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Prediction markets can tell the future. Why is the US so afraid of them?

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Re: Prediction markets can tell the future. Why is the US so afraid of them?

#41

Post by gruez »

erulabs wrote: post #5

If prediction markets could tell the future one would imagine the first person to harness them would now be the most wealthy and powerful person to have ever lived. So, you know, DOUBT.

>If prediction markets could tell the future one would imagine the first person to harness them would now be the most wealthy and powerful person to have ever lived.

1. It's unclear how you or any person in particular would be "the most wealthy and powerful person to have ever lived", because other people would also be able to exploit it

2. Many predictions are hard to act upon, even if you know they're accurate.

https://www.economist.com/finance-and-economics/2023/10/30/w...

Re: Prediction markets can tell the future. Why is the US so afraid of them?

#42

Post by logicchains »

qznc wrote: post #17
kibwen wrote: post #7

The problem with predictions markets is that they incentivize participants to distort the market in order to make their prediction come true (and thus receive a payout). It quickly stops being a place to gauge the likelihood of an event, and turns into a roundabout contract bidding mechanism, the most famous example being "the likelihood that so-and-so famous politician will be dead by next year" is just an anonymize…

Insider trading is illegal because the non-insiders would stop trading otherwise. Prediction markets have some problems but this isn't the biggest one. One can even use it for good. If a company gives its associates stocks but prevents them to sell for some time, this is essentially the same mechanism. For example, we could make prediction markets about upcoming policy and laws and their impact. Then we can tell the…

> Insider trading is illegal because the non-insiders would stop trading otherwise.

This is completely, demonstrably false; there are no insider trading laws in rel estate, commodities or crypto, but that doesn't stop people buying.

Re: Prediction markets can tell the future. Why is the US so afraid of them?

#44

Post by gmerc »

gruez wrote: post #38
kibwen wrote: post #7

The problem with predictions markets is that they incentivize participants to distort the market in order to make their prediction come true (and thus receive a payout). It quickly stops being a place to gauge the likelihood of an event, and turns into a roundabout contract bidding mechanism, the most famous example being "the likelihood that so-and-so famous politician will be dead by next year" is just an anonymize…

>The problem with predictions markets is that they incentivize participants to distort the market in order to make their prediction come true (and thus receive a payout) As opposed to the stock market? >There's a reason that insider trading is illegal; prediction markets are inordinately susceptible to Goodhart's Law. Insider trading is only illegal because you're abusing your position of trust as an employee. You ha…

Not opposed. In addition.

https://www.bbc.com/news/world-europe-39664212.amp

The reason governments finally have gone hardball on crypto was the realization that it created an incentive for people to bet against and ultimately attack the shared economic system.

Silicon Valley bank run triggered by investors with well known crypto exposure was only the final straw

Re: Prediction markets can tell the future. Why is the US so afraid of them?

#45

Post by gruez »

logicchains wrote: post #42
qznc wrote: post #17

Earlier quoted context omitted.

Insider trading is illegal because the non-insiders would stop trading otherwise. Prediction markets have some problems but this isn't the biggest one. One can even use it for good. If a company gives its associates stocks but prevents them to sell for some time, this is essentially the same mechanism. For example, we could make prediction markets about upcoming policy and laws and their impact. Then we can tell the…

> Insider trading is illegal because the non-insiders would stop trading otherwise. This is completely, demonstrably false; there are no insider trading laws in rel estate, commodities or crypto, but that doesn't stop people buying.

Real estate sort of has insider trading laws, but in the opposite direction. If you know your building has a defect, you have to disclose it to any potential buyers. It's not exactly the same as a ban on insider trading, but it basically prevents the sort of insider trading where you know something bad is going to happen and so you dump the stock. Also there's a technical point: "insider" has a specific meaning (ie. an employee having material non public information). For real estate, commodities or crypto, it basically doesn't exist.

Re: Prediction markets can tell the future. Why is the US so afraid of them?

#46

Post by foxhill »

gruez wrote: post #38
kibwen wrote: post #7

The problem with predictions markets is that they incentivize participants to distort the market in order to make their prediction come true (and thus receive a payout). It quickly stops being a place to gauge the likelihood of an event, and turns into a roundabout contract bidding mechanism, the most famous example being "the likelihood that so-and-so famous politician will be dead by next year" is just an anonymize…

>The problem with predictions markets is that they incentivize participants to distort the market in order to make their prediction come true (and thus receive a payout) As opposed to the stock market? >There's a reason that insider trading is illegal; prediction markets are inordinately susceptible to Goodhart's Law. Insider trading is only illegal because you're abusing your position of trust as an employee. You ha…

yes, as opposed to the stock market; if i go buy AAPL calls, i can’t expect to manipulate apple’s share price by, say, buying a bunch of iphones.

conversely, i can’t buy puts, hoping that my stock sell off will effect them being in the money at expiry.

something something market forces and what not, but the long and short of it (no pun intended) is that.. if it were profitable, people would be doing it.

insider trading is illegal for numerous reasons, “abuse of trust” isn’t wrong, it’s just wholly incomplete.

Re: Prediction markets can tell the future. Why is the US so afraid of them?

#47

Post by xenadu02 »

kibwen wrote: post #7

The problem with predictions markets is that they incentivize participants to distort the market in order to make their prediction come true (and thus receive a payout). It quickly stops being a place to gauge the likelihood of an event, and turns into a roundabout contract bidding mechanism, the most famous example being "the likelihood that so-and-so famous politician will be dead by next year" is just an anonymize…

Goodhart's Law for those who don't remember: any measure used as a performance target ceases to become a good measure.

Or put another way: when people can maximize their profit by manipulating the measurement or market at least some of them will attempt to do so.

Stock markets are more difficult (but far from impossible) to control. To make Target's numbers come in low you'd have to suppress their retail sales or their supply chain. Whereas who wins X Race is a singular event that only requires one person (in the most optimistic case) to participate thereby controlling the outcome. In a sense a lot of what prediction markets make book on amounts to penny stocks and are just as risky. If you want to make such markets widely available you need regulation on what kind of events allow bets and strict rules against insider trading (eg sports participants and their families must be prohibited from participating).

Re: Prediction markets can tell the future. Why is the US so afraid of them?

#48

Post by gruez »

somat wrote: post #40

Whats the difference between a prediction market and a futures market? Which sounds like a joke. But I am unable to think of one right now. Actually... how is this different from the stock market. You buy and sell based on how the market is predicted to go..

The difference is that you can bet on real life events (or anything, really) rather than being limited to financial instruments.

Re: Prediction markets can tell the future. Why is the US so afraid of them?

#49

Post by verteu »

erulabs wrote: post #5

If prediction markets could tell the future one would imagine the first person to harness them would now be the most wealthy and powerful person to have ever lived. So, you know, DOUBT.

The stock market is quite similar to a prediction market (on the future valuation of companies), and it's made plenty of people wealthy and powerful.

Re: Prediction markets can tell the future. Why is the US so afraid of them?

#50

Post by gruez »

mise_en_place wrote: post #33

They work a lot like binary options, which can fool a lot of unsophisticated investors. The line is a lot thinner between prediction markets and gambling.

Binary options seem pretty straightforward to me. How are people being "fooled"?
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