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.
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.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.
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.
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.
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.
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.
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.
Or not even foreign influence. It's just rephrasing money = speech. Instead of spending millions to influence voters, you spend millions on positions, and you get your money back if you don't win your side? So it lets the megacorps/trade groups get richer by removing the uncertainty of lobbying in place of buying policy once you hit a certain critical threshold of money to throw around.
There are still avenues for corruption, but it's not clear to me that they are worse than the present state. There is of course always the chance that those attempting to manipulate the market will lose their shirts.
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.
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?
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.
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.?
The potential streaker would have to bet in both markets, so won't affect the difference in prices between the markets.
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.
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.
"Once a Market’s underlying event occurs, the Outcome must be determined in order for the Market to Finalize and begin Settlement. Outcomes are determined by Augur’s Decentralized Oracle, which consists of profit-motivated Reporters, who simply report the actual, real-world Outcome of the event. Anyone who owns REP may participate in the Reporting and Disputing of Outcomes. Reporters whose Reports are consistent with consensus are financially rewarded, while those whose Reports are not consistent with consensus are financially penalized."
Where the market here can take these states/phases:
> Pre-Reporting
> Designated Reporting
> Open Reporting
> Waiting for the Next Fee Window to Begin
> Dispute Round
> Fork
> Finalized
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.
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.
Conversely though it creates an incentive for information to flow to everyone in the market instead of just to insiders. Despite shitty motives, it seems like it forces more transparency which seems like a net positive.
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.
"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
https://en.wikipedia.org/wiki/French_football_bribery_scanda...
https://www.dw.com/en/police-expose-european-soccer-bribery-...
etc etc etc
Isn't the idea that we put up regulations to minimize this, just like we have restrictions on insider trading?
What am I missing?
That by so preserving the independence of predictions, you’ve also removed their utility, which is predicated on their availability.
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.
My point is your example is contrived and not really useful.
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.
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?
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.