Tl;dr: Legalize prediction markets, make civilization adequate.
Spend a lot of money on ad campaigns and lobbying, and get {New Hampshire/Nevada/Wyoming/Florida} to nullify whatever federal anti-gambling laws exist, and carve out a safe haven for a serious prediction market (which does not currently exist).
You could alternatively just fund the development of a serious prediction market on the Ethereum blockchain, but I’m not as sure about this path, as the gains one could get might be considered “illegal” in some jurisdictions. Also, a fully legalized prediction market could rely on courts to arbitrate market resolution criteria.
In order for a prediction market to be “serious”, it has to allow epistemically rational people to get very very rich (in fiat currency) without going to jail, and it has to allow anyone to create and arbitrate a binary prediction market for a small fee. Such a platform does not currently exist.
If you offer a large monetary incentive for people to be epistemically rational, they will become more epistemically rational.
Regular people will be able to Google questions like “what are the odds that Donald Trump will bring gas prices below $3/gallon in his first year if he’s elected” and “what are the odds that Proposition 23, if passed, will reduce unemployment in the next six months”. Normal people will actually be able to get real answers to these questions.
Political incentives shift. Legislation is now more likely to pass if it achieves its stated goals, so effective legislation now actually gets written. Presidential candidates that the markets say will improve {GDP/unemployment/poverty/violent crime} have an advantage over their opponents. Prediction markets let people call politicians on their bullshit, so they can’t afford to bullshit as much anymore.
A prediction market hosted in the USA can also predict foreign elections. Decision markets on China’s economic growth over Xi Jinping’s successor emerge, and the Central Committee pays attention to them. American decision markets are a global public good, providing priceless intelligence to government officials of all nations. The honest conditional forecasts provided by prediction markets make world governments more effective and less Mazelike.
Institutions become adequate. American healthcare costs 10x less and works much more smoothly. Land value taxes are phased in, income taxes are phased out, a voucher system replaces public schools, government research grants actually fund innovation, the economy booms, the median salary grows, millions are lifted out of poverty, et cetera. It is very hard for me to forecast what an actually effective government would look like (because it’s hard to predict something smarter than me), but I’m sure it would be good. Not exactly Dath Ilan, but in the right basin of attraction.
I’m highly dubious that prediction markets would fix all our problems by themselves. At the very least, we’d need to go through several generations of prediction markets to work out all the inevitable problems that would come up.
Which we can’t do, as you’ve pointed out, when they’re currently effectively illegal to experiment with.
Oh, for sure the first generation of prediction markets won’t be enough. However, market forces will automatically take care of iteratively improving prediction market platforms for us (where “us” = “people concerned about x-risk”), and all “we” need to do is push to make them legal.
As long as entrepreneurs are allowed to make money by building better prediction markets (+ adjacent services), they will.
Could you please list the likely points of failure in the narrative I posted? I’d like to debug it.
The failure mode that stands out to me is “the American voter simply doesn’t give a shit about what the prediction markets say”. In case of this failure mode, then thank God for China. (and El Salvador, and Vietnam, and Singapore, and …)
But I don’t think the median voter would be so indifferent. “Put your money where your mouth is” is common folk wisdom that everyone understands. Besides, if anyone can create a market for like $10, people could ask the markets questions like “Is my wife cheating on me?” and “What are the odds of my daughter getting into Harvard?”, which I expect people would, in fact, care about.
Regarding issues with your narrative (split into a separate comment):
Institutions are inherently conservative and don’t like to change. Any particular innovation is unlikely to transform society, and any particular story for how the future will turn out a particular way is unlikely to come to pass.
For correct forecasters to get very rich on prediction markets, either someone has to provide liquidity, or there have to be “suckers at the table”, i.e. people who invest money for irrational reasons. If it’s the former case, where is this money coming from? And if it’s the latter, why are those people spending money on your prediction market rather than a lottery or something?
Also, it takes a lot of time for the money to go from bad forecasters to good ones.
And the losers have incentives to lobby against prediction markets. Anti-gambling laws didn’t write themselves.
Prediction market forecasts are probabilistic. So what if a politician’s policy turns out badly, and the prediction market predicted that outcome at 90%? The politician will ignore the forecast unless forced to confront it (which requires the prediction markets to have already accumulated credibility and trust among voters—how did that happen?), in which case they can criticize it as far too pessimistic (“I lost a 1⁄10 chance, not a 9/10”), or claim sabotage (“someone bet against me and then sabotaged my policy”), or find one of a myriad other excuses.
