@voximperatoris: Also, you keep saying you don’t like prediction markets, but I’ve never seen you make a decent argument why not. Clearly, on a small and illiquid market (or one with fake money), quality will generally be poor. But that is reason to expand their use.
All prediction markets will be small and lack liquidity, as the range of things people want to predict is very broad but the number of people able or willing to get involved is very limited.
Robin Hanson often suggests that corporations should use prediction markets to predict the outcome of various internal projects, which would limit the number of participants to dozens or hundreds of people at best, require the company to provide liquidity, be confounded by all kinds of internal politics, and is really just a clumsy way of providing random bonuses to lucky employees.
Large scale real money prediction markets have to compete with all the other places people might want to invest, many predictions are very long-term, and it’s very difficult to nail down exactly how to judge a prediction, even for something as structured as a US election (eg. consider electoral college shenanigans).
Hanson’s futarchy is particularly ridiculous. Say you have a poorly designed government program like cash for clunkers to get old cars off the road and reduce pollution and CO2 emissions. The limited reach and high overhead means it’s going to have no effect or even be counterproductive, and you bet accordingly. Then the global financial crisis hits, economic growth stalls, and CO2 emissions actually decline, unexpectedly. Nothing to do with the policy you thought was bad, but how is that handled? Do you have a panel of experts to carefully go through all these issues and pronounce a verdict on each one?
There are already ways to use predictions to profit. If you think that Trump will be elected and pivot towards Russia, that has implications for energy markets and Eastern Europe and the Middle East and currencies. If you think that China will enter an economic slump you can take advantage of that. If you think that a particular movie will fail at the box office you can short the studio. If strong AI will be developed earlier or later you can invest accordingly.
People who have good ideas about the future already have plenty of options!
Prediction markets may be useful in certain fairly limited situations, but it is necessary to actually demonstrate that on a case by case basis; mostly it just seems to be the equivalent of averaging a bunch of guesses, which typically outperforms a single guess but isn’t some radical new way to structure society.
These are all good criticisms; I’ve torn into UNU elsewhere for this sort of stuff. (Their pitch is swarm intelligence, but check out their pictures. It’s just an overhyped prediction market with low stakes, plus they’ve added some totally novel bugs like letting people spread vote between certain pairs of outcomes, but not others.)
Futarchy has some way bigger problems, though. I think the common rebuttal to the things you cited is “all our existing systems suck too, so this might still beat them”. I’m not convinced by that, but I certainly think we can avoid the argument by citing more severe problems.
One is that futarchy can’t effectively deal in long-odds or long-timescale events. Black swan reasoning is always a bitch, but wisdom of the crowds is a particularly awkward way to approach it. And handling things like “global warming with lead to > 2°C of temperature rise by 2100″ has all kinds of secondary problems where running a bet that long is basically a nonstarter no matter how you assess results.
Another, which I think dooms the project, is that futarchy is catastrophically unable to reason about its own existence. If I propose a betting topic of “the prediction market will be dissolved and replaced with a dictatorship which cancels all bets”, there’s no way to coherently bet true and get profits.
If people think too big to fail is a serious issue with the stock market, they ought to be screaming in terror at the thought of futarchy. Because the equivalent faulty-downside predictions there are things like “let’s do nuclear brinkmanship with Russia to improve our economic standing when they back down”. The failure case doesn’t pay out, so it must be a good idea!
I’m being glib here, but I’ve seen this issues raised before and I’ve never seen even an attempt at a rebuttal. If someone has addressed things like “how to prediction market about 100 year x-risk issues”, I’d love to read it.
like an assassination market, but for the entire planet.
Perhaps payouts along the way based on the estimated probability for long-term bets - I guess that would be Prediction Derivatives? That allows people to profit if the estimate of high global warming increases. However, I’m not sure on how it incentivizes holding the prediction in the first place.
If we allow selling the shares of your position in the market, then people could hold long-term positions speculatively. For instance, I estimate a good chance that high global warming will happen, and that it will become more obvious in the intervening time, then I can buy low now and sell later.