[HN Gopher] Tales from Prediction Markets
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Tales from Prediction Markets
Author : ikeboy
Score : 204 points
Date : 2021-04-04 00:15 UTC (22 hours ago)
(HTM) web link (misinfounderload.substack.com)
(TXT) w3m dump (misinfounderload.substack.com)
| throwaway13337 wrote:
| This is the first time I heard of this prediction market. Or,
| indeed, any heavily used real prediction market.
|
| I wonder about two things:
|
| 1. Legality. Taking bets from Americans has landed other company
| owners in prison so I always wonder how they handle this on
| internet based gambling sites.
|
| 2. Oracle. Who decides who wins? It looks like it's decided by
| the company owning the platform. This seems a little dubious but
| maybe it works with the transparent nature of many of these sort
| of bets. Of course, they could always be in dispute.
|
| The only information I could find on the oracle: https://dyor-
| crypto.fandom.com/wiki/Polymarket#Oracle_Method...
| ikeboy wrote:
| I don't know about the legality, but they've raised millions in
| VC funding. I suspect they have some kind of plan. They don't
| hold your money, all they do is act as an oracle as you note,
| which might help legally.
|
| So far there's not been any major issues with markets resolving
| incorrectly, across over $100M of total volume and dozens of
| markets.
|
| Predictit is also heavily used but limits individual bets to
| $850 per market. They have an official no action letter from
| the CFTC, so that's all legal.
| xorcist wrote:
| > they've raised millions in VC funding. I suspect they have
| some kind of plan
|
| In most cases the plan _is_ to raise millions.
| comboy wrote:
| Some predictions seem pretty vague, even if the probability
| of hitting edge cases is low. E.g. "Will ETH be above $1,500
| on January 27th?" begs the question on which exchange? Or
| smaller ones like at which hour, does it have to be higher
| all day or just for a single trade, if for a single trade, if
| Alice sells Bob 0.01 ETH that day for $2k does that mean it
| was higher etc.
|
| In general oracle role seems pretty hard when big money is
| involved.
| Tenoke wrote:
| For most of those there are specifics on how it will be
| resolved in the description. Usually a specific url they
| base it off.
|
| They can hardly put all of it in the title.
| DennisP wrote:
| That page says "nor do we host any markets ourselves.
| Polymarket displays existing markets live on the Ethereum
| blockchain," so it's going to be a variety of oracles, none of
| them being Polymarket. They're just an aggregator.
|
| The leading prediction market on Ethereum is Augur, which
| doesn't have trusted oracles at all. They have a way of
| crowdsourcing the bet resolutions, which has worked well so
| far.
| ikeboy wrote:
| Polymarket is in fact the oracle for all of the markets on
| their site. They don't host them in the sense that it's all
| on the blockchain.
|
| Augur has no actively traded markets last I checked. It was
| good by the election but has been basically dead since.
| Polymarket has way more volume than Augur as of now.
|
| Omen is more decentralized but doesn't have much volume.
| There's also a version of omen on level 2 on the xDai chain.
| jldugger wrote:
| 1. Most of the markets I've looked at have a letter of no-
| action from the CFTC. But I'm not aware of one for polymarket.
|
| 2. I imagine that any suspicion of foul play would taint the
| waters, the same way a 51 percent attack could technically make
| you a bitcoin billionaire, at the cost of completely destroying
| bitcoin value. IEM works the same way, but is affiliated with a
| non-profit / government entity.
| javert wrote:
| > a 51 percent attack could technically make you a bitcoin
| billionaire
|
| That's not the case.
|
| A 51 percent attack doesn't allow you to steal bitcoin, if
| that's what you have in mind.
| [deleted]
| Clewza313 wrote:
| A successful 51% attack lets you double-spend your coins,
| which is effectively the same thing. (Until the market
| catches on and BTC plummets, anyway.)
| [deleted]
| javert wrote:
| You are not going to be able to double spend a billion
| dollars. And it would cost hundreds of millions, possibly
| over a billion, to accumulate enough mining power to
| perform a 51% attack.
| Proven wrote:
| > Or, indeed, any heavily used real prediction market.
|
| Predictious, Bitbets and others have had some success before.
| It didn't work well because none of the cryptos are stable, and
| also - given the semi illegal nature and the need to rely on
| anonymous operators - exit scams happen every now and then.
|
| Oracle is simply a URL where the info will be sourced from to
| resolve. For example, bloomberg.com/in/fo, or
| trusted.g.uy/bet12
| ikeboy wrote:
| Polymarket uses USDC, a stablecoin, and is run by a NYC based
| company with millions in VC funding.
| tshaddox wrote:
| Isn't the company holding your money anyway? Seems pretty
| reasonable to trust them to resolve the markets as best as they
| can, at least if they seem to be interested in staying in
| business for a while.
