0/ I’m 10 yrs (30 yrs?) late to the party, but here’s a rough primer on prediction markets for those who are similarly late to the idea.
1/ Hayek wrote that what’s in a single person’s head is only a small fraction of the sum of total knowledge held by people in society.
“The Wisdom of Crowds” further emphasized the importance of aggregating knowledge in order to make better decisions.
“The Wisdom of Crowds” further emphasized the importance of aggregating knowledge in order to make better decisions.
2/ Prediction markets are betting markets for the purpose of predicting something we want to know -- to discover what people *truly* believe.
E.g. Will X happen?
If X happens, will Y happen?
If X happens, what will the change in Y be?
Too real: Who will win, Trump or Kanye?
E.g. Will X happen?
If X happens, will Y happen?
If X happens, what will the change in Y be?
Too real: Who will win, Trump or Kanye?
3/ Right now, there is no accountability for predictions. Politicians make baseless predictions with no accountability. Media can profit from sensationalist journalism. Lack of rewards for truth-telling.
In an era of fake news, prediction markets (PMs) can make a big impact.
In an era of fake news, prediction markets (PMs) can make a big impact.
4/ Experts don’t have incentive to speak. Too much to lose.
Charlatans, however, make baseless predictions to build an audience. If they’re wrong, their tribe still supports them.
celebrities are winning The War of Ideas. Tribalism above truth. Entertainment over everything.
Charlatans, however, make baseless predictions to build an audience. If they’re wrong, their tribe still supports them.
celebrities are winning The War of Ideas. Tribalism above truth. Entertainment over everything.
5/ Enter Prediction markets.
By having people put their money where their mouths are, people should focus on being “right”, rather than being liked, popular, or diplomatic.
They should also be more diligent in their predictions. If unwilling to bet, shut up.
SKIN IN THE GAME.
By having people put their money where their mouths are, people should focus on being “right”, rather than being liked, popular, or diplomatic.
They should also be more diligent in their predictions. If unwilling to bet, shut up.
SKIN IN THE GAME.
6/ PMs not only aggregates more accurate info, they also aggregate info from the *right* people (experts w/ skin in the game)
If you don’t know what you’re talking about, you’ll abstain from voting, because, if you don’t, you’ll lose all your money.
Self-correcting mechanism.
If you don’t know what you’re talking about, you’ll abstain from voting, because, if you don’t, you’ll lose all your money.
Self-correcting mechanism.
7/ The internet enabled us to easily find out what people say, but there’s still knowledge in ppl’s heads we haven’t unlocked, due to lack of incentives on 1 hand, + fear on the other — e.g. if the Q is “Will X ship in time” and you say “no”, you might fear getting someone fired.
8/ Example of Prediction Markets in action:
A board determining whether it should hire or fire a CEO. It could decide based on its own instincts, or it could aggregate insights from the employees.
A board determining whether it should hire or fire a CEO. It could decide based on its own instincts, or it could aggregate insights from the employees.
9/ E.g. a corporation could ask, “What will our Q1 revenue be if we fire our CEO?” and conversely, “What will our Q1 revenue be if we don’t fire our CEO?”
If employees feel company will do better w/ CEO, than keep the CEO. And vice versa.
If employees feel company will do better w/ CEO, than keep the CEO. And vice versa.
10/ Other examples:
When will we get self driving cars? You could just ask Elon, or you could also ask relevant Tesla employees.
Will this product ship on time? You could just ask the project lead, or you could also ask all the relevant people working on it.
When will we get self driving cars? You could just ask Elon, or you could also ask relevant Tesla employees.
Will this product ship on time? You could just ask the project lead, or you could also ask all the relevant people working on it.
11/ Another example in action: Movies. Movies have huge fixed cost and are difficult to MVP
Will X new movie do well?
Employees can assess whether the movie will be ready in time, as good as initially envisioned, and whether people would like it.
Will X new movie do well?
Employees can assess whether the movie will be ready in time, as good as initially envisioned, and whether people would like it.
12/ More applications:
— Likelihood of homeland security threat
— Nationwide extent of flu outbreak
— Success of a drug treatment (also massive fixed cost)
— Sales revenue of existing product
— Cost of a government funded project.
— Effects of a trade agreement
— Bail out banks
— Likelihood of homeland security threat
— Nationwide extent of flu outbreak
— Success of a drug treatment (also massive fixed cost)
— Sales revenue of existing product
— Cost of a government funded project.
— Effects of a trade agreement
— Bail out banks
13/ Sports betting, democratic elections and the stock market are three examples of prediction markets that exist today.
Augur, Stox, Gnosis, Hivemind, et al are examples of more general purpose prediction market platforms.
Idea: A prediction market for which one will win?
Augur, Stox, Gnosis, Hivemind, et al are examples of more general purpose prediction market platforms.
Idea: A prediction market for which one will win?
14/ Gambling incentives are not perfect, to be sure, but by helping aggregate more info, decision markets might allow us to more accurately estimate the consequences of important decisions, + in the process elevate experts & drown out post-truth charlatans.
Like Trump & Kanye.
Like Trump & Kanye.
