[HN Gopher] Futarchy: Robin Hanson on prediction markets
___________________________________________________________________
Futarchy: Robin Hanson on prediction markets
Author : jcarterwil
Score : 120 points
Date : 2021-09-15 13:17 UTC (9 hours ago)
(HTM) web link (richardhanania.substack.com)
(TXT) w3m dump (richardhanania.substack.com)
| pphysch wrote:
| If there are no limits on betting, then this is just plutarchy
| with extra steps. Guy comes along with $100B and _directly_
| changes the policy landscape.
|
| If there are limits on betting, then it's direct democracy with
| extra steps (everyone gets one "vote" worth up to $limit).
|
| What if improving society was a reward-in-itself and we trusted
| competent managers to do the complicated bits?
| jacquesm wrote:
| We are already in that situation, but we have several
| intermediaries (media ownership, lobbying) to pretend that we
| do not.
| pphysch wrote:
| There is no law that says you have to be a corrupt politician
| and enable plutarchy, although it is common.
|
| At any rate, "futarchy" is clearly a step backwards.
| jacquesm wrote:
| They don't have to be corrupt at all, just the simple fact
| that media and lobbying power are mostly controlled by
| capital expended it would be naive to assume that non-
| corrupt politicians can not be influenced.
|
| If they could not then there would not be a lobby, and
| media would not be as politicized as they are.
| pphysch wrote:
| In my opinion, a politician has some freedom to choose
| who they listen to, and politicians who predicate that
| choice on their personal enrichment are corrupt.
| jacquesm wrote:
| But that's a black-and-white view. The 'gray' version is
| that it is perfectly possible for a politician to be of
| good intentions, but presented with a choice of 99
| parties funded by special interests with megaphones and
| one lonely voter you can't fault them for having more -
| and usually better argued - input from special interests.
|
| That's why many countries forbid lobbying entirely (not
| that that's 100% effective, but it's a start).
| pphysch wrote:
| I never said it's dichotomous; that's on you. I was
| explaining how I classify corruption. Some politicians
| are more or less corrupt than others.
| tshaddox wrote:
| > There is no law that says you have to be a corrupt
| politician and enable plutarchy, although it is common.
|
| There's no such law, of course, but there's also no law
| that a restaurant must offer food and service that
| customers like, and yet we tend to observe that restaurants
| which do that tend to survive better than those which do
| not.
| leppr wrote:
| Judiciary laws are just one of the many incentives present
| in the real world. Money is a better data point to base
| models and predictions than laws.
|
| _> What if improving society was a reward-in-itself and we
| trusted competent managers to do the complicated bits?_
|
| This is the mental model many citizen seem to adopt to
| interpret their government. In my opinion it's closer to a
| religion than reality. People that willingly reject great
| personal rewards in favor of the common good are a rarity.
| They do exist, but expecting people in power to naturally
| adopt that stance, or expecting that elections is a good
| way of finding those people, is a mistake.
| pphysch wrote:
| > Money is a better data point to base models and
| predictions than laws.
|
| I completely disagree. Not all value is as fungible as
| money, because economic value is rooted in the diverse &
| time-sensitive needs of individuals and societies.
|
| My demand for "potable water-value today" is not freely
| exchangeable, via a universal value medium such as money,
| with your demand for "quiet sleepy-time value next week",
| even though these are things we are economically
| acquiring. Regulations are required to prevent
| uncontrolled financialization from cannibalizing society.
| leppr wrote:
| Can you elaborate on that? It seems to me that in most of
| today's capitalistic societies these goods/services are
| totally interchangeable. If I'm rich and willing to pay
| for quiet sleepy time next week, I will get it. If I'm
| poor and can't pay for potable water today, I won't get
| it. It doesn't matter how relatively important to each
| individual the service is.
| pphysch wrote:
| And if that individual doesn't get their $0.25 of water,
| they die. How is that a reasonable outcome in any
| functioning society?
|
| The free market has its practical uses, but allocating
| basic human rights is not one of them.
| Imnimo wrote:
| This might be a dumb question, since my understanding is limited
| to the article, but here goes.
|
| Let's say we have the situation in the diagram, we have a two
| policy options, "A" and "B", and we're betting on "if we adopt
| this policy, will the GDP reach the target?". Let's say that
| currently A is unpopular, so "yes if A" has a low price, and B is
| popular. Now imagine an oracle enters the market, who knows that
| A actually has the best chance of reaching the target, but B also
| has a good shot. In fact, they know that "yes on A" and "yes on
| B" are both underpriced - just "yes on A" moreso. Ideally, we
| would like this oracle to put their money on "yes on A". But if
| they don't have enough capital to change which market leads,
| they'll break even (by having their money returned when B wins)
| if they do that. Instead, they should bet on B, which they know
| to be a worse option, because it'll actually fire and they'll
| still make some profit. The market doesn't get to learn all the
| information that the oracle has.
|
| Is there some way to structure the markets so that our oracle
| instead bets on A?
| qsort wrote:
| > Is there some way to structure the markets
|
| Most of the prediction markets I've seen use sets of binary
| options that are complete an mutually exclusive. The entity
| that handles the market would only sell you for, say, $1, a
| complete set of those binary options.
|
| So you could not buy "A", you could buy a pair made of a copy
| of "A" and a copy of "not A". If the oracle knows that "A" is
| true with p ~ 1, they would know that "A" is underpriced (it
| should be ~$1) and "not A" is overpriced (it should be ~$0), so
| they would buy ~infinitely many pairs of "A" and "not A".
| Imnimo wrote:
| I don't think that matches what they're describing in the
| article. The problem is that we only get to try implementing
| one of policy A and policy B, so if someone bets "I think
| policy A will achieve the goal", but we implement policy B,
| you have to just void their bet.
|
| If we had already decided on policy A, and were just trying
| to predict whether it'll work, what you describe would be
| fine. But in the article, we're trying to decide whether to
| implement policy A or policy B, by having two separate
| markets, one for "what will happen if we do A" and another
| for "what will happen if we do B", and one of those two will
| get voided.
| qsort wrote:
| Unless I unnderstood it wrong, you could use a variant of
| that:
|
| Market 1 has options A, not A. Market 2 has options B, not
| B. At the end of the trading period, void the "losing"
| market and reward the winning one. It's trivial to
| implement if you're using e.g. electronic payments and you
| forbid "cross" trading between A and B.
| Imnimo wrote:
| Right, that's the system they propose. But I'm saying
| that can result in an agent being incentivized to put
| their money into a policy they believe to be worse, as
| long as they believe that policy is underpriced and more
| likely to "win", which is undesirable.
|
| So for example, suppose we have the objective "increase
| our production of paperclips by next year". Our two
| policy options are "build a paperclip factory", and
| "build a paper mill". We now have two bettings markets,
| each with a Yes/No pair of options, "Will building a
| paperclip factory increase our production of paperclips?"
| and "Will building a paper mill increase our production
| of paperclips?".
|
| Now let's say that currently, the paper mill has "Yes,
| this will work" at 60%, and the factory has "Yes, this
| will work at 40%". I'm a paperclip genius, and I know
| that the true odds are that the factory has a 90% chance
| of working, and the mill has a 75% chance of working.
|
| Where do I put my money? Ostensibly, we want me to put it
| on the factory, because that's the best policy. But the
| factory is unpopular and that policy is unlikely to be
| implemented (since it's down by 20 percentage points).
| Even if I nudge it up a bit, my bet is likely to be
| voided, and I make zero return for my knowledge. Instead,
| I will bet on "yes the mill will work", because that
| market is also underpriced, and the policy will actually
| be implemented. By doing this, I maximize my expected
| reward, and I also move us _away_ from what I think is
| the best policy.
|
| This is what I'm trying to avoid.
| qsort wrote:
| > But the factory is unpopular and that policy is
| unlikely to be implemented (since it's down by 20
| percentage points). Even if I nudge it up a bit, my bet
| is likely to be voided, and I make zero return for my
| knowledge.
