I work at Manifold. I think it’s notable that these two experienced tech journalists have had lots of repeated exposure to the idea of prediction markets, but it sounds like they only sort of figured out the basic concept?
In the discussion on insider trading, nobody mentions the extremely obvious point, which is that the prediction market is trying to incentivize the people with private information (maybe “insider” information, or maybe just something they haven’t said out loud) to publicize what they know. If Casey actually cares about whether Linda Yaccarino will be the CEO of X next year, he should be excited by the idea that some guy at Twitter will come and insider trade in his market. But they never said anything like this—they just said that maybe the market was supposed to very generally aggregate the wisdom of crowds.
It also sounds like they don’t really understand why it would aggregate the wisdom of crowds better than, for example, a poll. Casey was like “well, when people have a Twitter poll, then partisans stuff the ballot box”, implying that a similar result would be likely to happen with a prediction market on who will be the next Speaker, ignoring the obvious point that it costs a bunch of money to “stuff the ballot box” on a prediction market that isn’t a self-fulfilling prophecy.
Perhaps relatedly, it sounded like Kevin and/or Casey had absolutely no clue how a prediction market actually works, numerically. At the end when they were making the market, Casey wasn’t like “OK, bet it to 25%, since I think that’s the chance.” Instead Kevin was like “OK, I’ll bet 100 mana,” and then they were like “Huh, how about that, now it says 10%. Oops, I bet 100 more and now it says 8%.” It seems like they are totally missing the core concept that the point of the prediction market is trying to specifically incentivize you to move the market to the probability you believe, which is like the first thing I ever learned about prediction markets in my life?
In the end, their feelings about prediction markets seemed totally vague and vibes-based. On the one hand, the wisdom of crowds has good vibes. On the other hand, insider trading and crypto/transactionalization of everyday things have bad vibes. On the gripping hand, gambling with play money is cute and harmless. Therefore, prediction markets are a land of contrasts.
My takeaway is that prediction markets are harder to understand than I think and I am not sure what to do about that.
It seems like they are totally missing the core concept that the point of the prediction market is trying to specifically incentivize you to move the market to the probability you believe.
Do you mean “closer to the probability you believe”? Moving a liquid prediction market right to the probability you believe involves spending a bunch of capital in an inefficient way—your last dollar spent on such a trade gets almost no expected return. If you have many markets available, or are risk averse, or have a limited budget, you will not behave this way.
Haha, this actually seems normal and fine. We who work on prediction markets, understand the nuances and implementation of these markets (what it means in mathematical terms when a market says 25%). And Kevin and Casey haven’t quite gotten it yet, based on a couple of days of talking to prediction markets enthusiasts.
But that’s okay! Ideas are actually super hard to understand by explanation, and much easier to understand by experience (aka trial and error). My sense is that if Kevin follows up and bets on a few other markets, he’d start to wonder “hm, why did I get M100 for winning this market but only M50 on that one?” and then learn that the odds at which you place the bet actually matter. This principle underpins the idea of Manifold—you can argue all day about whether prediction markets are good for X or Y, or… you can try using them with play money and find out.
It’s reasonable for their reporting to be vibes-based for now—so long as they are reasonably accurate in characterizing the vibes, it sets the stage for other people to explore Manifold or other prediction markets.
Never mind bettors—part of my project for improving the world is, I want people like Casey to look at a prediction market and be like, “Oh, a prediction market. I take this probability seriously, because if it was obviously wrong, someone could come in and make money by fixing it, and then it would be right.” If he doesn’t understand that line of argument, then indeed, why is Casey ever going to take the probability any more seriously than a Twitter poll?
I feel like right now he might have the vibe of that argument, even if he doesn’t actually understand it? But I think you have to really comprehend the argument before you will take the prediction market more seriously than your own uninformed feeling about the topic, or your colleague’s opinion, or one research paper you skimmed.
If it’s known that insider trading is allowed, wouldn’t that make some people more reluctant to bet? Would this reduce the liquidity of the market enough to be damaging overall?
Zvi mentions the insider trading problem in this post.
Limited Hidden Information
Insider trading of securities is illegal. This seems at odds with price discovery. If I know something you don’t know, then my not trading on it makes the price less accurate. One might suggest that allowing insiders to trade would make the price more efficient.
