Bad News: Kant & Bets

The famous philosopher Kant saw bets as encouraging thoughtfulness and discouraging self-deception:

The usual touchstone of whether what someone asserts is mere persuasion or at least a subjective conviction, i.e., firm belief, is betting. Often someone pronounces his propositions with such confident and inflexible defiance that he seems to have entirely laid aside all concern for error. A bet disconcerts him. Sometimes he reveals that he is persuaded enough for one ducat but not for ten. For he would happily bet one, but at ten he suddenly becomes aware of what he had not previously noticed, namely that it is quite possible that he has erred. (Critique of Pure Reason, A824/B852; more; HT Tyler)

If we were to see life out there in the universe, at or below our level of development, that would be bad news regarding our future.  It would suggest that more of the great filter that stands between dead matter and expanding civilization lies ahead of our place on that path. Similarly, it is bad news to hear that Kant had a high opinion of the accuracy advantages of bets.  Let me explain.

I hope for a future where betting markets are a commonly used mechanism to create official consensus beliefs, but I must explain the fact that they are not already often used this way.  What barriers have stood in their way? One barrier is widespread skepticism about bet accuracy. But hearing of Kant’s well-known position reduces my estimate of this barrier; many respected people have long respected bet accuracy. So I must therefore increase my estimate of the difficulty of other barriers.  Alas, since skepticism about accuracy seems one of the easiest barriers to overcome, via track records and lab experiments, I must increase my estimate of the overall difficulty of my goal.  I’ll keep trying though.

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  • Douglas Knight

    “Kant’s well-known position” would be bad news, but that you just heard of the position is pretty strong evidence that it is not well-known. In fact, the opportunity to invoke Kant probably more than makes up for “well-known Kant’s position.”

    • gwern

      I’d never heard of anything close to this quote from Kant; certainly it’s never mentioned in the usual texts.

      Personally, if I were Hanson, I would be far more bothered by the fact that Americans used to bet all the time and prominently on political elections but no longer do so:

      Compared to an equivocal thing like Kant’s endorsement (which has plausible upsides as you point out), such abandonment is a huge piece of discouraging evidence.

    • Robin Hanson

      gwern, agreed, that is more discouraging as evidence.

  • Ray

    The barrier to overcome then is the stigma attached to gambling in general. The knee jerk reaction by many will be to blame the religious right or something, but as already mentioned, America used to bet on elections when the nation as a whole was more religious so it would seem doubtful religious taboos are the cause.

    • Jeffrey Soreff

      Does anyone have any data on historical changes in betting?
      I have the cultural impression of betting – at least by high status
      people on important questions – as more of a 19th century paradigm
      than a 21st century one. On the other hand, online gambling is
      common enough that I hear of various groups trying to forbid it…
      Does anyone have, or have a pointer to, real data (preferably on
      the kind of gambling-on-public-questions/events at issue here)?

    • Sister Y

      The fact that gambling gets most people high is a problem for the project of using bets to get closer to truth.

  • John Fast

    Yes, there are many barriers to betting markets, and the biggest one is probably that most people are not really truth-seekers. I read a paper about that once, and recommend it to you.

  • Nancy Lebovitz

    Tentative theory: people don’t like risking being proven wrong about important matters.

    It’s a very tentative theory, and is probably waiting for a comprehensive theory of what people are naturally inclined to bet on and not bet on. There may be cultural variation for that.

    My feeling is that people like betting because they want the chance to feel that they’re lucky– the universe sees their goals as special and helps them.

    Betting markets de-mythologize the process.

  • sark

    Wow, nice analogy! I want to think that it’s also useful, but I suspect I suspected all along that anti-betting was not due to skepticism of bet accuracy. Or is this hindsight bias?

  • Robert Koslover

    1. Most ideas are bad ideas, even when they come from very smart people. But very smart people typically generate a handful of good ideas, among their basketful of bad ones.
    2. Most good ideas are actually not original. But that doesn’t mean they aren’t good.
    3. Many good and original ideas are not widely-recognized as good at the time. In fact, many are ridiculed or ignored, but may be eventually rediscovered and acclaimed, often without any credit ever going to those who came up with them first.
    4. Just because your idea may not even be original, or may not be widely recognized, does not necessarily mean it is a bad idea, or that it will not eventually receive recognition.
    Despair not!

