466 sats \ 19 replies \ @SimpleStacker 9 Dec 2023 \ on: Prediction markets: can betting be good for the world? (2021) oracle
Some things I don't understand about prediction markets: what is the incentive to participate unless you have inside or expert knowledge? And if only insiders/experts participate, will there be enough liquidity to generate decent predictions?
I can see how this would work for events that have inherently high public interest, like sports betting and elections. But not sure if it would work for something like building a park. And if a political decision rides on the outcome of a prediction markets, it's also likely the market will get gamed
Here's a joke about the Efficient Markets Hypothesis:
Two economists, Milton and Murray are walking down the street. Murray says to Milton "Hey look, a $50 bill." Milton responds "That's impossible. If there were $50 just sitting on the street someone would have picked it up."
reply
I've heard that one. Great joke.
reply
Wanting an original joke from an economist is a lot to ask for.
reply
Well, of course, if it were a good joke someone would have thought of it already
reply
alright, i let this be the last comment i'll respond to for the next 18 hours at least :)
very good joke indeed, i predict i am going to steal it :)
reply
bravo
reply
Thanks, the setup was perfect ;)
reply
lol, that's a good one!
reply
<insert it depends meme>And if only insiders/experts participate, will there be enough liquidity to generate decent predictions?
Don't know, guess it depends on the specific event you're betting on :)
And this is somewhat related to the question about market manipulation. I know that @kr and me discussed how to create a PM in the past and we really struggled with how to get enough liquidity.
At some point I realized: fuck this, I don't care about liquidity, thinking if I will have enough liquidity before I even have built anything sounds like the good old meme about premature optimization being the root of all evil :)
Maybe I don't even want a liquid market? Maybe I just want to have some fun? :)
reply
And if a political decision rides on the outcome of a prediction markets, it's also likely the market will get gamed
We're entering deep state territory aren't we? lol, but don't worry, I like it, lol :)
Maybe we shouldn't build markets which want to be serious.
Maybe we should only build markets for degenerate people like @Undisciplined and @grayruby who just want to have fun and have no interest in market manipulation to win a few sats :) at least I hope so, lol!
reply
That's a dangerous assumption. I freely admit that I would manipulate a prediction market if I thought it would make a policy impact.
reply
what is the incentive to participate unless you have inside or expert knowledge?
Good question since it gets asked regularly but I think I never took the chance to explain what I think about this:
Two things might be true:
a) there is no incentive if you have no insider knowledge: "if you don't know what you're doing, maybe don't do it"
B) you have no insider knowledge but the public information available is still enough to give you enough of an idea what might be the correct outcome. Or at least what is the most probable outcome :)
So with b) I want to say: insider information don't necessarily need to completely swing probabilities in the other direction. Maybe insider information is just a confirmation of what everyone is already supposed to known given only public information?
Also, you always have the option to include everything you don't know in your prediction.
Is this a company where likely some insider information exists? (betting on the future of Coinbase)
Is this an event where insider information probably isn't that important? [Bitcoin price, assuming there are no hidden market forces that can literally swing the price however they want, lol :) ]
Now, we could even try to go further: what are the things you don't even know that you don't even know? :)
Writing this from mobile right now so don't want to write anything further.
Let me know if this answers your question :)
reply
An extension of b) is that you might spot an inconsistency or other error in the public information that people seem generally unaware of.
reply
I would consider that to be under the umbrella of insider.
The participants are those who believe themselves to have unique information, whether or not they actually do
reply
good point, i think this became so obvious to me, i don't even think about it this anymore, lol :)
like ... that's the whole point of prediction markets, no? lol :) to finally take things seriously and actually do some due diligence like your life depends on it. a few sats can mean a lot in the future :)
reply
Another way to think about it is: you don't need insider knowledge, you can get an advantage in all kinds of ways. For instance, there are innumerable biases in how people think about stuff -- you can find lists of them all over the place. If you can manage to be less biased than other market participants, that's an advantage. You have access to the same info as everyone, you just use it better because you're less biased.
If you can bring information to bear that the market doesn't include, that's an advantage regardless of whether or not it's 'insider' knowledge. It's often the case that key info is sitting out there in plain sight, but for one reason or other -- often due to the aforementioned biases -- people don't include it in their worldviews. That's alpha for you.
reply
Just to be clear, I'm fully supportive of prediction markets :). I think people should be able to bet on whatever they want.
I think it could work better if participation was incentivized. So that the expected return of participating is positive (not a zero sum game). This requires the organizer of the market to have an innate interest in generating a market based prediction... But this could be better than paying for an expert opinion, potentially
reply
lol, i think i adopted what @elvismercury is doing by creating at least a separate reply for every question :)
imagine some stacker asks some random question ... and then some other stacker shows up: "actually, i just wrote a post about this exact thing, discussing this in detail, you might want to check it out..." lol :)
reply
It reminds me of comic books back in the day, when I used to read comic books, and the storyline spread across a zillion different comics. It's kind of a cool vibe here, I think :)
reply