In a prediction market your belief is not shared, but contributes to the consensus (market price of a futures). Many traders become agnostic about a question (close their position) before the underlying fact of the matter is revealed (delivery), perhaps shortly after stating the direction in which they expect the consensus to move (opening the position), to contribute (profit from) their rare knowledge while it remains rare. Requiring traders to own up to a prediction (hold to delivery) interferes with efficient communication of rare information into common knowledge (market price).
So consider declaring that the consensus is shifting in a particular direction, without explaining your reasoning, and then shortly after bow out of the discussion (taking note of how the consensus shifted in the interim). This seems very strange when compared to common norms, but I think something in this direction could work.
A key active ingredient here seems to be that exact ability to disguise your true position. Even if someone knows your trades, they don’t know why you did them. You could have a different fair value (probability estimate), you could be hedging risk, you could expect the price to move in a direction without thinking that move is going to be accurate, and so on.
By not requiring the trader to be pinned down to anything (except profit and loss) we potentially extract more information.
And all of that applies to non-prediction markets, too.
Note that most markets don’t have any transparency about who buys or sells, and external factors are often more plausible reasons than a naive outsider expects. A drop in the share price of a retailer could be reflecting lower confidence in their future earnings, or result from a margin call on a firm that made a big bet on the firm that it needed to unwind, or even be because a firm that was optimistic about the retailer decided to double down, and move a large call options position out 6 months, so that their counterparty sold to hedge their delta—there is no way to tell the difference. (Which is why almost all market punditry is not only dishonest, but laughable once you’ve been on the inside.)
In a (deep enough, which is an unsolved problem) prediction market, there is a clear mechanism to be rewarded for indicating that your private beliefs differ from the consensus. When they no longer differ, it doesn’t matter whether you close out your position or not.
In fact, you’re right that you’re really publishing a difference between current consensus and your private beliefs about future consensus, which may differ from truth, but that difference is opportunity for future participants who will get paid when the prediction resolves.
Holding to delivery is already familiar for informal communication. But short-term speculation is a different mode of contributing rare knowledge into consensus that doesn’t seem to exist for discussions of beliefs that are not on prediction markets, and breaks many assumptions about how communication should proceed. In particular it puts into question the virtues of owning up to your predictions and of regularly publishing updated beliefs.
I’m confused whether we’re talking about informal communication, where holding to delivery is the norm because nobody actually cares about the results, or about endorsed public predictions that we want to make decisions based on. I don’t think the problems nor their solutions are the same for these different kinds of predictions.
By “informal” I meant that the belief is not on a prediction market, so you can influence consensus only by talking, without carefully keeping track of transactions. (I disagree with it being appropriate not to care about results in informal communication, so it’s not a distinction I was making.)
What is the value, to whom, of the predictions being correct? The interesting cases are one where there is something performing the function of a prediction market in feeding back some value for correct and surprising predictions. All else is “informal” and mostly about signaling rather than truth.
The value of caring about informal reasoning is in training the same skills that apply for knowably important questions, and in seemingly unimportant details adding up in ways you couldn’t plan for. Existence of a credible consensus lets you use a belief without understanding its origin (i.e. without becoming a world-class expert on it), so doesn’t interact with those skills.
When correct disagreement of your own beliefs with consensus is useful at scale, it eventually shifts the consensus, or else you have a source of infinite value. So almost any method of deriving significant value from private predictions being better than consensus is a method of contributing knowledge to consensus.
(Not sure what you were pointing at, mostly guessing the topic.)
For oneself, caring about reasoning and correct predictions is well worthwhile. And it requires some acknowledgement that your beliefs are private, and that they are separate from your public claims. Forgetting that this applies to others as well as yourself seems a bit strange.
I may be a bit too far on the cynicism scale, but I start with the assumption that informal predictions are both oversimplified to fit the claimant’s model of their audience, and adjusted in direction (from the true belief) to have a bigger impact on their audience.
That is, I think most public predictions are of the form “you should have a higher credence in X than you seem to”, but for greater impact STATED as “you should believe X”.
