Given enough time and participation the market will win.
Given enough time and participation the market will tend towards something like the arithmetic mean of the estimates of all of its participants. Which is great, Wisdom of Crowds and all that, and I’d even call the whole concept beautiful given the way it practically runs itself, but it’s not even a local optimum among aggregation algorithms—you’d get a few points better calibrated if you threw out the bets made by Idiot Jed, Glutton for Punishment.
you’d get a few points better calibrated if you threw out the bets made by Idiot Jed, Glutton for Punishment.
You mentioned elsewhere that you haven’t ‘read up on your Hanson’ regarding prediction markets. You need to. The above just isn’t how prediction markets work. Moreover, if you added a bunch more Idiot Jed’s you may end up with a market that is better callibrated.
Once again, I suggest you focus your attention on areas where for some reason a remotely efficient market just isn’t feasible. This usually means either something where there is not enough money to seed a decent market (and not enough Idiot Jed’s to steal from) or somewhere where an open market is not possible due to privacy considerations. This still leaves you with a rather large area for finding potential applications.
if you added a bunch more Idiot Jed’s you may end up with a market that is better callibrated.
If smart money keeps coming in, then over time, Idiot Jed’s opinions get discounted more and more, asymptotically (with exceptions like the one I mention in the other thread, where it’s actually not smart to bet against him even though he’s wrong). But if you’re looking at one time-slice of a market-state, and you know that Idiot Jed is buying, you should always adjust in the opposite direction.
But if you’re looking at one time-slice of a market-state, and you know that Idiot Jed is buying, you should always adjust in the opposite direction.
This is false. What makes you think you are better at accounting for Jed’s idiocy than the other people in the market are? You need to abandon your equivocation between markets and an arithmetic mean of participant estimates. It really is more complicated than that.
At time t, the market hasn’t adjusted yet. The other people in the market are noticing that the contract is overvalued because of Jed, so they’re preparing to short it, which is how the market will adjust. Meanwhile, I’m noticing the same thing, so I’m making a prediction that’s better than the market’s current prediction.
Given enough time and participation the market will tend towards something like the arithmetic mean of the estimates of all of its participants. Which is great, Wisdom of Crowds and all that, and I’d even call the whole concept beautiful given the way it practically runs itself, but it’s not even a local optimum among aggregation algorithms—you’d get a few points better calibrated if you threw out the bets made by Idiot Jed, Glutton for Punishment.
You mentioned elsewhere that you haven’t ‘read up on your Hanson’ regarding prediction markets. You need to. The above just isn’t how prediction markets work. Moreover, if you added a bunch more Idiot Jed’s you may end up with a market that is better callibrated.
Once again, I suggest you focus your attention on areas where for some reason a remotely efficient market just isn’t feasible. This usually means either something where there is not enough money to seed a decent market (and not enough Idiot Jed’s to steal from) or somewhere where an open market is not possible due to privacy considerations. This still leaves you with a rather large area for finding potential applications.
If smart money keeps coming in, then over time, Idiot Jed’s opinions get discounted more and more, asymptotically (with exceptions like the one I mention in the other thread, where it’s actually not smart to bet against him even though he’s wrong). But if you’re looking at one time-slice of a market-state, and you know that Idiot Jed is buying, you should always adjust in the opposite direction.
This is false. What makes you think you are better at accounting for Jed’s idiocy than the other people in the market are? You need to abandon your equivocation between markets and an arithmetic mean of participant estimates. It really is more complicated than that.
At time t, the market hasn’t adjusted yet. The other people in the market are noticing that the contract is overvalued because of Jed, so they’re preparing to short it, which is how the market will adjust. Meanwhile, I’m noticing the same thing, so I’m making a prediction that’s better than the market’s current prediction.
This makes sense as long as you understand it’s easy money.