This is rebuttal to your assertion that ”..is a crude model and won’t actually predict all bond prices in the real world”. The no-arbitrage approach does not depend on modeling credit obligations. It also doesn’t require thinking about which variables prices reflect.
There is enough possible return on an investment in a successful cryogenics company that investors with long horizons would be flooding into the field if it were feasible.
Huh? First, I don’t think long-term business prospects of cryogenics companies look good for the simple reason that they collect some money now and then have to pay costs for an indefinite period in the future. The long-term expected return is highly uncertain and can easily turn out to be negative. Second, from the purely investment perspective it doesn’t matter whether cryogenics would turn out to be feasible in reality, all you need is for sufficient number of people to believe so.
We seem to disagree about what any sort of real-world catastrophe gambling market would look like
Probably. Though, again, real-world catastrophe markets exist right now. There are easy ways to bet on, say, Miami being wiped out by a hurricane or on the Japanese financial system imploding under the weight of the sovereign debt.
The major difference from sports betting is that it’s easy to influence the outcome of a match. It’s not easy to increase the chance or the severity of a large-scale catastrophe.
Probably. Though, again, real-world catastrophe markets exist right now. There are easy ways to bet on, say, Miami being wiped out by a hurricane or on the Japanese financial system imploding under the weight of the sovereign debt. The major difference from sports betting is that it’s easy to influence the outcome of a match. It’s not easy to increase the chance or the severity of a large-scale catastrophe.
For whatever reason, and again, we don’t need to know the mechanism because we know the history, large numbers of gamblers behave differently than large numbers of investors. You can bet on a sports team doing well by buying the team, or buying real estate near the stadium or buying concessions rights in the stadium, or buying autographs to sell later on eBay, or you can bet through a bookie. The guys betting through bookies are the ones fixing matches, not the concessionaires. And they will go to extraordinary lengths to fix matches.
because we know the history, large numbers of gamblers behave differently than large numbers of investors.
That is not self-evident to me.
You can bet on a sports team doing well by buying the team … or you can bet through a bookie. The guys betting through bookies are the ones fixing matches …
I would strongly disagree. People owning the teams fix the entire system and so don’t need to fix individual matches. You do know that baseball owners have a special anti-trust exemption, right? Why do they need it and what do they do with it, you think?
Investors as opposed to gamblers fix thing on a much bigger scale and normally through politics. Agricultural subsidies? High import tariffs? That’s all the system being fixed for someone’s advantage.
I would strongly disagree. People owning the teams fix the entire system
You agree that the gamblers are fixing the matches. And I don’t disagree with you that owners are fixing the system.
Investors as opposed to gamblers fix thing on a much bigger scale and normally through politics. Agricultural subsidies? High import tariffs? That’s all the system being fixed for someone’s advantage.
You’re not wrong.
But whether or not investors and gamblers have equivalent senses of fair play, the latter is more likely to seek unlawful opportunities for profit. My point (5) above may have seemed silly, but there is a real difference between what a bank will do to you to recover money owed and what Charlie who works out the back of a liquor store will do, even though they have one incentive in common. And there is a big difference between what Aubrey McClendon will do to make sure his “bets” on oil wells pay off and what Joe who bets the fights will do to make sure his boxer wins.
And if Joe stumbles upon a group of people betting on the level of synthetic estrogen found in the metro’s tap water at a certain date...well, birth control pills are pretty cheap and impossible to trace.
But whether or not investors and gamblers have equivalent senses of fair play, the latter is more likely to seek unlawful opportunities for profit.
I still do not agree. I think there’s some confusion about cause and effect going on. Gambling used to be mostly illegal with all the consequences thereof—that’s where your “Charlie who works out the back of a liquor store” meme comes from.
Things have changed. Las Vegas and Indian casinos are full of law-abiding middle class people who want a little excitement and not looking to get into any trouble. They are gamblers, but they are not going to break anyone’s legs.
In any case, we’ve strayed far afield from the original question of whether markets where you can bet on catastrophes are a bad idea. Do you still think they are?
I agree that there’s a mostly safe and clean (but too often smoke-filled :( )space for gambling in the US now. There’s still a lot of shadiness in sports gambling, even though there are places to bet legally on games.
This has been a great exchange for me, and I appreciate it, so thank you! It’s helped me clarify my thinking on prediction markets.
I think niche prediction markets interested mostly in existential risk and AI are likely to be too small and eccentric to be good predictors, and that truly massive global predictions markets will involve shadiness. But I can see something in between, with real capital and a broad set of well-informed bettors, and some sort of mechanism to identify and track bettors, providing good information on near term events with little downside.
What do you think are the best and worse case scenarios for prediction markets?