|
| I'm not sure that's what would actually happen unless you
| add some weird constraints. Under usual (unrealistic,
| okay, but just for the sake of argument) assumptions, you
| would buy infinitely many As at any price <.9, and
| infinitely many Bs at any price <.75. By definition you
| know the true odds, so your posterior predictive has zero
| hyperparameter variance: every single one of those trades
| has positive expectation.
|
| Both A and B would increase in price, but you would stop
| buying B after a while. Assuming infinite time, infinite
| liquidity, no budget constraints and no weird information
| asymmetries, you could single-handedly make the market
| converge at their "true" values: you will always buy A if
| the price is lower than your threshold, and any rational
| seller who doesn't believe your odds would sell it to
| you.
| Imnimo wrote:
| Certainly that's true if I have infinite capital, but if
| these markets require participants to have infinite
| capital in order to work, we've got a problem. If I have
| finite capital, then any money I put on the factory is
| money I can't put on the mill, and that's losing value.
| piaste wrote:
| Actually, if the options are mutually exclusive and bets
| on the losing option get voided, there's no reason to
| forbid you from betting on both options with the same
| money, is there? Only one bet will stand.
|
| For that matter, anyone could safely lend you X, where X
| is what you already bet on A, for the purpose of betting
| on B. One way or another you'll get X back in voided bet
| money, so you're a perfectly safe borrower.
| Imnimo wrote:
| Typically in a betting market, you can continue to buy
| and sell your shares after placing your bet, so if the
| market moves and you now think that A is overpriced, you
| can sell some of your shares and lock in profit. It's not
| entirely clear to me how you make this work if your
| investment in A and B is with mirrored funds. If there's
| a way to make it work, it certainly seems like a step in
| the right direction.
| qsort wrote:
| If you have a budget constraint, it's rational for you to
| buy argmax(true(A) - market_value(A), true(B) -
| market_value(B)), which is exactly the Pareto-efficient
| behavior.
| Imnimo wrote:
| That's where I disagree. Your expected value on buying A
| is (probability A is implemented) * (true(A) -
| market_value(A), and similarly for B, because your
| receive zero return if the thing you bet on is not
| implemented. Thus, even if A is badly mispriced, you may
| not want to buy it if it has very low probability of
| being implemented.
| piaste wrote:
| One improvement might be to make the total capital that
| investors have access to into public information.
|
| That way the market should judge bets based not on their
| absolute value, but on the degree of risk that the bettor is
| willing to take on. An oracle betting 100% of their capital on
| A should be treated as a maximally strong signal regardless of
| the size of said capital. Now, if even that signal isn't enough
| to move investors away from B... well, you can't really stop
| them without turning the system into an aristocracy.
|
| Of course, ensuring that the total capital information is
| accurate is going to be complex - how do you prevent rich
| people from creating 'proxy investors' who bet 100% of their
| borrowed funds? - but it seems on a similar order of magnitude
| of difficulty as 'prevent people from insider trading'.
| Imnimo wrote:
| Unless the two choices are extremely close, we probably don't
| want it to be the case that a single investor, even with 100%
| of their funds, can single-handedly change the outcome. We
| just want each investor to be incentivized to put their money
| behind what they believe to be the best policy, and hope that
| collectively they choose right.
|
| Thus, we should expect that even if our oracle knows with
| certainty that A is the best policy, and invests all their
| money into it, they're unlikely to be able to unilaterally
| change which policy will actually be implemented. They will
| therefore be incentivized to bet on B succeeding (which is
| also a winning bet), and now that we're revealing that they
| bet 100% of their capital on it, all we've done is magnified
| the signal of that bet. But this is bad - our oracle is
| betting in a way that moves us away from the policy they know
| is best.
| riofoxx wrote:
| T.o a.s.s.i.s.t y.o.u i.n t.r.a.d.e.s f.o.r b.e.t.t.e.r
| i.m.p.r.o.v.e.m.e.n.t on c.r.y.p.t.o.c.u.r.r.e.n.c.y
| W.h.a.t.s.A.p.p (+13052395906)
| avsteele wrote:
| Commenters saying: "but someone can influence the market" should
| at least listen to the podcast (and really should also)
| familiarize themselves with the existing literature.
|
| Do you think this critique has never been considered? If you
| disagree with the reasons _why_ this is not a problem, go ahead
| and critique those directly.
|
| Please don't reflexively pooh-pooh an idea you don't really
| understand.
| BurningFrog wrote:
| I haven't seen Hanson address the "destructive insider trading"
| scenario where I buy a prediction that California air quality
| will be bad, and then spend the summer starting wildfires in
| California forests.
|
| Today, people have no incentive to do that other than "wanting
| to watch the world burn". But if you can get rich burning
| forests, more forests will burn.
|
| I don't doubt Hanson has thought about this. I just haven't
| seen it addressed.
| avsteele wrote:
| I mean, someone can buy stocks short and then burn down a
| company's HQ/factory today.
|
| This isn't a reason to not allow equities markets.
| tshaddox wrote:
| My guess is that if a particular prediction were really so
| easy (low cost and risk) to manipulate then you wouldn't
| expect much trade volume. As an easier example, you wouldn't
| expect many people to bet money that no one will tweet a
| cartoon of a cat wearing a pink hat today, because it would
| be obvious to everyone that it would be trivial for an
| insider to manipulate this outcome.
|
| As for your specific example, starting wildfires is an
| extremely serious crime that I expect the authorities would
| spend significant resources investigating, so I don't know
| how bettors would estimate the ease of manipulation for that
| market. Even if the prediction market were implemented in a
| perfectly anonymous system where you're guaranteed to be able
| to collect (and spend) your money without authorities knowing
| you were the one who profited from that prediction market, it
| seems like you have a pretty high risk of getting caught
| simply for the act of arson itself (not to mention the "risk"
| of firefighters controlling the fires that you start).
|
| I'm also not sure how many people there are out there who
| refrain from starting wildfires only because there is no
| direct financial incentive, and not for other reasons (like
| not wanting to destroy massive amounts of ecosystem and
| property and potentially kill many people).
| sudosysgen wrote:
| Air quality is something that is hard to predict and really
| quite important for many reasons.
|
| I think you underestimate organized crime. Starting
| wildfires is easy and skillful criminals won't get caught.
| The people that pay them take on an even slimmer risk.
| tshaddox wrote:
| I'm not estimating organized crime at all, because I'm
| very ignorant of it. I'm only saying that I would expect
| the potential bettors in that prediction market to make
| some estimation of how difficult manipulating the market
| would be, and not many people would bet on a market they
| deemed to be easily manipulable. Another mechanism that
| could exist is that the organizer of the prediction
| market could itself judge whether a particular market was
| manipulated and have policies for what to do in such a
| situation.
| [deleted]
| SilasX wrote:
| Or, since you understand that literature so well, you could
| contribute to the discussion by explaining its key insights on
| those points.
| PragmaticPulp wrote:
| The link is a transcript of the podcast. Are we really missing
| anything by not listening to it?
|
| Also, could you at least summarize some of the counter-
| arguments or even link to any of the literature?
| avsteele wrote:
| read==listen here.
|
| Do a search for "manipulate" in the text for a simple
| counter-argument.
|
| tellingly. None of the critiques I see address these
| counterarguments even, so I suspect knee-jerk responses are
| mostly whats posted here.
| dwohnitmok wrote:
| I think you're being uncharitable towards the critiques. In
| particular Hanson doesn't actually address the manipulation
| most of these critiques are talking about. See e.g.
| https://news.ycombinator.com/item?id=28541243
|
| Moreover even among futarchy proponents, many do not
| advocate for it as the dominant form of government, but
| only one form for certain operations. Hanson's position is
| on the more extreme edge here.
| LanceH wrote:
| The simple reason you can't manipulate the market for profit is
| that everyone else can make the same bet you are making,
| quickly reducing the profit since you have the added expense of
| manipulating the market.
|
| If a person can manipulate the market without expense, then
| they can do it without relying on the profit and the market
| isn't the problem. It will, however, allow them to bet on the
| market, providing a good indicator.
| DuskStar wrote:
| Imagine that there's a market for which day a politician will
| die on. Initially, all of these daily contracts are priced
| very low because there is a very low chance of a politician
| dying on any given day. So, you buy quite a few of one
| particular day, and then go kill the politician.