Also, prediction markets will inevitably get caught in partisan crossfires. When the markets predict good outcomes for their side, a voter might consider themselves a truthseeking advocate of prediction markets, and if the markets predict bad outcomes for their pet policies, they’ll suddenly accuse the markets of bias or manipulation or favoring the other side.
Any particular innovation is unlikely to transform society, and any particular story for how the future will turn out a particular way is unlikely to come to pass.
True.
there have to be “suckers at the table”
There are plenty of suckers at the table in the realm of securities trading.
why are those people spending money on your prediction market rather than a lottery or something?
Because finance bros and tech bros know that Lotteries Are For Poor People, while Prediction Markets, much like day trading crypto, are the kind of thing that sigma males like them use to get rich at the expense of irrational suckers (who totally aren’t other guys exactly like them). If I recall correctly, high frequency trading is almost entirely zero-sum, and there’s plenty of energy behind it anyway.
it takes a lot of time for the money to go from bad forecasters to good ones.
the losers have incentives to lobby against prediction markets. Anti-gambling laws didn’t write themselves.
The same criticisms apply to regular securities trading. To be fair, there are plenty of losers who hate securities trading, and wish it was illegal.
So what if a politician’s policy turns out badly, and the prediction market predicted that outcome at 90%? The politician will ignore the forecast unless forced to confront it.
This is true. However, voters don’t choose policies directly, only their representatives. If the market expectation of a candidate’s overall performance is upstream of voting patterns, then those candidates are forced to optimize for those expectations.
Also, prediction markets will inevitably get caught in partisan crossfires.
Yes, they will.
if the markets predict bad outcomes for their pet policies, they’ll suddenly accuse the markets of bias or manipulation or favoring the other side.
The cool thing about prediction markets is that if you disagree with them, you can just bet against them and win money. Put up or shut up.
The cool thing about prediction markets is that if you disagree with them, you can just bet against them and win money. Put up or shut up.
Suppose, there is a prediction market for a question like:
“If Alice is elected president, will GDP grow more than 20% by the end of the next 4 years?”
Current bets are 10 to 1 against Alice succeeding if elected. I strongly disagree, so I would like to bet $5000 on Alice and win a lot of money. Alice does not end up being elected, the prediction market probably being largely responsible for this outcome. So, the outcome is unresolved, I’m angry and frustrated since I was not able to make money, nor got my preferred politician got elected, and I lost some opportunity cost due to those $5000 being committed to this bet for some time. So I vote against prediction markets next time since those are obviously an evil plot to keep Alice from becoming president and fixing things.
Maybe, this can be somehow amended if I could instead bet on the effects of some policy that Alice endorses and I find compelling, and it is possible to test this policy on a smaller scale, and we could allocate some money from this presumably large betting pool for actually testing it, and we could somehow guarantee that those who bet lots of money won’t be able to influence this test much. There are a lot of “ifs” here, and this seems to require way more than just legalized prediction markets. I don’t immediately see how legalizing prediction markets necessarily leads to incentives to legalize and make it possible to easily resolve something like that.
I lost some opportunity cost due to those $5000 being committed to this bet for some time.
I expect future iterations of prediction market platforms to allow your money to accrue interest over the course of longer-term bets.
So I vote against prediction markets next time since those are obviously an evil plot to keep Alice from becoming president.
You don’t have to convince the whole country. Not even close. As long as you get New Hampshire to legalize prediction markets, New Hampshire can tell the federal government to go fuck itself. Weed is still federally illegal, remember?
It hasn’t escaped the notice of forecasters that prediction markets aren’t free of issues. For instance, check Scott’s Mantic Mondays posts on ACX.
For one thing, while there are many issues (like legal ones) which currently impede popularity of prediction markets, it’s nevertheless the case that so far none of them has particularly caught on on a larger scale. Then there’s stuff like transaction costs making them less useful (if there are transaction costs of 5%, markets won’t drop below 5% or rise above 95%), resolution risk being a big problem (questions you can easily arbitrate are often not the ones you care about; but if you can’t arbitrate the ones you care about, you can’t make a prediction market for them), lack of liquidity (another way for a prediction market to flop is for it to experience no uptake by users), and so on.
