Current market structures can’t bill people for the information value that went into the market fairly, can’t fairly handle secret information known to only some bidders, pays out most of the subsidy to whoever corrects the naive bidder fastest even though there’s no benefit to making it a race, offers almost no profit to people trying to defend the true price from incorrect bidders unless they let the price shift substantially first, can’t be effectively used to collate information known by different bidders, can’t handle counterfactuals / policy conditionals cleanly, implement EDT instead of LDT, let you play games of tricking other bidders for profit and so require everyone to play trading strategies that are inexploitable even if less beneficial, can’t defend against people who are intentionally illegible as to whether they have private information or are manipulating the market for profit elsewhere...
But most of all, prediction markets contain supposedly ideal economic actors who don’t really suspect each other of dishonesty betting money against each other even though it’s a net-zero trade and the aggreeement theorem says they shouldn’t expect to profit from it at all, so clearly this is not the mathematically ideal solution for a group to collate its knowledge and pay itself for the value that knowledge [provides]. Even if you need betting to be able to trust nonsharable information from another party, you shouldn’t have people betting in excess of what is needed to prove sincerity out of a belief other people are wrong unless you’ve actually got other people being wrong even in light of the new actors’ information.
I’m pretty interested in this as an exercise of ‘okay yep a bunch of those problems seem real. Can we make conceptual or mechanism-design progress on them in like an afternoon of thought?’
Good post, it’s underappreciated that a society of ideally rational people wouldn’t have unsubsidized, real-money prediction markets.
unless you’ve actually got other people being wrong even in light of the new actors’ information
Of course in real prediction markets this is exactly what we see. Maybe you could think of PMs as they exist not as something that would exist in an equilibrium of ideally rational agents, but as a method of moving our society closer to such an equilibrium, subsidized by the bets of systematically irrational people. It’s not a perfect such method, but does have the advantage of simplicity. How many of these issues could be solved by subsidizing markets?
The Prediction Market Discord Message, by Eva_:
I’m pretty interested in this as an exercise of ‘okay yep a bunch of those problems seem real. Can we make conceptual or mechanism-design progress on them in like an afternoon of thought?’
I’m interested too. I think several of the above are solvable issues. AFAICT:
Solved by simple modifications to markets:
Races to correct naive bidders
Defending the true price from incorrect bidders for $ w/o letting price shift
Seem doable with thought:
Billing for information value
Policy conditionals
Seem hard/idk if it’s possible to fully solve:
Collating information known by different bidders
Preventing tricking other bidders for profit
General enterprise of credit allocation for knowledge creation
Good post, it’s underappreciated that a society of ideally rational people wouldn’t have unsubsidized, real-money prediction markets.
Of course in real prediction markets this is exactly what we see. Maybe you could think of PMs as they exist not as something that would exist in an equilibrium of ideally rational agents, but as a method of moving our society closer to such an equilibrium, subsidized by the bets of systematically irrational people. It’s not a perfect such method, but does have the advantage of simplicity. How many of these issues could be solved by subsidizing markets?
What discord is this, sounds cool.