| tshaddox wrote:
| Seems like the politician would know precisely when to stay
| home.
| eutropia wrote:
| Then you either: - Collect your money and be arrested and
| sent to jail for murder - Evade capture but never collect
| your money.
|
| How does this work, again?
| solveit wrote:
| Don't know why you're getting downvoted. The comments
| here are about as sophisticated as "Short Tesla and kill
| Elon. Stock markets are broken QED".
| DINKDINK wrote:
| A more accurate phrase is "Event Derivative"
|
| A derivative (a contract which is representative of some good,
| right, entitlement) based on the outcome of an event occurring or
| not.
|
| Event derivatives are all around us. You buying fire insurance
| grants you the right to sell, to an insurance writer, a
| smoldering pile of wood (worth $2) at a price of say 30% of the
| unburned value of your home (similar to an OTM put option). An
| accidental-death insurance contract being worth a negligible
| amount until the subjects death.
|
| What people often get wrong about EDs is
|
| 1. Whether or not they accurately predict events: they don't;
| they reflect the price, or odds, at which a market is willing to
| swap exposure. e.g. One pays a insurance costs because it's more
| profitable to swap risk than deal with exposure.
|
| 2. Confusion around incentives: Yes, each party swapping exposure
| will change their behavior -- which is a feature, not a bug. A
| company buying fire insurance can now enter into commerce
| otherwise prohibitive unlocked by swapping fire risk with an
| insurance writing company who has incentives to prevent a fire
| risk -- and do so at scale, coordinating multiple parties.
|
| 3. Lack of information about unfettered demand for the products.
| People claim there's no demand for EDs but neglect to take into
| account regulations: prevent people from purchasing them freely,
| political manipulation of prices when buyers are unhappy with the
| market price for risk, regulatory capture creating
| anticompetative producer protections, observe that because
| because of bans the inferior counts some EDs have been forced
| into are insufficient.
|
| The global policy failure of covid has been around risk pricing,
| risk-exposure swapping, and effective, at-scale incentive
| coordination.
|
| An exercise: An assassination market opens for the price of your
| head. In which case(s) should you be most concerned for your
| life:
|
| [A] Exposure available at .99 on the 1
|
| [B] Exposure available at .01 on the 1
|
| [C] Exposure available at .5 on the 1
|
| @HarryDCrane on Twitter is an applied researcher in this area,
| read him if you're interested in more -- I know I have.
| lifeisstillgood wrote:
| What does "Exposure available at .99 on the 1" mean please?
|
| (I hate guessing in stats and odds - the jargon used to express
| things has so many subtleties)
| DINKDINK wrote:
| The available price is 99 cents
| macawfish wrote:
| There's an episode of Mike Tyson's podcast where he talks to a
| former Mafia boss about how easy it is to get athletes who are in
| debt to Mafia bookies to throw games as payment for their debts.
|
| Prediction markets bring the magic of perverse incentives to all
| walks of life.
| tylermauthe wrote:
| Agreed, this post completely misses how the power dynamics of
| wealth affect the opinions and 'rationality' of players. It
| also never mentions how a whole section of society would be
| unable to take part in this system due to their socioeconomic
| status.
| ddp26 wrote:
| Are you opposed to futures markets for commodities,
| currencies, stock prices, etc. on the same grounds?
|
| Sometimes I think opposition to prediction markets is just
| opposition to markets in general, which is fine, but a very
| broad critique.
| cjcole wrote:
| Hanson says regarding national metrics: 'Well, now we're going to
| authorize this same sort of agency to estimate number like GDP
| except we're going to tell them to put more things in the number.
| Bills before Congress would say, "Count more trees, and count
| leisure, and count international reputation." They would just
| make a bigger formula that included all the stuff they cared
| about in this measure of national welfare.'
|
| Here's the tricky part. It seems to me that the metrics which you
| don't choose to bundle into the aggregate measurement will get
| annihilated (optimized out) at the expense of those which you do
| choose to bundle. And the decisions as to which things you do
| bundle and with what weight represent ethical, moral, spiritual,
| aesthetic, and otherwise intangible judgments which are
| (unsurprisingly) difficult to quantify or even come to basic
| agreement on. He weasels a bit by using relatively
| uncontroversial examples ("more trees", "leisure") and by
| handwaving ("authorize": how?, "sort of agency": what sort?), but
| it's trivial to imagine metrics which produce wild disagreement
| regarding the magnitude or even sign of the weight to be applied.
|
| (Shadows of paperclip maximization loom.)
|
| At that point, I'm not sure where we've significantly improved
| things since we're still left with the problem of how to choose
| the people who decide which metrics go into the aggregate measure
| and at what weight. Can we make a market on that, too? At that
| point we're in some crazy recursion and I get lost. I'm deeply
| skeptical.
| blfr wrote:
| His usual answer is "vote on values, bet on beliefs." So we
| would just vote on what to include, and then bet (through
| prediction markets) on how to achieve these goals.
| pphysch wrote:
| Who determines what is on the ballot, or how unstructured
| ballot items get classified? Are "make college free" and
| "make university free" the same or different policy
| proposals?
| cjcole wrote:
| That "just" is doing a lot of work.
|
| It seems to me that many of these "rationalize all the
| things" schemes tend to bottom out at and build onto an
| "incorruptible kernel of truth" which, if corrupted, causes
| the whole thing to collapse (or worse: have a veneer of
| impartial truth while being secretly corrupt). It's a sort of
| microkernel approach to government.
|
| With Hanson's futarchy, it's the hypothetical mechanism for
| "voting on values" in order to choose what does and doesn't
| go in the almighty bundle of metrics (and who gets to measure
| the result: they have the real power). If that can be
| corrupted then the whole thing falls apart. Yarvin's
| "neocameralism" has a "cryptographic decision and command
| chain" which everything else rides on
| (https://www.unqualified-reservations.org/2008/05/ol6-lost-
| th...).
|
| This "all the eggs, one basket" approach seems fragile and
| ripe for subversion, especially when having fallible humans
| administer it. It seems more resilient to avoid
| concentrations of this kind of power.
| SlapperKoala wrote:
| > Hanson says regarding national metrics[... ]
|
| The big issue I feel like he underrates is the massive
| incentive to take control of the agency that's supposed to be
| doing objective assessments. These are now effectively the most
| powerful people in the country. Even if they start off as
| saints the political incentive is going to be to find ways to
| influence it. And once that agency is captured then you have a
| dictatorship in all but name.
|
| I feel like this reflects a common problem in political
| theorising, of coming up with an ideal institutional structure
| without thinking about the incentives around it and how it need
| to be sustained.
|
| Historical analogues would be how originally non partisan
| district drawing processes are politicised, the politicisation
| of science and medicine, or soviet or Chinese gdp figures. The
| simplest solution is always to just rig the game.
| ajklsdhfniuwehf wrote:
| caltech (and most US) social science is a joke around the world.
| They apply game theory to everything. Hence the article.
|
| It assumes optimal, smart, equal footing actors with inifite time
| to dedicate the game. It's literary dismissed as a joke by
| calling it something i would translate as "efficient market
| hypothesis 2.0"
| max_ wrote:
| For a relevant blog post i wrote[0].
|
| [0]: https://as1ndu.xyz/2020/06/the-wisdom-of-rationals/
| ajkjk wrote:
| To me it just sounds like a dystopia. Like: "market forces are so
| fun, let's have more of that!" It is wishing for a giant system
| that has a mind of its own and can't be reasoned about or
| controlled but affects everyone's life.
|
| I suppose I already think that most of wall street is not, in
| fact, making anything much more efficient at all, and is instead
| a massive state-run casino. So maybe I am not the target
| audience.
| optimalsolver wrote:
| Prediction markets would influence the processes they're supposed
| to be impartially observing.
|
| When there's a lot of money riding on something happening, it
| tends to happen. Sports and traditional financial markets have
| been dealing with this problem since forever.
| hamburga wrote:
| Yet we still use financial markets.
|
| Isn't the idea that we put up regulations to minimize this,
| just like we have restrictions on insider trading?