None of these issues seem fundamentally unresolvable. But conversely, we cannot currently point at any existing prediction market and say that “if we legalize this market and scale it up, it will transform society”, or something.
As for market questions like “is my wife cheating on me”, I’m extremely dubious that even if you managed to get prediction markets legalized, those kinds of questions would be allowed.
As for market questions like “is my wife cheating on me”, I’m extremely dubious that even if you managed to get prediction markets legalized, those kinds of questions would be allowed.
This is actually already possible right now on https://manifold.markets/ Even though, the market uses play, instead of real money, but you get at least something..
Otherwise I completely agree with your critique of current prediction markets, and I agree that none of the issues seem fundamentally unresolvable. Actually, I’m currently starting a new project (funded by FTX Future Fund) which aims to do just that! Sorry for the shameless plug, but here is a description of the project, and while I’m at it, I’m looking for a cofounder ;)
I’m aware of Manifold Markets. The only reason the site can be lax with regards to which markets and resolution criteria it allows is precisely because it only uses play money.
For some more detail on what this plan might look like, my 2nd-place-winning entry in the Future of Life Institute’s “A.I. world-building” competition, was all about how humanity uses prediction markets and other new institutional designs to increase its level of civilizational adequacy, becoming strong/wise enough to manage the safe development of transformative AI.
See my lesswrong post here (which focuses on the details of how AI development is controlled in my team’s fictional scenario), or the whole entry here (which includes two great short stories by a friend of mine, and includes many more details about how things like futarchy, liquid democracy, network states and charter cities, quadratic funding for public goods funding, etc, develop over the next few decades).
This seems like the kind of thing that could be hosted in a place like Próspera. I believe the ZEDE law was very recently repealed, but I have yet to hear that the Próspera project is stopping and the constitutional amendment could be repealed next year. Próspera claims it will be proceeding and international law/treaties and it’s 50 year stability agreements protect it. https://prospera.hn/news/press-releases/built-to-last-legal-stability-in-the-zede-framework
It seems too early, but if Próspera survives this most recent political shift in Honduras, then it would prove to be protected from the political whims of Honduras (and its legal framwork already prevents changes in taxes or regulations even with a democratic majority. A betting market could thrive in such a stable environment, and possibly allow for longer term bets. Also the legal framework for businesses is very streamlined. https://prospera.hn/business
It might just be my wishful thinking and political biases showing, but if Próspera can prove to be resilient to changes in Honduras, I think it could become pretty close to Dath Ilan, or help other countries become closer to it. Positive signs are things like Minicircle, a reversible gene therapy company conducting trials in Próspera because they are easier to do there than the US. https://minicircle.clinic/
Tl;dr: Legalize prediction markets, make civilization adequate.
Spend a lot of money on ad campaigns and lobbying, and get {New Hampshire/Nevada/Wyoming/Florida} to nullify whatever federal anti-gambling laws exist, and carve out a safe haven for a serious prediction market (which does not currently exist).
You could alternatively just fund the development of a serious prediction market on the Ethereum blockchain, but I’m not as sure about this path, as the gains one could get might be considered “illegal” in some jurisdictions. Also, a fully legalized prediction market could rely on courts to arbitrate market resolution criteria.
In order for a prediction market to be “serious”, it has to allow epistemically rational people to get very very rich (in fiat currency) without going to jail, and it has to allow anyone to create and arbitrate a binary prediction market for a small fee. Such a platform does not currently exist.
If you offer a large monetary incentive for people to be epistemically rational, they will become more epistemically rational.
Regular people will be able to Google questions like “what are the odds that Donald Trump will bring gas prices below $3/gallon in his first year if he’s elected” and “what are the odds that Proposition 23, if passed, will reduce unemployment in the next six months”. Normal people will actually be able to get real answers to these questions.
Political incentives shift. Legislation is now more likely to pass if it achieves its stated goals, so effective legislation now actually gets written. Presidential candidates that the markets say will improve {GDP/unemployment/poverty/violent crime} have an advantage over their opponents. Prediction markets let people call politicians on their bullshit, so they can’t afford to bullshit as much anymore.