  • Tyrrell McAllister

    Who would disagree with Kant’s quote, if it were shown to them without attribution? Did learning that Kant made this claim really change your estimate of the number of people who would agree with it by that much?

    I thought that almost all opposition to prediction markets had to do with fears about deep pockets gaming the system, or a belief that non-betting experts do better than betting non-experts, even though the betting makes the non-experts more cautious than they would have been otherwise.

    But Kant’s quote says nothing about those things. It’s talking about an individual, not a market.

  • Nancy Lebovitz

    Another angle: is it plausible that betting markets don’t offer a good work/fun/money/bragging rights balance?

    It’s something I’m poking at because I don’t gamble, but betting needs to be enough fun, even for people who aren’t likely to win enough to balance the effort they put into betting.

  • Steve Sailer

    People want to bet about things that are inherently unpredictable, such as who will the Super Bowl, a subject that has been carefully contrived to be as unpredictable as possible. In

    In contrast, people find things that are highly predictable to be boring and depressing. I’ve been following social statistics for 39 years. I make predictions all the time that racial gaps will continue to look in the future like they’ve looked for the last 39 years, just different in scale due to demographic change. Who wants to bet me?

  • Ray

    My own opinion is that most people who really enjoy gambling on a regular basis fit a certain stereotype whether the stereotype is accurate or not.

    Gamblers are seen as reckless and losing the family’s paycheck at the casino. When legalized gambling is discussed I always hear about the negative externalities of people squandering so much money, etc. (Don’t know the validity of those arguments, that’s just one of the more common aspects to come up when gambling is the issue.)

    So “trusting” predictive markets to tell us anything of value is by association reckless, and a little foolhardy. Or so the thinking goes.

    I guess we could call it a heuristic that people lean on: gambling = reckless behavior = all gambling is bad. Predictive markets = gambling = reckless behavior, etc. The average person just doesn’t have the capacity to get that far off of the mental couch.

  • Gene Callahan

    Here’s a bet I’d make if we can figure out a way to run it: if the Mesopotamians, Egyptians, Chinese, and Indians had devised an IQ test in, say, 2500 BCE, the Europeans would have tested as an “obviously” less intelligent race. And when they tested again in 2000 BCE, they would have confidently predicted this backwards race would always be “way behind” them.

    • Mike

      It takes real courage to offer to bet on an untestable statement.

  • William H. Stoddard

    Well, obviously people would not want to rely on bets. Being asked to bet reduces ambiguity about the strength of your commitment, and thus makes it harder to exaggerate how serious you are at low cost. Salespeople have a traditional saying, “Money talks, bullshit walks”—and many people have reason to fear a more reliable discriminator between the two.

  • daedalus2u

    The problem with trying to use a betting market to accomplish anything is the same problem that the stock market and that any market has. If the market is based on something of enough value for people to care about their bets, then people will care enough about the outcomes to “game them”, just as in the stock market.

    The betting market becomes not about the ideas being bet on, but about the bets themselves and how the successful bettors manipulate the unsuccessful bettors so as to convince them to make bad bets.

    Sort of like politics. Voters “bet” on candidates who they expect to represent their interests, but the candidates lie, distort their record, and make promises they won’t keep.

    Betting markets will never work for the exact same reason. Unless you put sufficient controls on the system, the most successful bettors will be those that game the system. Those successful bettors will then have the resources to ensure that the system allows the type of gaming the system that they find successful. Same as in politics.

    • Ray

      I understand how you got to your conclusion but you’re mistaken in that the stock market is an ongoing entity with no defined end to the betting window.

      But in a predictive market where there is a defined window of time the event is over and the bettors are in or out.

      The obvious reply to that is that traders often base their trades on a single event such as an unemployment report, but that is false as well. They are placing trades on larger, ongoing entities – even options since they are based on things that do not expire as the option does.

      Think of ways that the stock market is “gamed” (as opposed to all of the ways that people think it’s just not fair) and try to apply that scheme to a single event with a defined window of time. The parallels that you imagine just don’t emerge.

      What kind of scheming or gaming we could expect would be fattening bets up on the wrong candidate or choice in order to skew the odds. This could be avoided with strictly controlled transparency I believe. If not transparency rules, then some kind of catch that would keep large amounts of money switching choices at that last second.

      The other way that comes to mind would be for the candidates to use their own money (surreptitiously of course) to bet on themselves. This would be the equivalent of giving candidates access to massaging the Gallop polls.