| ikeboy wrote:
| Interestingly, the setup used means they don't actually hold
| your money. It's all on the blockchain. They can resolve
| incorrectly but they can't outright steal everyone's money.
| tshaddox wrote:
| Can you withdraw your money? Presumably not, since that
| wouldn't make for a very interesting market. So you're
| still trusting the company with control over your money.
| The fact that there's no direct incentive for the company
| to outright steal your money (unless they're on the other
| side of every bet, lol) ought to make them even easier to
| trust!
| Tenoke wrote:
| You can withdraw your money of course. You have the key
| to your money and under the hood it's smart contracts
| between users.
| thamer wrote:
| Betting on whether someone is still alive by a certain date is
| probably against the rules of this prediction market, but this is
| a classic way (read: academic) to implement a hitman service with
| some level of safety between the participants (victim excluded).
|
| All you need to do is bet a large amount of money that the target
| will still be alive by a certain date. Then someone takes you up
| on it, makes them have an accident and you just lose a bet -
| nothing more. You didn't discuss hiring a hitman, you've never
| even met a hitman: you're just placing bets online.
| nyerp wrote:
| This is half clever, but taking up the other side of that bet
| in a public market would immediately make you a person of
| interest to law enforcement.
| dalbasal wrote:
| IDK if academic is the right term, but market manipulation is
| definitely the _nerdiest_ way of hiring a hitman.
|
| We could take this up a notch by making the bet (person A dies
| by date X, $100) tradeable. Maybe also create a derivatives
| market. Now we have a hitman market _and_ a bodyguard market.
|
| Derivatives have several beneficial effects. One is
| uncertainty, which should stimulate a diversity of contracts:
| dead by X, $100; dead by Y, $105. People love arbitrage. The
| second benefit of a two sided market is naked short sellers.
|
| Best case scenario, naked short selling creates an infinite
| supply of tradeable hitman contracts. In theory, demand is
| always finite but as Keynes famously said... " _no one f# &k-ng
| knows how demand works!_"
|
| So eventually... Robin Hood adds every person on earth to their
| murder exchange and the market singles out a random person for
| $gme status. Her name in Ana and next friday, $6 billion of her
| murder contracts expire. Half the mercenaries on earth are
| trying to kill her. The other half are her personal army.
| beefield wrote:
| Someone must have written a great book with that kind of a
| plot. Does anyone know such book?
| dalbasal wrote:
| 'The Insurance Man' by Zadie Smith & Neil Gaiman
| mhuffman wrote:
| This book doesn't seem to exist on Google. Got a link?
|
| There is one with that title by Timothy Squire, that has
| a close plot. Is that the one you are talking about?
| jdeibele wrote:
| They're making a joke.
| [deleted]
| c3534l wrote:
| While not literally an assassination market, the souljahboy
| story demonstrates the site creates them: a player can use
| direct action to force an outcome to occur, rather than predict
| it as intended. For tweets, its silly. But what if someone
| sabotaged the vaccine distribution, for instance? There does
| seem to be room here for unintended and quite unfortuante
| outcomes.
| JackFr wrote:
| How about someone sells a whole bunch of credit default swaps
| on some really risky asset backed securities and takes the
| proceeds and pays off the loans so default is impossible.
|
| https://www.wsj.com/articles/SB124468148614104619
| ikeboy wrote:
| They have markets on whether Biden, Cuomo, and Gaetz will still
| be in office as of various dates. You could pretty cheaply buy
| shares that pay off $1M+ if Biden were to die. But I'd expect
| the cost of assassination to be well over that amount by orders
| of magnitude plus you'd need to run forever.
| nyhc99 wrote:
| But isn't a bet on a prediction market open to anyone? Unless
| the assassin took the bet and killed the target moments before
| the deadline, couldn't a casual observer jump in on the action
| after they learned of the target's death?
| maest wrote:
| Who'd be willing to take the other side of that bet at that
| point?
| warlog wrote:
| Sympathetic magic
|
| A large enough bet is basically a voodoo doll into which you've
| just stuck a pin.
| DennisP wrote:
| The trouble is, anyone can bet against the person remaining
| alive, so it becomes a public goods problem. Everyone's
| incentive is to let someone else do the assassination, and
| freeload. There's no extra profit in actually doing the hit,
| but a lot of extra risk.
| jungturk wrote:
| Knowing with certainty that the event will happen can lead to
| additional profit by being willing to accept less than fair
| odds or to increase leverage.
| dorgo wrote:
| >anyone can bet against the person remaining alive
|
| Yeah, but it is 1. risky ( if the person stays alive you just
| lose money ). and 2. the incentive for a potential hitman is
| reduced by your bet ( so by placing the bet you are actually
| reducing your odds of success ).
| [deleted]
| _0ffh wrote:
| So to increase your odds of surviving you can bet on your
| own death. That seems strangely philosophical to me.
