The way prediction markets handle this is that there is a limited liquidity at each price. So you offer $100 at 80%, $1000$ at 70%, $10k at 65%, etc. If you said “I’m willing to bet at 90% and someone said, okay I’ll bet you $1M you could say no without being a fraud.
I wonder how that works in regard to credal resistance somehow where you could put depth of money you will either bet on or retract the statement
Biden will win the presidency $50 [45%] $1000 [20%] $10,000 [10%]
A problem with this is that it depends on other factors:
the amount of wealth you currently have
your relative risk aversion
your counterparty’s wealth and their relative risk aversion
how well-informed your counterparty is
You should be willing to offer more liquidity until the marginal value is 0EV; the first two factors change how much you would offer for a 51% coin flip, and when there are information differences the other two factors also come into play.
While you are technically right I think that some of this will even out.
If you have lots of wealth, are stupid and offer bad bets then LessWrong has enough money to slowly take your money off you.
I don’t understand the risk aversion point
Your counterparty being well informed is exactly why you should have shallow pools at higher confidence and deeper pools at lower confidences. This is a feature, not a bug.
Suppose you’re using your notation to communicate credence in a 51% coin flip. The correct amount to wager at various odds depends on your level of risk aversion. If you’re totally risk-neutral, you should bet all of your money even at 50.99% odds. More realistically you should be using something like the Kelly criterion (being more aggressive than Kelly if utility function diminishes slower than log(wealth) and more conservative if it diminishes faster than log(wealth)). So we already don’t know what to write for a 51% coin flip.
When you’re trading against a counterparty, they will only take bets they think are +EV. Usually this means that for any bet, your EV conditional on being traded against is lower than your unconditional EV. This is called adverse selection, and it varies based on who your counterparty is.
But actually, even if your counterparty is rational, they’re not trying to maximize their EV of dollars either, but their expected utility. If they have diminishing returns to money, they will need even higher EV before they bet against you, which increases your adverse selection (and without knowing their level of wealth or relative risk aversion, you don’t know how much).
These are all standard considerations in trading.
Basically if I were using your notation, I’d have to give <10x lower numbers if I were:
poorer or have a less stable job
less altruistic (personal utility of money diminishes faster than altruistic utility).
around people with less money or less stable jobs
around a high proportion of professional traders (adverse selection)
How on earth have you got 8 LW upvotes in this short time?
We are all using this notation on LW. So while I agree that if you are poor you have to be more careful if you are rich you can’t say what you want. It isn’t only one person who can call you out.
Likewise, if these go from being 1-1 bets to being markets, then many of your criticisms become smaller. Individuals have different utitlity on money, sure, but with enough liquidity I guess this comes out in the waysh.
I sort of still think even with all these criticisms it’s fine and useful. Yeah so some people will have to give lower numbers. shrug. At least we’ll have an imperfect way of denoting something. Feel free to give a better suggestion.
Just a note on 1.: the LessWrong upvote system allows strong upvoting and upvotes from users with more karma update the total more. Seeing eight karma on a post doesn’t mean too much since it could be just from one or two people.
The way prediction markets handle this is that there is a limited liquidity at each price. So you offer $100 at 80%, $1000$ at 70%, $10k at 65%, etc. If you said “I’m willing to bet at 90% and someone said, okay I’ll bet you $1M you could say no without being a fraud.
I wonder how that works in regard to credal resistance somehow where you could put depth of money you will either bet on or retract the statement
Biden will win the presidency $50 [45%] $1000 [20%] $10,000 [10%]
Yeah this feels good.
I’ll just note how well this tracks with Garrabrant et al’s solution to logical uncertainty via markets.
A problem with this is that it depends on other factors:
the amount of wealth you currently have
your relative risk aversion
your counterparty’s wealth and their relative risk aversion
how well-informed your counterparty is
You should be willing to offer more liquidity until the marginal value is 0EV; the first two factors change how much you would offer for a 51% coin flip, and when there are information differences the other two factors also come into play.
While you are technically right I think that some of this will even out.
If you have lots of wealth, are stupid and offer bad bets then LessWrong has enough money to slowly take your money off you.
I don’t understand the risk aversion point
Your counterparty being well informed is exactly why you should have shallow pools at higher confidence and deeper pools at lower confidences. This is a feature, not a bug.
I don’t understand the coin flip example
Suppose you’re using your notation to communicate credence in a 51% coin flip. The correct amount to wager at various odds depends on your level of risk aversion. If you’re totally risk-neutral, you should bet all of your money even at 50.99% odds. More realistically you should be using something like the Kelly criterion (being more aggressive than Kelly if utility function diminishes slower than log(wealth) and more conservative if it diminishes faster than log(wealth)). So we already don’t know what to write for a 51% coin flip.
When you’re trading against a counterparty, they will only take bets they think are +EV. Usually this means that for any bet, your EV conditional on being traded against is lower than your unconditional EV. This is called adverse selection, and it varies based on who your counterparty is.
But actually, even if your counterparty is rational, they’re not trying to maximize their EV of dollars either, but their expected utility. If they have diminishing returns to money, they will need even higher EV before they bet against you, which increases your adverse selection (and without knowing their level of wealth or relative risk aversion, you don’t know how much).
These are all standard considerations in trading.
Basically if I were using your notation, I’d have to give <10x lower numbers if I were:
poorer or have a less stable job
less altruistic (personal utility of money diminishes faster than altruistic utility).
around people with less money or less stable jobs
around a high proportion of professional traders (adverse selection)
around people who are irrationally risk averse
How on earth have you got 8 LW upvotes in this short time?
We are all using this notation on LW. So while I agree that if you are poor you have to be more careful if you are rich you can’t say what you want. It isn’t only one person who can call you out.
Likewise, if these go from being 1-1 bets to being markets, then many of your criticisms become smaller. Individuals have different utitlity on money, sure, but with enough liquidity I guess this comes out in the waysh.
I sort of still think even with all these criticisms it’s fine and useful. Yeah so some people will have to give lower numbers. shrug. At least we’ll have an imperfect way of denoting something. Feel free to give a better suggestion.
Just a note on 1.: the LessWrong upvote system allows strong upvoting and upvotes from users with more karma update the total more. Seeing eight karma on a post doesn’t mean too much since it could be just from one or two people.