| ddp26 wrote:
| This is true, but in practice a very small problem.
|
| People who can control or majorly influence these big outcomes
| - elections, sports matches, acquisitions, etc. - generally
| have a much, much larger stake in the outcome itself than any
| side bets.
| bobbyd2323 wrote:
| A lot of dynamic Econ models have some condition where my
| choice today depends on an expectation of the future. Like how
| much I choose to eat today depends in part on my best
| prediction of how much I'll eat tomorrow. For aggregate
| decisions, getting better predictions should improve welfare.
| bchjam wrote:
| "An engine, not a camera" is a great book about this effect in
| financial markets.
|
| https://mitpress.mit.edu/books/engine-not-camera
| robocat wrote:
| Review: http://quixoticfinance.com/the-perennial-criticism-a-
| review-...
| hogFeast wrote:
| He has written a new book about HFT which covers some of the
| same ground.
| naasking wrote:
| The solution seems simple: predictions should be blind until
| the deadline. This also exploits the "wisdom of the crowd",
| where crowds are smarter when each individual's decision is
| independent of the others.
|
| What am I missing?
| miketery wrote:
| The price of a prediction depends on what people are
| currently predicting. So you can't keep it blind. Well I
| guess one way would be to put in limit orders on odds you're
| willing to take, and not revealing the market price. However
| I don't know if such a market condition / feature would have
| people using the prediction market.
| dragonwriter wrote:
| > What am I missing?
|
| That by so preserving the independence of predictions, you've
| also removed their utility, which is predicated on their
| availability.
| croon wrote:
| If you know the price and payout of a bet, it's no longer
| blind. And if you don't, you wouldn't buy a ticket.
| karpierz wrote:
| What do you mean by predictions are blind? The issue the
| parent is describing is (as an extreme case): I go on a
| prediction market for when someone will die, put all of my
| money on tomorrow, and then kill the person tomorrow.
|
| You could imagine a lighter version where I ruh for some
| public office, bet a billion against me winning, and then
| drop out of the race.
| gunshai wrote:
| The latter example is easily taken care of though, because
| there has to be a market to take your bet if the market has
| no reason to believe you would win your odds are really low
| thus your winnings over your billion are really low. On top
| of that your risk is not symmetric as you've exposed your
| self for some to now spend what millions to campaign for
| you and thus bet against that pool.
|
| My point is your example is contrived and not really
| useful.
| nxpnsv wrote:
| Sounds clever, until you realize you want to predict stuff
| before it happens
| naasking wrote:
| True, but speculators and those utilizing predictions to
| guide policy should be separate.
| __MatrixMan__ wrote:
| Why?
|
| If you're not willing to speculate on your own
| predictions, how can anyone know how confident you are
| about them?
|
| If you're not interested in guiding policy, why not go
| bet on horse races instead?
| __MatrixMan__ wrote:
| If you reduce transparency you also lose out on a lot of
| utility that centers around the wagered amount being an
| indicator of certainty.
|
| Suppose you're using prediction markets to encourage thorough
| code reviews, specifically with an eye towards catching
| malicious commits. Run of the mill non-malicious PR's get
| lots of little yes wagers, and are merged without exceptional
| scrutiny from the package maintainers. Then a malicious
| commit comes along and a reviewer wagers $100 on "not
| merged". This captures the attention of the maintainers and
| they give the PR extra scrutiny. Turns out it has a malicious
| commit, so it doesn't get merged and the reviewer who found
| the flaw is rewarded with the money wagered by those who
| didn't find the flaw (plus some from the stakeholders, who
| seed the market with some "no" money to encourage
| participation in the game even in boring non-adversarial
| times).
|
| If you hide the predictions and the amounts, you can't use
| the unsettled bets as inputs for decision making.
| PragmaticPulp wrote:
| Prediction markets are literally markets.
|
| You can't have a market if the price is secret.
|
| The goal isn't to have people place bets and see who is right
| later. The goal is to expose the predictions to market forces
| and make people put their money on the line, thereby
| (theoretically) improving the quality of predictions.
| polskibus wrote:
| Yes you can have market with secret price. Check out dark
| pools.
| rcxdude wrote:
| Dark pool prices aren't available to the general public,
| but they are visible to those participating in the
| market.
| hamburga wrote:
| 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.
| RandomLensman wrote:
| 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 wrote:
| 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 wrote:
| > 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 wrote:
| How do you set up a market for "increase GDP" without
| counterparties taking the "decrease GDP" position?
| hamburga wrote:
| 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 wrote:
| 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 wrote:
| >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.
| notahacker wrote:
| Sure, but the point is that with futarchy as proposed you
| don't actually have a prediction market on whether the
| policy is good, you have the government looking at the
| delta between markets for and against a policy, and the
| one for the policy which isn't enacted gets voided so
| anyone manipulating its price loses nothing.
|
| Big Markdown shorts the "No Markdown" policy, it doesn't
| get implemented and they get their short positions back
| again.
|
| There's really no prediction market incentive to bet
| against them: so long as they keep pumping money in to
| move the rate, none of your bets on the _correct_ rate of
| GDP without Markdown will ever get paid out on. They only
| need to bid it one basis point below the price of the
| With Markdown GDP futures contract to get their policy,
| so even if you have deep enough pockets to outbid them
| _and_ good reason to believe Markdown has no effect on
| GDP, you 'd be risking a lot (GDP is pretty volatile and
| expert forecasts are regularly more than a basis point
| out in either direction) to win very little if they
| didn't get their way.
| jbay808 wrote:
| Maybe I don't understand the bets because they weren't
| clearly spelled out. Even if HN markdown was actually
| what held GDP back from 5% growth, you wouldn't be able
| to tell.
|
| The government asked for market "on whether or not
| markdown will raise GDP by 1%". Presumably, they want to
| know if it gets an additional 1% _on top of other growth_
| (which is what? Let 's say 2%?).
|
| But there are four possible future outcomes to consider:
|
| 1. HN gets markdown, GDP grows 3% or higher
|
| 2. HN gets markdown, GDP grows less than 3%
|
| 3. HN gets no markdown, GDP grows 3% or higher
|
| 4. HN gets no markdown, GDP grows less than 3%
|
| Of these possible outcomes, two will be discarded based
| on the decision to implement markdown, presumably made
| based on the betting odds, and then one more will be
| discarded based on GDP's measured performance over the
| following year.
|
| Let's structure this as a _bet_. If you believe markdown
| is good, then you 'll believe P(1)+P(4) > P(2)+P(3).
|
| So you say: "I bet that either HN will get markdown and
| GDP will grow 3+%, or HN won't get markdown and GDP will
| grow less than 3%". I don't like markdown so I consider
| taking the opposing side.
|
| But, I also believe COVID vaccines are going to cause GDP
| to grow 10% next year, and markdown will have a trivial
| impact in either direction. So in my opinion, P(1)+P(3)
| >> P(2)+P(4).
|
| Then in that case I'm _mostly_ betting on whether or not
| I think markdown is going to get _implemented_ , not
| whether I think it's going to be beneficial. And if the
| implementation decision is going to be based on which
| side bets more money, then that's mostly a popularity
| contest. I just want to bet alongside whichever side is
| winning if I think the GDP is going to go up anyway for
| other reasons.
| ianferrel wrote:
| I think that your example largely shows that it's not
| useful to make prediction markets about GDP for policies
| that have effectively no impact on GDP.
|
| If HN wanted to run a prediction market for features,
| they should use a measure like user growth, or average
| score of posts that use the feature or something.
| Something directly related to the feature in question.
|
| But presumably there are policies that have an impact on
| GDP, right? A prediction market there is going to
| function properly. If you want to know what tax rate or
| pandemic policy the government should implement, it will
| absolutely have an impact on GDP.
| dwohnitmok wrote:
| > 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.
|
| Who do they lose their bets to? If the answer is the
| money is just set on fire or some equivalent (which I
| think is actually a mechanism we should use more of when
| it comes to things like fines), where does the money come
| from if they win?
| hamburga wrote:
| More details here:
| https://blog.ethereum.org/2014/08/21/introduction-
| futarchy/
| dwohnitmok wrote:
| That article doesn't deal with the issue of directly
| manipulating the thing measured by the success metric
| (and implicitly assumes that it is unmanipulatable).
