn't go away...
- khimaros 6mo agothank you for sharing. i typically like his writing but didn't find this one terribly insightful. however, from his follow-up post https://www.astralcodexten.com/p/highlights-from-the-comments-on-posiwid https://www.astralcodexten.com/p/highlights-from-the-comment...: > When people insist on the confusing and inappropriately-strong version, I start to suspect that the confusingness is a feature, letting them smuggle in connotations that people would otherwise correctly challenge. i find this comical because it reads like a slightly-differently-worded POSIWID argument :)
- altmanaltman 7mo agoand facilitate insider trading, like how do people miss that part
- wahern 7mo agoTo say the purpose of a market is to reveal insider information is how you say insider trading is a good thing without saying insider trading is a good thing. There's a ton of scholarly debate about it, and at least most of the early stuff was pretty earnest. But rather than the debate becoming more refined and nuanced over time it seems to have bifurcated along partisan (or partisan adjacent) lines like everything else, similar to the Keynesian/Misesian divide.
- js8 7mo agoThe proof that free markets are efficient (even in the narrow sense economists use this word) relies on an assumption of perfect information. This has been known at least since Akerlof. The Misesian folks are a lost cause, IMHO. They're hardcore rationalists, self-indulging in circular moral arguments from assumptions that don't apply in the real world.
- wahern 7mo agoThat's what makes the insider trading argument so tantalizing--it's arguing that it helps move the market closer to perfect information. But, of course, the world is complicated and dynamic, and it tacitly depends on all kinds of assumptions and beliefs about the resulting costs and benefits. It would be nice if the debate shifted to pinning down those assumptions, quantifying them as best as possible, and then iteratively tweaking and adjusting regulatory models. But that's true of just about everything and probably too unrealistic an ask, especially at a time when one side is convinced markets are just a mechanism for unjust exploitation, and the other side is convinced regulation is what sustains inequity (to the extent inequity is something even worth caring about).
- miki123211 7mo agoThe purpose of any price-based system is to communicate knowledge, not necessarily insider knowledge. There are actually two theories on insider knowledge. One states that allowing insider trading is beneficial, as it allows prices to better match the underlying reality, the other states that this discourages non-insider trading, which actually makes the prices worse. Stock markets lean heavily towards the second theory, while prediction markets seem to be leaning towards the first.
- TeMPOraL 7mo agoWhy would encouraging non-insider training be desirable in the first place, other than to create a more high-status form of gambling, with higher spouse acceptance factor than smoke-filled room poker games? People with no inside knowledge[0] are just trading on vibes, how is that useful for the economy? -- [0] - Or external knowledge, but actual knowledge - thinking of hedge funds stalking CEOs as they fly in private jets, or counting cars in parking lots from satellite photos, to get some probability estimates on factors actually relevant to the performance of a business and possible future events.
- thetailrisk 7mo ago[dead]
- jfengel 7mo agoThe stock market wasn't designed to be gambling. You're buying a piece of a company. They want people to come so they can raise money for expanding businesses. If insider trading benefits some at the expense of others, people won't come. Obviously it has come a long way from that, and the markets have become more like gambling. You could probably allow insider trading at this point and the system would continue just fine.
- dasudasu 7mo agoNon-insider trading is liquidity. That’s why people pay for retail trading volume (payment for order flow). Not because of nefarious reasons. Just because it represents liquidity. With no liquidity it’s impossible to enter or exit trades efficiently.
- mastax 7mo agoThat isn’t how they were pitched to the FTC but it does appear to be their ultimate use case.
- savanaly 7mo agoNot just insider knowledge. Being more willing to put in hard work than anyone else, being better at synthesizing public knowledge, or maintaining a more clear and unemotional outlook all can also lead you to superior outcomes.
- UncleMeat 7mo agoPeople say this but I don't believe that it is true. The original theoretical purpose was to incentivize the creation of new knowledge, not reward insider knowledge that already exists. For example, to fund research that helps answer some unanswered question. Today, the purpose is obviously gambling. We can see that clearly from the marketing.
- in-silico 6mo agoThe purpose of modern prediction markets is to transfer money from gamblers to the market broker. Communicating insider knowledge is how the brokers legally/morally justify that business model.
- hamasho 7mo agoI hate that many people or even the news and scientists have already started to see the odds of prediction market as fact. I'm sure in the near future, policy decisions or war strategies will be decided by prediction markets' odds, if they are not already being used.
- jonahx 7mo agoThey're far from facts, but have an important advantage over most other sources: the bettors are motivated to predict truth. News sources are motivated to get clicks, to appeal to certain audiences, and to retain tribal customers. None of these create incentives for truth. You can seek out smart, well-informed and principled journalists who will prioritize truth-seeking over money-making. There are some. But the fact remains you are relying on character to override incentives. With prediction markets, incentives and truth are naturally aligned. This makes them a powerful and valuable resource imo, even if there is a lot of scumminess that comes along for the ride. The insiders, more than anyone, are contributing to the truth signal.
- Geezus_42 7mo agoThey are motivated to pick what they believe is most likely to happen. The develope their idea of what is most likely to happen for the news. The reporters use their bets to wrote stories predicting what will happen. See the loop?
- eru 7mo agoNo? Where's the loop?
- jonahx 7mo agoThat's not how it works. First, you have inside traders. Then, among legitimate bettors, you have smart people using multiple data sources (not just the "news") and doing sophisticated analysis that most journalists cannot do, and are not motivated to do -- again, because their incentives are different.
- names_are_hard 7mo agoYes. And indeed, when aggregated and averaged across all betters, nobody makes any money. The question isn't what percentage of bets resolve to no, but whether there is a consistent bias in the prices away from the fair price, which has an expected value of 0, and what direction that bias is in.