it seems prediction markets would not be able to assign probability to existential risk, since you can’t collect on bets after everyone’s dead (I’ll call this the existential risk problem)
It seems that a rational market should implicitly price existential risk. Imagine a world with no chance of disaster, and a functioning futures market that prices everything relative to everything else.
Then add in a 10% chance of immediate extinction at some specific time t, and assume the market participants know this. Then futures contracts for perishable consumption goods after t should go down 10% (relative to before t), while futures contract for durable consumption goods will change values as a function of their depreciation rate.
This kind of signature should be possible to pick up from the futures prices.
The problem is that this is rational behaviour for a market, but, if it fails, it’s not really exploitable.
As in, the only way to profit is if a disaster happens, and then you’ve just profited a little bit by having a more rational consumption profile, rather than profited arbitrarily.
It seems that a rational market should implicitly price existential risk. Imagine a world with no chance of disaster, and a functioning futures market that prices everything relative to everything else.
Then add in a 10% chance of immediate extinction at some specific time t, and assume the market participants know this. Then futures contracts for perishable consumption goods after t should go down 10% (relative to before t), while futures contract for durable consumption goods will change values as a function of their depreciation rate.
This kind of signature should be possible to pick up from the futures prices.
You make a good point. I wonder if there’s a nice way to exploit this to make conditional risk estimates, consumable by futarchy.
The problem is that this is rational behaviour for a market, but, if it fails, it’s not really exploitable.
As in, the only way to profit is if a disaster happens, and then you’ve just profited a little bit by having a more rational consumption profile, rather than profited arbitrarily.