|
| To take the example given in the article for bailing out
| banks and GDP, as soon as the "yes" trades are reverted
| and the "no" trades are confirmed, we collapse exactly
| into the scenario many other commentators on this thread
| have talked about. Now, all holders of negative amounts
| of "no" tokens are incentivized to decrease GDP in 10
| years because this increases their profits at the expense
| of holders of positive amounts of "no" tokens. The
| argument is presumably that there is an equal incentive
| on the other side to increase GDP, but that's a fragile
| assumption (since in the real world betting market we
| still see fraud in the direction of those with power,
| even though in theory you could have fraud "pulling in
| both directions") and still leaves open the more general
| fragility-of-value problem (as the article refers to it
| later on), namely that someone can manipulate GDP but
| doesn't expose this when betting occurs (which again
| happens in real-world betting markets), which I'll talk
| about in a bit.
|
| (Although if someone could explain "after ten years
| everyone holding the asset on the "no" market gets $26.20
| apiece." that would be great, because I think that's a
| typo and the $26.20 just exchanges hands immediately, or
| alternatively everyone who's sold the asset gets $26.20
| apiece rather than those who hold it? That's however
| irrelevant for the larger point.)
|
| The problem we're talking about is basically the same one
| as a problem the article itself points out later.
|
| > A futarchy-as-government, especially if unrestrained,
| has the potential to run into serious unexpected issues
| when combined with the fragility-of-value problem... Of
| course, in reality, futarchies would patch the value
| function and make a new bill to reverse the original bill
| before implementing any such obvious egregious cases, but
| if such reversions become too commonplace then the
| futarchy essentially degrades into being a traditional
| democracy.
|
| The problem here can be recast as a version of the
| fragility-of-value: the value function is no longer
| accurate because it has/can be manipulated. But the half-
| solution that the article hand-waves, namely "futarchies
| would patch the value function and make a new bill to
| reverse the original bill before implementing any such
| obvious egregious cases" is doing a _lot_ of work here
| and should be viewed with a great deal of suspicion.
|
| It's not as relevant for the article, which explicitly
| points out it's not advocating for futarchy as government
| (or at least not for all governance rather than e.g. just
| party selection), which is probably why it's hand-waved
| away, but if you care about futarchy as government this
| is extremely important and it is not at all apparent that
| this "patching" would occur, especially given that the
| financial incentives are magnified vs a traditional
| democracy and there is potentially no way of knowing the
| value function is being manipulated, up until the very
| moment it is manipulated (and even then it may not be
| apparent that that is happening!).
|
| In a way, truly solving the fragility-of-value problem is
| basically solving the same problem as AI existential risk
| and I would assume most people in the futarchy community
| agree that the latter problem is a very difficult
| problem. A failure mode of futarchy can then be thought
| of as a "monetary AI" completely optimizing for the wrong
| thing in spirit, even if it's the right thing in letter,
| e.g. manipulation of the value under measurement.
| enkid wrote:
| How do the No people win in this scenario? What happens
| if Markdown is added and GDP goes down? How do you
| resolve that markdown actually caused the change in GDP?
| (Aren't you just asking people to conditionally bet on
| GDP going up?) Who are people betting against if No
| loses? (Who's money do they get?)
| rsj_hn wrote:
| You could set up a market for increase GDP by a range
| (-inf, +X] and the counterparty takes the trade (x,
| +inf). X does not need to be zero.
| jbay808 wrote:
| Doesn't that still incentivize counterparties to do
| whatever they can to undermine GDP growth? Just by X%
| less.
| DINKDINK wrote:
| >Prediction markets would influence the processes they're
| supposed to be impartially observing.
|
| Who said anything about impartiality (/cordially a strawman)?
|
| Changing behaviors is a feature not a bug. Your health
| insurance writer (who's bought "No optimalsolver will not get
| sick") loses money if you do in fact get sick. Your fire
| insurance writer has an incentive to provide you free fire
| inspections because it reduces their payouts. A farmer plants a
| lucrative but fragile crop because a meteorologist can better
| price weather risks than they can.
|
| Swapping exposure across space and time is a productive act.
| dwohnitmok wrote:
| Swapping exposure is only productive if you have many
| guardrails outside of the system that absolutely constrain
| what actions players inside the system are allowed to do.
| Otherwise, and this has been borne out it in reality, you end
| up with very distorted incentives.
|
| This is covered today by what we call fraud (whether that be
| insurance fraud or market manipulation fraud), which tries to
| set bounds on what acceptable behavior is so that you can try
| to eliminate pathological edge cases. I don't see how this
| would be handled if everything at a top-level is handled
| through prediction markets.
| iakh wrote:
| I hadn't heard that before. Can you give an example? Or do you
| mean in the "fixed game" way?
| pjc50 wrote:
| Years ago there was a libertarian proposing this as
| "assassination politics": simply create a system that allows
| people to bet that "politician X will be assassinated before
| time T". People who want X assassinated take the other side
| of that bet. Eventually there may be enough money in the pot
| that someone considers it worth making the hit and collecting
| the bet, and the people on one side have paid for it without
| directly paying for it.
| unyttigfjelltol wrote:
| Yes. The market facilitates payment for crime, e.g., you
| can't buy a company's secrets from employees directly but
| in a free predictions market leakers would be paid. Looks
| like a cynical way to expand the scope of what you can buy
| with gobs of money, beyond the current boundaries of law,
| decency and fair play.
| colinmhayes wrote:
| There was a prediction market on the number of times
| celebrities tweet a week. Someone found one of the
| celebrities live streaming and kept paying them to delete
| their tweets.
| PragmaticPulp wrote:
| Imagine a prediction market had an entry for whether or not
| someone would streak across the field during a Super Bowl.
| Someone might see this, buy into the market, and then go
| streak across the field to force the outcome to favor their
| position.
|
| It's not even theoretical. This actually happened (or rather
| was attempted with traditional betting markets, not
| prediction markets): https://www.insider.com/super-bowl-
| streaker-bet-on-himself-p...
|
| Prediction markets give financial incentive to force specific
| outcomes. They aren't just observations: They become
| incentives to influence the outcome. The bigger the market,
| the bigger the incentive.
| tshaddox wrote:
| This is also the fundamental idea behind an assassination
| market.
|
| https://en.wikipedia.org/wiki/Assassination_market
| inter_netuser wrote:
| Numerous scandals in european soccer. an endemic problem in
| any big popular sport, really.
|
| https://en.wikipedia.org/wiki/French_football_bribery_scanda.
| ..
|
| https://www.dw.com/en/police-expose-european-soccer-
| bribery-...
|
| etc etc etc
| spaetzleesser wrote:
| Markets are not based on fixed principles but are basically a
| game of psychology mixed with a few principles. So
| expectations play a big role in market outcomes.
| azta6521 wrote:
| If I had 500M to manage, I may just buy a lot of real estate
| in a specific place to drive up the prices in that area. I
| want prices to increase and with money I can create
| circumstances that would favor my preferred outcome.
| chaboud wrote:
| You can find many simple but observed real world examples of
| unintended consequences from indexing on observation by
| searching for examples of Goodhart's Law (which, as commonly
| generalized, should actually be called Strathern's Law):
|
| "When a measure becomes a target, it ceases to be a good
| measure."
|
| See Wikipedia to get started, then google search for
| examples: https://en.m.wikipedia.org/wiki/Goodhart%27s_law
| robertk wrote:
| I feel like this is left as an exercise to the reader and no
| proof is needed. Bettors in a prediction market are not
| divine speculators causally divorced from the real world.
| They are embedded, and when there are a lot of them and their
| financial incentives are towards a particular outcome, they
| might act in ways that aggregate to a greater likelihood of
| the event transpiring than in the counterfactual setting
| where they are pure observers of the simulations waging in a
| vacuum. It seems to me there are multiple ways to formalize
| and prove this and this contributes to my perception the
| original comment seems self-evident. If that is not the case
| then something is wrong in my intuition.
