In October 2022, Bloomberg published an article with the headline “Forecast for US Recession Within Year Hits 100% in Blow to Biden.” A hundred percent chance of a recession! But here we are, a little over a year since that article was published, and there hasn’t been a recession.
"I’m not even sure they made a bad decision by publishing that article. After all, that over-the-top headline probably got more clicks and generated more advertising revenue than a headline with a more realistic (and boring) forecast would have." <- this was a really well made point. Great article!
I used to be very into prediction markets and was even in the top 20 forecasters on metaculus for a while, but I've soured on the concept somewhat over the years.
For one, they can be manipulated e.g:
Publicly place a large bet you'll do X at time T
Through a sock puppet/friend place a smaller bet on you doing not-X at time T+1
Allow the first bet to shift the odds against the second bet
Do X at time T and reap a small reward for your correct prediction, then do not-X at time T+1 and reap a large reward for your second correct prediction.
This method only works when you are able to change event X (e.g your scandal market), otherwise you can't use this to manipulate forecasts (e.g weather). But as humanity becomes more powerful the events we'll be able to change become larger and larger. For example, if in the future it becomes easy to use chemicals to make it rain you could:
Publicly place a large bet it won't rain at 9:00
Secretly place a smaller bet it will rain at 9:30
Make it rain at 9:30
"Make it rain" at 9:30
Which means that prediction markets become less useful as humanity progresses.
For another, they give rich people/the first people in the market/ the investor class a way to subvert democracy. E.g (from my post on bayesianism):
If the market participants think an agent has a 100% probability of killing a baby they will bet on 100%. But if they then learn that the agent will 100% kill the baby if they bet on 1%-100%, but will not kill the baby if the market is 0% they have a problem. Each individual participant might want to switch to 0%, but if they act first the other participants are financially incentivized to not switch. You have a coordination problem. Also, there might be disagreement on what the ‘moral credence’ even is. In such a scenario the first buyers can set the equilibrium and thus cause an outcome that the majority might not want.
"I’m not even sure they made a bad decision by publishing that article. After all, that over-the-top headline probably got more clicks and generated more advertising revenue than a headline with a more realistic (and boring) forecast would have." <- this was a really well made point. Great article!
I used to be very into prediction markets and was even in the top 20 forecasters on metaculus for a while, but I've soured on the concept somewhat over the years.
For one, they can be manipulated e.g:
Publicly place a large bet you'll do X at time T
Through a sock puppet/friend place a smaller bet on you doing not-X at time T+1
Allow the first bet to shift the odds against the second bet
Do X at time T and reap a small reward for your correct prediction, then do not-X at time T+1 and reap a large reward for your second correct prediction.
This method only works when you are able to change event X (e.g your scandal market), otherwise you can't use this to manipulate forecasts (e.g weather). But as humanity becomes more powerful the events we'll be able to change become larger and larger. For example, if in the future it becomes easy to use chemicals to make it rain you could:
Publicly place a large bet it won't rain at 9:00
Secretly place a smaller bet it will rain at 9:30
Make it rain at 9:30
"Make it rain" at 9:30
Which means that prediction markets become less useful as humanity progresses.
For another, they give rich people/the first people in the market/ the investor class a way to subvert democracy. E.g (from my post on bayesianism):
If the market participants think an agent has a 100% probability of killing a baby they will bet on 100%. But if they then learn that the agent will 100% kill the baby if they bet on 1%-100%, but will not kill the baby if the market is 0% they have a problem. Each individual participant might want to switch to 0%, but if they act first the other participants are financially incentivized to not switch. You have a coordination problem. Also, there might be disagreement on what the ‘moral credence’ even is. In such a scenario the first buyers can set the equilibrium and thus cause an outcome that the majority might not want.
Similarly, conditional prediction markets will also be biased towards the interests of the wealthy: https://bobjacobs.substack.com/p/conditional-prediction-markets-will?utm_source=profile&utm_medium=reader2
Also, the efficient market hypothesis seems to be unempirical: https://en.wikipedia.org/wiki/Efficient-market_hypothesis#Criticism
Also also, there is a disconnect between a prediction markets prices and it's probabilities: https://forum.effectivealtruism.org/posts/cJc3f4HmFqCZsgGJe/don-t-interpret-prediction-market-prices-as-probabilities#comments
Not to mention more mundane problems, such as dissolving disputes about resolution criteria: https://www.lesswrong.com/posts/DpDnXHcPejd9tn8R5/ambiguity-in-prediction-market-resolution-is-harmful?commentId=yGzxerJ7FyDTrmE94