In a prediction market your belief is not shared, but contributes to the consensus (market price of a futures). Many traders become agnostic about a question (close their position) before the underlying fact of the matter is revealed (delivery), perhaps shortly after stating the direction in which they expect the consensus to move (opening the position), to contribute (profit from) their rare knowledge while it remains rare. Requiring traders to own up to a prediction (hold to delivery) interferes with efficient communication of rare information into common knowledge (market price).
So consider declaring that the consensus is shifting in a particular direction, without explaining your reasoning, and then shortly after bow out of the discussion (taking note of how the consensus shifted in the interim). This seems very strange when compared to common norms, but I think something in this direction could work.
A key active ingredient here seems to be that exact ability to disguise your true position. Even if someone knows your trades, they don’t know why you did them. You could have a different fair value (probability estimate), you could be hedging risk, you could expect the price to move in a direction without thinking that move is going to be accurate, and so on.
By not requiring the trader to be pinned down to anything (except profit and loss) we potentially extract more information.
And all of that applies to non-prediction markets, too.
Note that most markets don’t have any transparency about who buys or sells, and external factors are often more plausible reasons than a naive outsider expects. A drop in the share price of a retailer could be reflecting lower confidence in their future earnings, or result from a margin call on a firm that made a big bet on the firm that it needed to unwind, or even be because a firm that was optimistic about the retailer decided to double down, and move a large call options position out 6 months, so that their counterparty sold to hedge their delta—there is no way to tell the difference. (Which is why almost all market punditry is not only dishonest, but laughable once you’ve been on the inside.)
In a (deep enough, which is an unsolved problem) prediction market, there is a clear mechanism to be rewarded for indicating that your private beliefs differ from the consensus. When they no longer differ, it doesn’t matter whether you close out your position or not.
In fact, you’re right that you’re really publishing a difference between current consensus and your private beliefs about future consensus, which may differ from truth, but that difference is opportunity for future participants who will get paid when the prediction resolves.
Holding to delivery is already familiar for informal communication. But short-term speculation is a different mode of contributing rare knowledge into consensus that doesn’t seem to exist for discussions of beliefs that are not on prediction markets, and breaks many assumptions about how communication should proceed. In particular it puts into question the virtues of owning up to your predictions and of regularly publishing updated beliefs.
I’m confused whether we’re talking about informal communication, where holding to delivery is the norm because nobody actually cares about the results, or about endorsed public predictions that we want to make decisions based on. I don’t think the problems nor their solutions are the same for these different kinds of predictions.
By “informal” I meant that the belief is not on a prediction market, so you can influence consensus only by talking, without carefully keeping track of transactions. (I disagree with it being appropriate not to care about results in informal communication, so it’s not a distinction I was making.)
exploring here, not sure where it’ll go.
What is the value, to whom, of the predictions being correct? The interesting cases are one where there is something performing the function of a prediction market in feeding back some value for correct and surprising predictions. All else is “informal” and mostly about signaling rather than truth.
The value of caring about informal reasoning is in training the same skills that apply for knowably important questions, and in seemingly unimportant details adding up in ways you couldn’t plan for. Existence of a credible consensus lets you use a belief without understanding its origin (i.e. without becoming a world-class expert on it), so doesn’t interact with those skills.
When correct disagreement of your own beliefs with consensus is useful at scale, it eventually shifts the consensus, or else you have a source of infinite value. So almost any method of deriving significant value from private predictions being better than consensus is a method of contributing knowledge to consensus.
(Not sure what you were pointing at, mostly guessing the topic.)
For oneself, caring about reasoning and correct predictions is well worthwhile. And it requires some acknowledgement that your beliefs are private, and that they are separate from your public claims. Forgetting that this applies to others as well as yourself seems a bit strange.
I may be a bit too far on the cynicism scale, but I start with the assumption that informal predictions are both oversimplified to fit the claimant’s model of their audience, and adjusted in direction (from the true belief) to have a bigger impact on their audience.
That is, I think most public predictions are of the form “you should have a higher credence in X than you seem to”, but for greater impact STATED as “you should believe X”.