| hugh-avherald wrote:
| That's where Hanson's idea of futarchy (as opposed to
| prediction markets) comes into play. You don't bet on an event
| A, you bet on A given B or on A given not B. So the prediction
| market wouldn't be for an asset paying $1 if there's a
| streaker, but for two assets: one which pays $1 if there's a
| streaker given there's 100 or more security guards and $1 if
| there's a streaker given there's fewer.
| lvass wrote:
| So the potential streaker has one extra step, discovering the
| amount of guards, before placing the bet? How does this solve
| the problem instead of creating even more of a plutocracy?
| Gaming the system will always be possible, except for a
| smaller amount of people.
| hugh-avherald wrote:
| The market is closed before the number of guards is
| decided. Indeed the whole point of the market is to decide
| the number of guards.
|
| The potential streaker would have to bet in both markets,
| so won't affect the difference in prices between the
| markets.
| Imnimo wrote:
| Well, but the reason we want to decide the number of
| guards in the first place is that we want to prevent a
| streaker. If, in order to decide the number of guards, we
| use a process that increases the odds of a streaker,
| isn't that counterproductive?
| pdonis wrote:
| I don't see how this helps any with the underlying problem.
| All it does is introduce an additional incentive for another
| party to manipulate the outcome in order to win money by
| betting: whoever runs the security guards.
| hugh-avherald wrote:
| In this scenario, the person running the security guards is
| the one organizing the market.
| pdonis wrote:
| Which just means the person organizing the market now has
| an incentive to manipulate it. Doesn't seem like a good
| idea.
| aazaa wrote:
| This is why, for example, decentralized life insurance policies
| have been compared to hit contracts.
| __MatrixMan__ wrote:
| The alternative to putting your money into the prediction
| market to influence the outcome is to try to influence the
| outcome in some other way (e.g. a disinformation campaign).
|
| At when if bad actors put their money into the prediction
| markets, they draw further attention to their false claim--
| something that can't be said for the alternatives.
| AlbertCory wrote:
| And now for something completely different: prediction markets
| and patents!
|
| I had the idea, back in 2004, of a prediction market for "patent
| NNN will be invalidated." The idea is that this creates a
| financial incentive to build the case, usually with prior art, to
| invalidate garbage software patents. Because most software
| patents ARE invalid.
|
| I actually pursued this at Google for some period. The
| implementation details are kinda prohibitive, though:
|
| must ALL the claims be invalidated, or just some?
|
| can the patentee amend his claims to avoid the invalidity ruling?
|
| by what date must the invalidation take place?
|
| who's going to bear the cost of invalidating it?
|
| Nice idea, though.
| setori88 wrote:
| If it's of any interest to anyone I recently did a podcast with
| Prof Robin Hanson too:
| https://www.youtube.com/watch?v=EIbOUjplFus [2hr 48min video]
| lkey wrote:
| If I recall correctly, this is the same man who said:
|
| 'I'm not a medical professional, so I can't speak much to medical
| solutions.'
|
| and in spite of this, proceeded to suggest we _intentionally_
| infect people at the outset of the coronavirus.
|
| Claiming, falsely:
|
| 'As of yesterday total known deaths were 1384, a number that's
| had a six day doubling time lately. At that rate, in four months
| deaths go up by a factor of a million, which is basically the
| whole planet. So unless growth rates slow by over a factor of
| four, there's probably not time for a vaccine to save us.'
|
| You'll have to forgive me if I don't take any of his claims about
| the future organization of _society_ seriously, as he seems to
| lack something critical ever time he tries to imagine how people
| other than him might behave.
|
| Also this:
|
| 'To me as a youth, I think the theory that many men want to have
| sex with men looked like a conspiracy theory: implausible, with
| no direct evidence shown, & the sort of thing people would want
| to claim even if not true. I now believe, though I've never seen
| very direct evidence.'
|
| Truly a bizarre way to conceptualize the world.
| tlholaday wrote:
| > Truly a bizarre way to conceptualize the world.
|
| If familiarity is what you seek, look for echo chambers.
| lkey wrote:
| Pithy, but I can't think of anything more pointless than
| seeking out a solipsist and trying to convince them I exist.
|
| Seeking contrary opinions for their own sake is not virtuous.
|
| Seeking out "heterodox opinions" from people with an
| established track record of being misinformed on a topic is
| downright foolish.
| Matticus_Rex wrote:
| The numbers on variolation (the intentional infection he was
| talking about) still look like a pretty clear net positive.
| Were variolation trials not so legally problematic, they would
| likely have saved many, many lives, because as Hanson pointed
| out very early on the amount of exposure seems to be one of the
| larger factors in disease severity with COVID-19 (which was
| very predictable). And for most of his futarchy claims, he's
| relying directly on fairly good evidence. That's not a good
| reason to overhaul society in its image, but neither is it a
| good reason to dismiss the ideas.
|
| I'm the first to agree that Hanson has pretty big blind spots,
| and he's about as non-neurotypical as they come (and therefore
| seems to often fall into a trap of terrible assumptions about
| how others will behave), but this is an awful example to use.
| lkey wrote:
| 'Were variolation trials not so legally problematic' It's not
| like they weren't going to study this, but studying it in a
| way that doesn't violate the core tenants of medical ethics
| took longer than vaccine development. Indeed, I see that it
| has continued to be studied into the present year, but
| results are not unilaterally good, especially regarding
| secondary cases.
|
| "they would likely have saved many, many lives"
|
| This statement is loaded with unfounded assumptions.
| Governments and epidemiologists, if even if they'd agreed
| with Hanson, _might_ have had a tough time convincing the
| population to go to their doctors to be infected with Covid-
| lite.
|
| There are dozens of interventions at every point along the
| way that _might_ have saved many many lives.
|
| What I find most inexcusable is Hanson, a self-styled numbers
| guy, justifying his urgency with a completely unfounded
| extrapolation.
|
| _' At that rate, in four months deaths go up by a factor of
| a million, which is basically the whole planet'._
|
| This is a completely, laughably unserious analysis.
|
| As to the 'futarchy', I think other comments here point out
| the flaws in any such system better than I could.
| chollida1 wrote:
| Options and equites markets have a similar risk called pin risk
| where an underlying stocks price will tend to stick close to a
| strike price with alot of open interest.
|
| > Pinning refers to the potential for institutional option buyers
| to manipulate price action in the underlying as options
| expiration approaches. If these option buyers face the potential
| for a total loss of the option, they may try to pin the stock to
| a price just in the money by strategically entering buy orders at
| the last minute before the close
|
| https://www.investopedia.com/terms/p/pinrisk.asp
|
| You end up with this tail wagging the dog model where options end
| up moving the underlying as the option seller/writer doesn't know
| if they will be called on the option so they have to acquire it
| to hedge out their risk just in case.
|
| Similarly the option buyer doesn't know if they will be assigned
| so they tend to short the stock to, again, hedge out their risk
| so the stock experiences both buy and sell pressure around the
| strike price due to bets placed on it.
| gruez wrote:
| >Similarly the option buyer doesn't know if they will be
| assigned
|
| Don't you mean option seller/writer? If you buy an option (and
| therefore are an owner), you have the right but not the
| obligation to exercise it.
|
| >You end up with this tail wagging the dog model where options
| end up moving the underlying as the option seller/writer
| doesn't know if they will be called on the option so they have
| to acquire it to hedge out their risk just in case.
|
| Right, but that's not any different than any other sort of
| leverage? eg. buying stocks on margin to drive up the price.
| chollida1 wrote:
| > Don't you mean option seller/writer? If you buy an option
| (and therefore are an owner), you have the right but not the
| obligation to exercise it.
|
| No, meant the buyer, alot of professionals want their
| exposure to be hedged out so they don't want to end up owning
| any shares after expiry so they need to be short shares for
| any calls that will end up in the money. So as an option pins
| the underlier close to the strike price the option holder
| ends up buy/selling to hedge out their delta exposure to
| zero.
|
| > Right, but that's not any different than any other sort of
| leverage? eg. buying stocks on margin to drive up the price.
|
| Not really,
|
| The tail waiving the dog effect occurs when a derivative
| instrument that is priced off an underlier actually ends up
| moving the underlier itself.