A prediction market hosted in the USA can also predict foreign elections. Decision markets on China’s economic growth over Xi Jinping’s successor emerge, and the Central Committee pays attention to them. American decision markets are a global public good, providing priceless intelligence to government officials of all nations. The honest conditional forecasts provided by prediction markets make world governments more effective and less Mazelike.
Institutions become adequate. American healthcare costs 10x less and works much more smoothly. Land value taxes are phased in, income taxes are phased out, a voucher system replaces public schools, government research grants actually fund innovation, the economy booms, the median salary grows, millions are lifted out of poverty, et cetera. It is very hard for me to forecast what an actually effective government would look like (because it’s hard to predict something smarter than me), but I’m sure it would be good. Not exactly Dath Ilan, but in the right basin of attraction.
I’m highly dubious that prediction markets would fix all our problems by themselves. At the very least, we’d need to go through several generations of prediction markets to work out all the inevitable problems that would come up.
Which we can’t do, as you’ve pointed out, when they’re currently effectively illegal to experiment with.
Oh, for sure the first generation of prediction markets won’t be enough. However, market forces will automatically take care of iteratively improving prediction market platforms for us (where “us” = “people concerned about x-risk”), and all “we” need to do is push to make them legal.
As long as entrepreneurs are allowed to make money by building better prediction markets (+ adjacent services), they will.
Could you please list the likely points of failure in the narrative I posted? I’d like to debug it.
The failure mode that stands out to me is “the American voter simply doesn’t give a shit about what the prediction markets say”. In case of this failure mode, then thank God for China. (and El Salvador, and Vietnam, and Singapore, and …)
But I don’t think the median voter would be so indifferent. “Put your money where your mouth is” is common folk wisdom that everyone understands. Besides, if anyone can create a market for like $10, people could ask the markets questions like “Is my wife cheating on me?” and “What are the odds of my daughter getting into Harvard?”, which I expect people would, in fact, care about.
Regarding issues with your narrative (split into a separate comment):
Institutions are inherently conservative and don’t like to change. Any particular innovation is unlikely to transform society, and any particular story for how the future will turn out a particular way is unlikely to come to pass.
For correct forecasters to get very rich on prediction markets, either someone has to provide liquidity, or there have to be “suckers at the table”, i.e. people who invest money for irrational reasons. If it’s the former case, where is this money coming from? And if it’s the latter, why are those people spending money on your prediction market rather than a lottery or something?
Also, it takes a lot of time for the money to go from bad forecasters to good ones.
And the losers have incentives to lobby against prediction markets. Anti-gambling laws didn’t write themselves.
Prediction market forecasts are probabilistic. So what if a politician’s policy turns out badly, and the prediction market predicted that outcome at 90%? The politician will ignore the forecast unless forced to confront it (which requires the prediction markets to have already accumulated credibility and trust among voters—how did that happen?), in which case they can criticize it as far too pessimistic (“I lost a 1⁄10 chance, not a 9/10”), or claim sabotage (“someone bet against me and then sabotaged my policy”), or find one of a myriad other excuses.
Also, prediction markets will inevitably get caught in partisan crossfires. When the markets predict good outcomes for their side, a voter might consider themselves a truthseeking advocate of prediction markets, and if the markets predict bad outcomes for their pet policies, they’ll suddenly accuse the markets of bias or manipulation or favoring the other side.
And so on.
True.
There are plenty of suckers at the table in the realm of securities trading.
Because finance bros and tech bros know that Lotteries Are For Poor People, while Prediction Markets, much like day trading crypto, are the kind of thing that sigma males like them use to get rich at the expense of irrational suckers (who totally aren’t other guys exactly like them). If I recall correctly, high frequency trading is almost entirely zero-sum, and there’s plenty of energy behind it anyway.
The same criticisms apply to regular securities trading. To be fair, there are plenty of losers who hate securities trading, and wish it was illegal.
This is true. However, voters don’t choose policies directly, only their representatives. If the market expectation of a candidate’s overall performance is upstream of voting patterns, then those candidates are forced to optimize for those expectations.
Yes, they will.
The cool thing about prediction markets is that if you disagree with them, you can just bet against them and win money. Put up or shut up.
Suppose, there is a prediction market for a question like:
“If Alice is elected president, will GDP grow more than 20% by the end of the next 4 years?”
