futarchyfan

What are you working on this week?

This comment on my post:

https://stacker.news/items/1465890/r/futarchyfan?commentId=1466191

nerd snipped me into figuring out how a liquidity provider bot could profit on an LSMR AMM

tech

Prediction Markets Suck

Very interesting analysis. I think you're right. 

Hanson is in a world where only the informed traders matter, we just need to aggregate their information. But the reality is that liquidity providers matter too since an illiquid market is not attractive to an informed trader.

I'll have to think on this.

An enlightened point.  You're right, the gambling addicts add liquidity for intelligent traders, but it's only a public good (good for us non traders) if the intelligent traders can bet privately on important questions.

If you talk to a prediction market enjoyer they'll explain that their benefits fall into two categories:

* Prediction markets offer a way for insiders can get paid to reveal information
* Prediction markets make it expensive to lie about beliefs

Unfortunately, the current crop of prediction markets is focused more on extracting money from gambling addicts than on either of these two benefits. In this nanoessay, I will explore each of these potential benefits and how a prediction market could realize them.

## Revelation of Insider Information

Knowledge is power. Insiders, by definition, have more knowledge than the general public and, as a result, have more power. This creates an incentive to further restrict information flow. In other words, the nature of knowledge, that it grants whoever posses it an advantage over those who don't, creates an incentive to gatekeep, to obscure, to lead astray and suppress.

Insiders can make money betting on prediction markets but to make the bet, an insider must reveal their insider knowledge. This is similar to the incentive judo that Bitcoin offers to central bankers: print fiat money to buy truly scarce money but, in doing so, you must further diminish the value of your fiat.

A prediction market that wanted to realize this public good would need to be private. The insiders are in a prisoner's dilemma where any one of them can reveal the information they have but only one can benefit. The desire to maintain their power, creates an incentive to punish their fellow insiders who might participate in prediction markets and to outlaw "insider trading". This means that insiders are more likely to defect if their defection is private.

## Making Lying More Expensive

Control the frame, control the world. The self-fulfilling prophecy, the Overton window, the infowar; all concepts that boil down to the simple fact that reality is shaped by our beliefs. From this fundamental fact about the nature of belief, it follows that we all have an incentive to shape public belief in such a way as to benefit ourselves. Whether it's the nytimes "forecasting" a 99% probability of Hillary Clinton winning the 2016 election, or the more mundane "diamonds are forever"-type sloganeering public belief is constantly being influenced by lies designed to create a reality that benefits some interest at the expense of truth.

An honest pollster does not need to worry about the interests of the times' owners any longer, he can simply apply his statistical intelligence to make large bets on a prediction market. The family that owns the nytimes, on the other hand, can no longer lie to you for free. To influence the market probability towards their narrative, would have to put some money on the table (money that would end up being paid out to the honest pollster).

A prediction market that wanted to realize this public good would need to be uncensorable. The reason that narrative control was still possible in 2016 was that the dominant interpretation of federal law at that time was that prediction markets were illegal. We can be sure that powerful interests are already working on returning us to this status quo.

Politics_And_Law

Is futarchy better or less corrupt than other forms of government?

Coinsreporter

*Robin Hanson

It's hard to say, but it's worth a try.  And certainly should be easier to try it in smaller organizations before scaling it up to states.

Working on [futarchyhub.com](https://futarchyhub.com) to end politics