The problem is that it drives people away.
...
In my experience with prediction markets, important hidden information other traders could know acts as an outright veto on the market. It might not do that if the market had enough ‘natural’ trading volume, but that’s a high bar to clear.
I work at Manifold. I think it’s notable that these two experienced tech journalists have had lots of repeated exposure to the idea of prediction markets, but it sounds like they only sort of figured out the basic concept?
In the discussion on insider trading, nobody mentions the extremely obvious point, which is that the prediction market is trying to incentivize the people with private information (maybe “insider” information, or maybe just something they haven’t said out loud) to publicize what they know. If Casey actually cares about whether Linda Yaccarino will be the CEO of X next year, he should be excited by the idea that some guy at Twitter will come and insider trade in his market. But they never said anything like this—they just said that maybe the market was supposed to very generally aggregate the wisdom of crowds.
It also sounds like they don’t really understand why it would aggregate the wisdom of crowds better than, for example, a poll. Casey was like “well, when people have a Twitter poll, then partisans stuff the ballot box”, implying that a similar result would be likely to happen with a prediction market on who will be the next Speaker, ignoring the obvious point that it costs a bunch of money to “stuff the ballot box” on a prediction market that isn’t a self-fulfilling prophecy.
Perhaps relatedly, it sounded like Kevin and/or Casey had absolutely no clue how a prediction market actually works, numerically. At the end when they were making the market, Casey wasn’t like “OK, bet it to 25%, since I think that’s the chance.” Instead Kevin was like “OK, I’ll bet 100 mana,” and then they were like “Huh, how about that, now it says 10%. Oops, I bet 100 more and now it says 8%.” It seems like they are totally missing the core concept that the point of the prediction market is trying to specifically incentivize you to move the market to the probability you believe, which is like the first thing I ever learned about prediction markets in my life?
In the end, their feelings about prediction markets seemed totally vague and vibes-based. On the one hand, the wisdom of crowds has good vibes. On the other hand, insider trading and crypto/transactionalization of everyday things have bad vibes. On the gripping hand, gambling with play money is cute and harmless. Therefore, prediction markets are a land of contrasts.
My takeaway is that prediction markets are harder to understand than I think and I am not sure what to do about that.
Do you mean “closer to the probability you believe”? Moving a liquid prediction market right to the probability you believe involves spending a bunch of capital in an inefficient way—your last dollar spent on such a trade gets almost no expected return. If you have many markets available, or are risk averse, or have a limited budget, you will not behave this way.
Haha, this actually seems normal and fine. We who work on prediction markets, understand the nuances and implementation of these markets (what it means in mathematical terms when a market says 25%). And Kevin and Casey haven’t quite gotten it yet, based on a couple of days of talking to prediction markets enthusiasts.
But that’s okay! Ideas are actually super hard to understand by explanation, and much easier to understand by experience (aka trial and error). My sense is that if Kevin follows up and bets on a few other markets, he’d start to wonder “hm, why did I get M100 for winning this market but only M50 on that one?” and then learn that the odds at which you place the bet actually matter. This principle underpins the idea of Manifold—you can argue all day about whether prediction markets are good for X or Y, or… you can try using them with play money and find out.
It’s reasonable for their reporting to be vibes-based for now—so long as they are reasonably accurate in characterizing the vibes, it sets the stage for other people to explore Manifold or other prediction markets.
Never mind bettors—part of my project for improving the world is, I want people like Casey to look at a prediction market and be like, “Oh, a prediction market. I take this probability seriously, because if it was obviously wrong, someone could come in and make money by fixing it, and then it would be right.” If he doesn’t understand that line of argument, then indeed, why is Casey ever going to take the probability any more seriously than a Twitter poll?
I feel like right now he might have the vibe of that argument, even if he doesn’t actually understand it? But I think you have to really comprehend the argument before you will take the prediction market more seriously than your own uninformed feeling about the topic, or your colleague’s opinion, or one research paper you skimmed.
If it’s known that insider trading is allowed, wouldn’t that make some people more reluctant to bet? Would this reduce the liquidity of the market enough to be damaging overall?
Zvi mentions the insider trading problem in this post.