5 ms·
The purpose of prediction markets is to communicate insider knowledge.
by okhobb 6mo ago
The purpose of prediction markets is to communicate insider knowledge.
- khimaros 6mo 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 6mo 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 6mo 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 6mo 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 6mo agoSince country A pays for country B's military.
- TeMPOraL 6mo 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 6mo agoScott Alexander often seems surprisingly unaware of his priors, especially when speaking about things beyond the American shores.
- vasco 6mo agoIs the purpose of replying to Wikipedia with random substack drivel to get downvoted? Or is it a byproduct of the system?
- eru 6mo 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 6mo agoI was shocked at how shallow that take is. I expected more.
- Orygin 6mo agoWhy does the page have a non-removable blue filter? Feels like a popup shadow that doesn't go away...
- khimaros 5mo 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 6mo agoand facilitate insider trading, like how do people miss that part
- wahern 6mo 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 6mo 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 6mo 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 6mo 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 6mo 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 6mo ago[dead]
- jfengel 6mo 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 6mo 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 6mo agoThat isn’t how they were pitched to the FTC but it does appear to be their ultimate use case.
- savanaly 6mo 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 6mo 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.