|
| Leverage is a different animal. If you lever up 2x you're
| just buying twice as much. When you unwind you you sell 2x as
| much. Its still the underlying moving itself and not being
| affected by any other instrument.
| DoubleDerper wrote:
| Prediction markets will exacerbate the "war on truth," and are
| illegal in the US, thankfully. "Shorting" is frequently
| accompanied by disinformation campaigns against a target. It's
| scary to think about what this will lead to.
| tlholaday wrote:
| > "Shorting" is frequently accompanied by disinformation
| campaigns against a target. It's scary to think about what this
| will lead to.
|
| Do you agree that it would lead to colossal losses by the
| disinformation promulgators and those they influenced when
| their predicted outcomes failed?
| AlbertCory wrote:
| Old news with a catchy new name "futarchy".
|
| In 2005 when I joined Google, they actually HAD prediction
| markets (no $$ involved) on business questions like "Gmail will
| have 50 million 7-day actives on April 1." It seemed so hip and
| with-it. Top management can get the real truth about things,
| rather than just asking their underlings!
|
| The markets didn't take off, they withered. AFAIK they don't have
| them anymore. A friend of mine actually created an open source
| project for setting up your own prediction market. We can ask him
| how many users he got.
|
| We've had betting markets on politics for a long time, too. I
| lost a few dollars on Amy Klobuchar in the 2020 primaries,
| although I had a 3x profit for a while (didn't sell, damn it).
|
| So the interesting question isn't "is this a good idea?" but "why
| hasn't it taken over the world already?"
|
| ===== "Richard: Do you put futarchy in a larger intellectual
| tradition? Because a lot of people when they're coming up with an
| idea... Did you come up with this term by the way?
|
| Robin: Yeah, and I've been ridiculed for it."
| lend000 wrote:
| The problem is mostly around the legal gray area of using them,
| and whether it constitutes gambling, instead of general buying
| and selling of assets.
|
| If there wasn't a legal problem, I think they would have much
| more of an impact.
| ALittleLight wrote:
| If there was no money involved it sounds like Google actually
| didn't have prediction markets. This is like saying that
| because nobody will take care of my lawn in exchange for
| Monopoly money lawn care businesses can't exist. It might be
| different if people got paid!
| ddp26 wrote:
| Agree, tangible incentives are important. But non-monetary
| prediction markets still have other benefits over traditional
| forecasting:
|
| (1) Traders only make predictions in markets where they think
| they will gain;
|
| (2) Traders control their risk, so one very confident person
| can make a larger bet than 10 people who are not very
| confident;
|
| (3) Markets are continuously updated as new information
| arises;
|
| (4) Profitable traders trade more, while losing traders exit
| the market
| wpietri wrote:
| Another good example here is the Long Bets project, which I
| wrote the initial code for: https://longbets.org/
|
| It has been an interesting exercise, and our largest bet was
| over $1m: https://longbets.org/362/
|
| It has been a success as far as I'm concerned, in that it's
| still up and running almost 20 years later, and it has
| generated a lot of discussion about long-term topics, which is
| our goal.
|
| But at the time I hoped it would turn into something much
| bigger. Lots of bets! Lots of money on table! Secondary bets!
| Maybe even options! That was definitely not the case. It has
| stayed niche, and so have prediction markets generally. I think
| there are good reasons for that.
| AlbertCory wrote:
| Checked it out. I think this is a great idea! Why do think
| it's stayed niche? There IS real money at stake, albeit
| philanthropic donations.
|
| My personal feeling: people do not want accountability, and
| to paraphrase Jack Nicholson in _A Few Good Men_ , they can't
| handle the truth. I think that's the real reason the Google
| prediction markets died: managers prefer to do what they
| _want_ to do, regardless of whether it 's going to work or
| not. Perhaps someone can theorize as to why that's a good
| thing? I can't.
| whimsicalism wrote:
| > no $$ involved
|
| > The markets didn't take off, they withered.
|
| This is surprising?
| ddp26 wrote:
| I'm not sure this is so clear. Google's first prediction
| market had 1,463 traders (>10% of the company at the time)
| and produced >250k predictions (though >50% of those were
| from trading bots).
|
| The market was a surprisingly accurate forecaster too: http:/
| /static.googleusercontent.com/media/services.google.co...
| asdfasgasdgasdg wrote:
| Prediction markets are probably not a panacea, but Google's
| various internal implementations of them (there have been
| several 20% attempts) are far from proof of this. If the people
| making the predictions don't have any actual skin in the game,
| the economic incentive to be correct is removed. That is the
| secret sauce that should supposedly make prediction markets
| more accurate than other forecasting venues.
| ddp26 wrote:
| You'd be surprised how motivated many Googlers are to be on a
| leaderboard of top traders, even without $!
| AlbertCory wrote:
| Right. asdfasgasdgasdg knows nothing about prediction
| markets, the vast majority of which don't involve real
| money.
| asdfasgasdgasdg wrote:
| Not enough to generate routinely accurate, non-trivial
| predictions, apparently.
| AlbertCory wrote:
| People DO bet where "ego points" are the reward, and my own
| personal proof is the Hollywood Stock Exchange [1]. For
| several years, I won my movie Meetup group's Oscar pool, just
| by taking all the predictions from HSX. (They don't do all
| the minor awards, which is a problem.)
|
| Actually using real money is a major legal hurdle, and that's
| why most prediction markets don't do it. The political
| markets have a special "research" dispensation, last I
| checked.
|
| [1] https://www.hsx.com/
| renewiltord wrote:
| Isn't this automatically inflationary? Just joining adds $2
| mm Hollywood dollars to the pool. And you can join multiple
| times? But it does work clearly so I must be wrong about
| something.
| arpinum wrote:
| Robin has been at this for over 15 years. Some reasons why he
| failed in the early years were that he used government money
| for uncomfortable bets about assassinations of US politicians.
| AlbertCory wrote:
| Yeah, that's one of the few markets where I'm with the
| alarmists. You definitely _can_ move the market by
| assassinating someone.
| didibus wrote:
| I just can't trust a social scientist personally telling me
| that something offers better predictions, because social
| science has lost my trust in it's methodology. I'd need to
| see a data scientist, mathematician or statistician arguing
| that it does for me to start considering it more.
|
| The good thing though is, he could simply setup a decision
| market to have people decide the true value of decision
| markets no?
| arpinum wrote:
| good news, Robin wasn't always a social scientist, he has a
| background in physics and statistics
| Matticus_Rex wrote:
| Robin happens to be something of a poster boy for
| criticizing social science methodology, as it happens.
| tshaddox wrote:
| Futarchy also isn't new. I remember it being a popular topic of
| discussion online 10 years ago, and apparently it dates back at
| least to 2007.
| a9h74j wrote:
| Their step 6: reward those who won in the prediction.
|
| And is there a predictable step 7: one dollar one vote.
|
| What if "billionairs" already feel they they have won up to step
| 6, and feel legitimated in that step 7.
| didibus wrote:
| Has there actually been any empirical proof that betting markets
| yield better predictions though? From what I read, it doesn't
| seem so, seems that people still aren't sure if they offer better
| predictions or not than alternatives, and since it isn't really
| obvious if they do or don't, it seems ideological if you believe
| they do or don't and therefore support them or not.
|
| Does anyone know if things have changed on that front?
| glutamate wrote:
| Am really I the only one who would rather have a Future Anarchy,
| where worker cooperatives take over the world?
| tlholaday wrote:
| > where worker cooperatives take over the world?
|
| Suppose that worker cooperatives have taken over the world.
|
| Suppose then that the worker cooperatives must choose between
| policy options, for example { "increase payments to retired
| workers", "increase investment in disaster preparedness",
| "increase investment in infectious disease biochemistry" }.
|
| What is your recommendation for how the worker cooperatives
| should decide how to allocate resources? Presuming you do not
| recommend prediction markets.
| glutamate wrote:
| One member, one vote. Worker cooperatives are democracies.
| tlholaday wrote:
| > One member, one vote. Worker cooperatives are
| democracies.