What do you think are the best and worse case scenarios for prediction markets?
I don’t think that long-term prediction markets will have earthshattering consequences given that they will complement the existing financial markets.
Worst case: the US government (and others) continues to insist they’re illegal gambling, they don’t take off, nothing happens. I’m not considering movie-type scenarios in which an evil mastermind manipulates the prediction markets to fool the good guys and TAKE OVER THE WORLD!!!
Best case: the prediction markets do take off, become popular, continue to be independent and reasonably resistant to manipulation, and provide valuable data about the revealed predictions of the public.
This is rebuttal to your assertion that ”..is a crude model and won’t actually predict all bond prices in the real world”. The no-arbitrage approach does not depend on modeling credit obligations. It also doesn’t require thinking about which variables prices reflect.
Huh? First, I don’t think long-term business prospects of cryogenics companies look good for the simple reason that they collect some money now and then have to pay costs for an indefinite period in the future. The long-term expected return is highly uncertain and can easily turn out to be negative. Second, from the purely investment perspective it doesn’t matter whether cryogenics would turn out to be feasible in reality, all you need is for sufficient number of people to believe so.
Probably. Though, again, real-world catastrophe markets exist right now. There are easy ways to bet on, say, Miami being wiped out by a hurricane or on the Japanese financial system imploding under the weight of the sovereign debt.
The major difference from sports betting is that it’s easy to influence the outcome of a match. It’s not easy to increase the chance or the severity of a large-scale catastrophe.
For whatever reason, and again, we don’t need to know the mechanism because we know the history, large numbers of gamblers behave differently than large numbers of investors. You can bet on a sports team doing well by buying the team, or buying real estate near the stadium or buying concessions rights in the stadium, or buying autographs to sell later on eBay, or you can bet through a bookie. The guys betting through bookies are the ones fixing matches, not the concessionaires. And they will go to extraordinary lengths to fix matches.
That is not self-evident to me.
I would strongly disagree. People owning the teams fix the entire system and so don’t need to fix individual matches. You do know that baseball owners have a special anti-trust exemption, right? Why do they need it and what do they do with it, you think?
Investors as opposed to gamblers fix thing on a much bigger scale and normally through politics. Agricultural subsidies? High import tariffs? That’s all the system being fixed for someone’s advantage.
You agree that the gamblers are fixing the matches. And I don’t disagree with you that owners are fixing the system.
You’re not wrong.
But whether or not investors and gamblers have equivalent senses of fair play, the latter is more likely to seek unlawful opportunities for profit. My point (5) above may have seemed silly, but there is a real difference between what a bank will do to you to recover money owed and what Charlie who works out the back of a liquor store will do, even though they have one incentive in common. And there is a big difference between what Aubrey McClendon will do to make sure his “bets” on oil wells pay off and what Joe who bets the fights will do to make sure his boxer wins.
And if Joe stumbles upon a group of people betting on the level of synthetic estrogen found in the metro’s tap water at a certain date...well, birth control pills are pretty cheap and impossible to trace.
I still do not agree. I think there’s some confusion about cause and effect going on. Gambling used to be mostly illegal with all the consequences thereof—that’s where your “Charlie who works out the back of a liquor store” meme comes from.
Things have changed. Las Vegas and Indian casinos are full of law-abiding middle class people who want a little excitement and not looking to get into any trouble. They are gamblers, but they are not going to break anyone’s legs.
In any case, we’ve strayed far afield from the original question of whether markets where you can bet on catastrophes are a bad idea. Do you still think they are?
I agree that there’s a mostly safe and clean (but too often smoke-filled :( )space for gambling in the US now. There’s still a lot of shadiness in sports gambling, even though there are places to bet legally on games.
This has been a great exchange for me, and I appreciate it, so thank you! It’s helped me clarify my thinking on prediction markets.
I think niche prediction markets interested mostly in existential risk and AI are likely to be too small and eccentric to be good predictors, and that truly massive global predictions markets will involve shadiness. But I can see something in between, with real capital and a broad set of well-informed bettors, and some sort of mechanism to identify and track bettors, providing good information on near term events with little downside.
What do you think are the best and worse case scenarios for prediction markets?
I don’t think that long-term prediction markets will have earthshattering consequences given that they will complement the existing financial markets.
Worst case: the US government (and others) continues to insist they’re illegal gambling, they don’t take off, nothing happens. I’m not considering movie-type scenarios in which an evil mastermind manipulates the prediction markets to fool the good guys and TAKE OVER THE WORLD!!!
Best case: the prediction markets do take off, become popular, continue to be independent and reasonably resistant to manipulation, and provide valuable data about the revealed predictions of the public.
Nothing horribly exciting here :-)