| Another upside is, if you should die anyway, then at least
| you win the bet!
| kilotaras wrote:
| > The number gets reported on the main page once a day, but
| someone found a page with the hourly data and figured out how to
| average together the data points to predict the daily number.
|
| Isn't this THE point of prediction market? A user found a better
| source of information and used it to make money.
| conistonwater wrote:
| I would say technically the point of a prediction market is to
| predict things _in advance_ of them happening, so I think you
| might get people who sensibly disagree with this point of view.
| But in the article it 's a little confusing, because the person
| who did this could only trade IIUC with other people on the
| same day as the day the figure would be published so the people
| who traded with them were doing something very ill-advised to
| start with. I can't see how any of this would have affected
| people who tried to actually predict the co2 level properly,
| except that now they don't have a market any more.
| bko wrote:
| Why isn't it the point? The point of prediction markets is to
| distribution information. If you know a better source the
| prediction markets incentivize you to aggregate that source and
| distribute that information widely. Once people find out, then
| that becomes the norm and the asset gets priced correctly.
| That's exactly the point of prediction markets.
|
| [EDIT] Didn't realize the first section of OP was a quote and
| not an argument. I agree with OP
| cinntaile wrote:
| That's what the parent meant.
| Traster wrote:
| So what I'm learning from this is that unsurprisingly this
| unregulated market has a tonne of market manipulation. Not sure
| why anyone would get involved if they didn't plan to cheat. How
| long before there's a bomb threat at the CDC in order to win a
| prediction bet?
| barry-cotter wrote:
| > Not sure why anyone would get involved if they didn't plan to
| cheat.
|
| Some markets are full of dumb money. Some people are mistaken
| about whether they are the dumb money or the smart money. Some
| people really are smart money and they can make large, fast
| nearly riskless returns on invested capital.
|
| People make money in large liquid markets with many
| sophisticated participants all the time. This has need true as
| long as stock, bond and commodity markets have existed, in
| markets with and without bans on insider trading.
|
| > How long before there's a bomb threat at the CDC in order to
| win a prediction bet?
|
| How long before there's a bomb threat at Pfizer to make a short
| part off big? Criminals and terrorists are not generally known
| for their skills at long term or strategic planning.
| [deleted]
| paulgb wrote:
| > How long before there's a bomb threat at Pfizer to make a
| short part off big?
|
| Fair point, but the anonymity of the markets mentioned in the
| post matters here. You can short a stock or buy put options,
| but if the SEC gets suspicious they can trace them back to
| you (and there are occasional stories of this happening, like
| the guy who set off actual bombs at Target). With anonymous
| prediction markets, they would have a harder time figuring
| out who stood to benefit.
| dalbasal wrote:
| Well... You can cheat and lose. You can be cheated and win.
| Cheating hurts market integrity, but it doesn't kill it. Even
| consistent negative returns don't always kill a market. They
| can sometimes even live on as casinos, where average returns
| are _guaranteed_ to be negative. Markets really hard to kill
| with market forces. Hence the Lenin-Luxembourg disagreement.
| ghaff wrote:
| The more interesting question to me is when prediction
| markets/crowdsourcing works consistently well. Because there seem
| to be some specific scenarios where it does. e.g. [1]. But mostly
| it doesn't. And while there are some intutions around this, I've
| never run across a lot of substantial research.
|
| [1] https://bitmason.blogspot.com/2012/04/crowdsourcing-
| predicti...
| asdfasgasdgasdg wrote:
| One thing these tales demonstrate is that they probably don't
| work so well when you can cheaply manipulate the outcome.
| asdf333 wrote:
| very interesting stories. tells you a lot about how inefficient
| markets are. reminds me of "reminisces of a stock operator"
| elevenoh wrote:
| timeless book
| unixhero wrote:
| I would recommend the book: "Broken Markets"
| bsenftner wrote:
| This entire concept strikes me as pure exploitation of gambling,
| with extra steps to hide the situation from the typical non-
| critically thinking mark.
|
| Sure, this concept is not obviously evil, but is damn close, and
| I'll bet your ass in practice operating such an endeavor is
| dancing with the devil.
| joelthelion wrote:
| Hypermind [1] is an interesting prediction market which avoids
| many of these pitfalls, by 1) using play money instead of real
| money, and 2) requiring an application for new users.
|
| I've been playing on it for a few years, and the predictions are
| usually pretty good.
|
| [1]: https://predict.hypermind.com
| smegma2 wrote:
| There's also https://www.metaculus.com/ (which does not require
| an application)
| m3kw9 wrote:
| Looks more like sports parlay gambling
| ikeboy wrote:
| There's been some interesting markets. The vaccine market
| produced some interesting models, and there's a few markets now
| on how many covid cases will be reported in various states and
| nationwide.
| FriedPickles wrote:
| The market on the Ever Given getting unstuck was super fun.
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