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Here is a US election prediction market: http://tippie.biz.uiowa.edu/iem/ The "Winner Takes All" market predicts Trump vs Clinton presidency: https://iemweb.biz.uiowa.edu/graphs/graph_Pres16_WTA.cfm According to this, after last night's performance, Trump has an 8% probability of becoming the 45th President of the United States of America, while Clinton has a 92% probability.
I think I heard Nick Bostrom mention the idea of using prediction markets in the legislature, and it sounded like a good idea.
I'm continuously annoyed by this. The prediction was 85%, not 100%. I'm guessing if you looked at all the 85% predictions, about 15% of the time the other outcome happened. That's what 85% means, after all.
You can't just round all predictions to the nearest integer and call it a "misfire" when the unlikely events happen. 1 in 7 events happen all the time! The misfire would be if 85% events always happened.
I think I heard Nick Bostrom mention the idea of using prediction markets in the legislature, and it sounded like a good idea.
It's worth pointing out that X% of people betting an event will happen is not the same thing as an event having X% chance of happening. The former is an estimate of occurrence and the latter is a measure of the occurrence. This is a common conflation with statistics I hear when people talk about predictions.
You may be well aware of this, but in case you aren't, that isn't the value that prediction markets give.
The value that prediction markets give is based on the odds people are willing to bet at, not the proportion of people willing to bet in what direction.
If any risk neutral (in terms of currency) individual believes that their predictions are better than the prediction market, and the transaction costs and time costs are low enough, etc., it should be rational for them to participate in it. And if they are better at predicting, the prediction market prediction should improve.
So, yes, prediction markets might not always make the best possible predictions, but if anyone claims to be better than them, it opens the question of why they aren't participating.
So, if I don't have any special knowledge about the possibility of something, and think that a substantial amount of people know better than I do, I generally expect the market's prediction to be better than mine.
(Assuming the people better informed than me make up a reasonably large part of the market, which I think they usually do.)
> Prediction markets have also had some high-profile misfires, however — such as giving the odds of a Brexit ‘stay’ vote as 85% on the day of the referendum I'm continuously annoyed by this. The prediction was 85%, not 100%. I'm guessing if you looked at all the 85% predictions, about 15% of the time the other outcome happened. That's what 85% means, after all. You can't just round all predictions to the nearest inte…
OTOH maybe people misinterpreted the 'stay' likelihood itself as the ratio of the predicted popular stay vote and that would explain it too.
I think I heard Nick Bostrom mention the idea of using prediction markets in the legislature, and it sounded like a good idea.
Wouldn't that affect how people trade? If you can spend money to influence policy, it might be worth making the "wrong bet" and losing money.
But yes, I think any realistic implementation would have to be tightly controlled. With the traders being whitelisted and audited after large bets (to test for conflict of interests), make their bets public, and force them to give reasons for their predictions, etc.
Personally I like the idea of not using a market at all. Have individuals bet with play money, or just assign odds directly and skip betting. Then you can find a set of individuals that are very good at making predictions, and average their predictions together. This is basically what they did in the book "superforecasters" and the CIA now uses something like this. They found it was superior to prediction markets (which themselves were much superior to predictions made by 'experts' with access to classified information.)
Tough players in prediction market will eventually start techniques like this, if they work. But it shows that just the incentive of betting alone isn't enough to get the most accurate predictions from people. You really need to filter for the people who are surprisingly good at it.
> Prediction markets have also had some high-profile misfires, however — such as giving the odds of a Brexit ‘stay’ vote as 85% on the day of the referendum I'm continuously annoyed by this. The prediction was 85%, not 100%. I'm guessing if you looked at all the 85% predictions, about 15% of the time the other outcome happened. That's what 85% means, after all. You can't just round all predictions to the nearest inte…
I agree with your logic but perhaps they consider the magnitude of the actual Brexit referendum vote to refute the prediction 'stay' likelihood of 85%. I don't know how close the election was (IIRC it was fairly close), I'm just stating that many people might consider a landslide in the other direction to mean that the prediction was flawed. OTOH maybe people misinterpreted the 'stay' likelihood itself as the ratio o…
This, by the way, is another weakness (or limitation) of prediction markets. They should probably not be applied to matters where the prediction interacts with the "predictee" lest you enter a "Keynesian beauty contest".