|
| Do you agree that the Democratic Caucus of the Colorado
| State House of Representative is a democracy? In 2020, they
| eschewed one member, one vote in favor of Quadratic Voting.
| More here:
| https://www.radicalxchange.org/media/blog/quadratic-
| voting-i...
| glutamate wrote:
| Interesting, see also the pol.is platform deployed in
| Taiwan for building consensus statements
|
| These are probably experiments worth doing
| sudosysgen wrote:
| There are many possible ways for the individual members to
| decide to vote, in the end it ends with one person one vote.
|
| Otherwise the tools we have available are extremely powerful
| especially when fed good data that is freely available, which
| is what would be possible if you achieved the (perhaps
| impossible task) of switching most of the economy to worker
| coops.
| glutamate wrote:
| I don't think it is impossible to shift the labour-
| intensive, non-capital-intensive part of the economy (which
| is quite a lot) to worker coops. They should be more
| attractive to both employees and customers than sad outfits
| with private equity vampire squids wrapped around them.
| tlholaday wrote:
| > in the end it ends with one person one vote.
|
| Do you see tyranny-of-the-majority and factional-rule as
| evils to be mitigated, or as desirable reflections-of-
| worker-cooperator-sentiment, regardless of consequences?
| sudosysgen wrote:
| You can always change workplaces. Yes they are evils to
| be mitigated, but workplaces are not countries, you can
| leave and create them quite easily especially when you're
| entitled to part of the capital of your workplace.
| echopurity wrote:
| The state is already run this way. It's called lobbying.
|
| How is this nonsense second from the top? Isn't this supposed to
| be a non-ideological site?
| RandomLensman wrote:
| None of these things are are really new, but I wish folks like
| this would better understand what makes markets work:
|
| Markets need participants, capital, liquidity, effort, etc. to
| become efficient. A lot prediction markets suffer from the fact
| that volatility in them is limited and that the outcome is not of
| interest to many people, so the markets cannot really do what
| markets are supposed to do.
|
| If markets are aggregating crummy data and information, no useful
| market will form. And that is observable even in much more
| developed financial markets, where some things really have
| trouble on price formation. And then you might use auction
| methods, for example.
|
| Similarly, if stuff happens rarely and you only get very limited
| shots at being right, then averaging and aggregation or not so
| useful because you cannot get an average (e.g., can do one thing
| for the next five years and better be right, for example).
| ddp26 wrote:
| | A lot prediction markets suffer from the fact that volatility
| in them is limited and that the outcome is not of interest to
| many people
|
| +1. This is why I'm more interested these days in prediction
| markets within (large) institutions, like tech companies,
| universities, or government agencies.
|
| That way, the participants have (a) a shared domain of
| interest, and (b) can speculate about internal, nonpublic
| matters.
|
| Perhaps most importantly, if the prediction market improves the
| wisdom of the institution, the participants benefit - even if
| they aren't profitable in the market itself.
| pgustafs wrote:
| Adding to your point, most successful markets are positive-sum
| -- hedgers gain value from mitigating their structural risks,
| and speculators get paid to assume price risk. For example, the
| wheat futures market has two natural participants -- farmers
| and bakers. Farmers can sell future produce to buy seeds right
| now. Bakers can hedge their wheat price exposure to reduce
| their chance of getting ruined by a bad harvest. Speculators
| get paid to hold onto wheat futures contracts if a farmer wants
| to sell a future when the bakers aren't around to buy
| (presumably baking), selling to a baker later for a higher
| price reflecting the price risk assumed. All of these
| participants derive value from the market.
|
| It's not clear to me that prediction markets usually have
| natural hedging participants (maybe political operatives, but
| the tx costs are probably too high relative to the value at
| stake).
| wpietri wrote:
| Excellent point.
|
| Prediction markets have been a thing for at least 25 years. I
| get the intellectual appeal, and they may be useful in
| certain niches. But I think their lack of significant uptake
| or impact is telling.
| [deleted]
| zerobits wrote:
| It's a bit presumptuous that these folks don't understand what
| makes markets work.
|
| They went into quite a bit of detail but can't cover
| everything. Most of the examples were quite top of funnel, fire
| the CEO markets, economic impacts of new laws being passed. I
| wouldn't expect for major bills or companies there would be any
| shortage of liquidity there.
|
| It's typical of comments in any forum to mostly be critical,
| but what takes more guts and cleverness is to connect the dots
| to improve upon the idea. You seem to have a good mind so I'd
| encourage you to try applying it in that way.
| RandomLensman wrote:
| Bit presumptuous to assume I have not been involved with the
| creation of markets, trading, etc. I have seen stuff work as
| well as fail up close in large arenas. [Edit: sorry, I should
| not snark. You are right that criticizing is easy creation is
| not.]
|
| Going from academic ideas of markets and experiments to
| actual deep and useful markets is surprisingly difficult.
|
| EDIT: the failure to create proper working markets for GDP-
| linked derivatives is good example of something that should
| but actually ain't. Not enough market making risk takers,
| limited hedges, unbalanced demand between long and short
| demand, index issues, ...
| hogFeast wrote:
| Even when you have a market with immense amounts of liquidity,
| the market won't be efficient if all the participants are
| wrong.
|
| I remember back in 2012 InTrade had a market for the US
| Presidential election, the odds were wrong, stayed wrong for
| months, and actually got more wrong close to the event. You
| could get hourly liquidity in the tens of thousands almost
| throughout (I put on $20k in this market, I wasn't touching the
| sides, it was incredible).
|
| Most of the people who talk a lot about prediction markets
| haven't worked in markets. Markets aren't magic. They work
| better with binary outcomes but they cannot be smarter than the
| people making bets in that market...and they aren't (I have
| most experience with financial markets, which just don't work
| well at all, but have quite a bit of experience with binary
| markets too...they have only become more accurate as our
| knowledge about the underlying events increased...if you look
| at binary markets where knowledge is limited in some way,
| markets are not efficient).
| RandomLensman wrote:
| Seconded, predictive quality of markets is not at all a
| given. For example, financial markets can have real arbitrage
| opportunities in size open that no-one removes (if capital
| requirements are high/volatile) - so no unique predictive
| state then
| elil17 wrote:
| Last year a man took a large bet that there would be a streaker
| at the Super Bowl, then went to the Super Bowl and streaked. His
| winnings far exceeded the fine and the cost of the ticket.
|
| My fear about a betting market for policy is that you'd have a
| bunch of rich/powerful people betting GDP will go down and then
| doing everything in their power to stunt economic growth.
| tshaddox wrote:
| That doesn't strike me as a terrible outcome of a prediction
| market, unless you think the act of streaking is itself so
| terrible.
| dwaltrip wrote:
| It isn't a problem as long as no one is betting on whether or
| not "bad" things will happen. However, the things that people
| care about (or find interesting) - and want to bet on - are
| often heavily debated as being good or bad. This means that
| naive prediction markets will probably incentive some people
| to work towards outcomes that many view as bad.
| paulgb wrote:
| Ha, first I'd heard of that. Apparently it didn't work out for
| him, which I guess is good for market integrity.
|
| https://www.insider.com/super-bowl-streaker-bet-on-himself-p...
| flerchin wrote:
| Is that different than shorting a broad range of stocks?
| elil17 wrote:
| That's a good question - perhaps it's not different.
| chollida1 wrote:
| Yes in the sense that for a bet like streaking the chance
| that you can affect the outcome is 100%.
|
| The chance that you can short a "broad range of stocks" and
| affect their share price is alot less certain. Especially in
| liquid markets your chance of affecting a blue chips stock
| price is very small.
|
| There are always a few cases, like Archageos, where you can
| get so big that you move the stock but those cases are so
| well known exactly because they are so rare.
| gunshai wrote:
| This is the exact perversion I was thinking of. Pun very much
| intended.
| benlivengood wrote:
| An interesting case study is the Nenana Ice Classic[0]. There is
| existing research[1] on the accuracy of the betting pool as a
| prediction market, but to me it looks like outcomes farther from
| the median result are not predicted well.
|
| [0] https://en.m.wikipedia.org/wiki/Nenana_Ice_Classic [1]
| https://climatecommunication.yale.edu/wp-content/uploads/201...
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