Current bets are 10 to 1 against Alice succeeding if elected. I strongly disagree, so I would like to bet $5000 on Alice and win a lot of money. Alice does not end up being elected, the prediction market probably being largely responsible for this outcome. So, the outcome is unresolved, I’m angry and frustrated since I was not able to make money, nor got my preferred politician got elected, and I lost some opportunity cost due to those $5000 being committed to this bet for some time. So I vote against prediction markets next time since those are obviously an evil plot to keep Alice from becoming president and fixing things.
Maybe, this can be somehow amended if I could instead bet on the effects of some policy that Alice endorses and I find compelling, and it is possible to test this policy on a smaller scale, and we could allocate some money from this presumably large betting pool for actually testing it, and we could somehow guarantee that those who bet lots of money won’t be able to influence this test much. There are a lot of “ifs” here, and this seems to require way more than just legalized prediction markets. I don’t immediately see how legalizing prediction markets necessarily leads to incentives to legalize and make it possible to easily resolve something like that.
I expect future iterations of prediction market platforms to allow your money to accrue interest over the course of longer-term bets.
You don’t have to convince the whole country. Not even close. As long as you get New Hampshire to legalize prediction markets, New Hampshire can tell the federal government to go fuck itself. Weed is still federally illegal, remember?
It hasn’t escaped the notice of forecasters that prediction markets aren’t free of issues. For instance, check Scott’s Mantic Mondays posts on ACX.
For one thing, while there are many issues (like legal ones) which currently impede popularity of prediction markets, it’s nevertheless the case that so far none of them has particularly caught on on a larger scale. Then there’s stuff like transaction costs making them less useful (if there are transaction costs of 5%, markets won’t drop below 5% or rise above 95%), resolution risk being a big problem (questions you can easily arbitrate are often not the ones you care about; but if you can’t arbitrate the ones you care about, you can’t make a prediction market for them), lack of liquidity (another way for a prediction market to flop is for it to experience no uptake by users), and so on.
None of these issues seem fundamentally unresolvable. But conversely, we cannot currently point at any existing prediction market and say that “if we legalize this market and scale it up, it will transform society”, or something.
As for market questions like “is my wife cheating on me”, I’m extremely dubious that even if you managed to get prediction markets legalized, those kinds of questions would be allowed.
This is actually already possible right now on https://manifold.markets/ Even though, the market uses play, instead of real money, but you get at least something..
Otherwise I completely agree with your critique of current prediction markets, and I agree that none of the issues seem fundamentally unresolvable. Actually, I’m currently starting a new project (funded by FTX Future Fund) which aims to do just that! Sorry for the shameless plug, but here is a description of the project, and while I’m at it, I’m looking for a cofounder ;)
I’m aware of Manifold Markets. The only reason the site can be lax with regards to which markets and resolution criteria it allows is precisely because it only uses play money.
For some more detail on what this plan might look like, my 2nd-place-winning entry in the Future of Life Institute’s “A.I. world-building” competition, was all about how humanity uses prediction markets and other new institutional designs to increase its level of civilizational adequacy, becoming strong/wise enough to manage the safe development of transformative AI.
See my lesswrong post here (which focuses on the details of how AI development is controlled in my team’s fictional scenario), or the whole entry here (which includes two great short stories by a friend of mine, and includes many more details about how things like futarchy, liquid democracy, network states and charter cities, quadratic funding for public goods funding, etc, develop over the next few decades).
This seems like the kind of thing that could be hosted in a place like Próspera. I believe the ZEDE law was very recently repealed, but I have yet to hear that the Próspera project is stopping and the constitutional amendment could be repealed next year. Próspera claims it will be proceeding and international law/treaties and it’s 50 year stability agreements protect it. https://prospera.hn/news/press-releases/built-to-last-legal-stability-in-the-zede-framework
It seems too early, but if Próspera survives this most recent political shift in Honduras, then it would prove to be protected from the political whims of Honduras (and its legal framwork already prevents changes in taxes or regulations even with a democratic majority. A betting market could thrive in such a stable environment, and possibly allow for longer term bets. Also the legal framework for businesses is very streamlined. https://prospera.hn/business
It might just be my wishful thinking and political biases showing, but if Próspera can prove to be resilient to changes in Honduras, I think it could become pretty close to Dath Ilan, or help other countries become closer to it. Positive signs are things like Minicircle, a reversible gene therapy company conducting trials in Próspera because they are easier to do there than the US. https://minicircle.clinic/