      Or their close supporters. Ted Turner and George Soros would bet millions upon millions on every Democrat candidate regardless of their actual chances of winning since they would be spending that amount anyway in their normal campaign support. This would be another argument for transparency I believe.

    • daedalus2u

      Ray, I think you have a halcyon view of markets as only ways for willing buyers and willing sellers to transfer goods and services. That is something that markets are set up to try and accomplish. Markets have some degree of inefficiency, and so there are market makers who purport to increase the efficiency of the market and extract a fee for doing so. There are also the gamers, who try and decrease the efficiency of the market to increase the amount they can extract from it. Participants can play multiple roles in the same market. Decreasing the transparency of the market makes it less efficient and increases the amount that middlemen between the ultimate buyers and sellers can extract.

      You can’t have transparency when people are free to lie. In the case of election of candidates, are you going to hold candidates to actually being truthful? What sanctions would you impose for candidates who lie? What about candidates who say things which are factually untrue but which they believe? What about the now unlimited ads that can be paid for by anonymous corporations? Who will fund the research into the truth of them? Who will fund the dissemination of the actual facts behind the ads?

      When information is not free and transparent, people wanting to game the system can subsidize the dissemination of information (true or false) that manipulates the society in the direction they want, see for example Fox News. When lies are repeated often enough, some people believe them. The Tobacco Industry did that for a long time, AGW deniers are doing it now, some Birthers are still doing it, there may be fewer of them, but some are still adamant. It was centuries of false Blood Libel against the Jews that set the stages for the Holocaust. Why have no conservatives called Sarah Palin on her blood libel against President Obama of “Death Panels”? The reason is because her lie helps conservatives. Conservatives have no interest and no incentive in disseminating facts that hurt their causes and so they don’t.

      When the cost of disseminating false information to skew the system is less than the profit made from that skewing, the rational actor will disseminate false information to skew the system. Conservatives are not being irrational, they are being completely rational. They can’t accomplish what they want via truthful transparency so they lie.

      • Ray

        More to the point however, the stock market does not parallel how predictive markets would work as you seem to acknowledge now.

        As for the rest of your comment, no offense, but it seems to be nothing more than your political rant so I don’t know what to say. You’ve managed to fit in anti-Semitism, Sarah Palin, Fox news, conservatives, tie them all together and somehow this is relevant to the post?

        So getting back to the subject at hand, predictive markets would be vulnerable to people trying to skew the information, but not prohibitively so. And their context to securities markets simply doesn’t exist in the manner of which you’ve suggested.

  • scott

    Hanson – I suspect dark epistemology. In the same way that putting the laws of thought in conflict with a person’s beliefs will cause the person to reject the laws of thought, testing a person’s beliefs with bets causes the person to reject betting.

    That is, they see the contradiction:

    “I believe my sports team will win” and “I won’t bet a hundred dollars that my sports team will win”.

    Our hope is that they resolve the contradiction by examining the first statement. They instead resolve the contradiction by examining the second statement, and rationalising a bunch of ways around it: “The house always wins”, “I’m not a gambling man”, “This is too important to wager mere money on”, “Gambling is a sin”, “Transaction costs are too high”, etc.

    This line of thought leads me to believe that widespread skepticism about bet accuracy is as widespread as you believed; and that it is the main barrier – but that overcoming bet skepticism is going to be harder than expected.

  • Tomasz Wegrzanowski

    Alas, since skepticism about accuracy seems one of the easiest barriers to overcome, via track records and lab experiments, I must increase my estimate of the overall difficulty of my goal.

    So are track records actually good, except for the handful of very high volume short term prediction markets like presidential elections?

  • Tyrrell McAllister

    Ted Turner and George Soros would bet millions upon millions on every Democrat candidate regardless of their actual chances of winning since they would be spending that amount anyway in their normal campaign support. This would be another argument for transparency I believe.

    Hanson argues that betting markets are especially robust against this kind of manipulation, even without transparency. If manipulators skew the odds, then that will encourage knowledgeable people to join the market. To these knowledgeable people, those skewed odds represent free money, which they can snatch up by taking the bets at the skew odds. This, in turn, will pull the market price back towards the correct value.

    Indeed, the new price might be more accurate than if the manipulators hadn’t gotten involved, because then the experts wouldn’t have had as much incentive to participate, so the market price wouldn’t have reflected their expertise.

    • Ray


      I’m not prepared to argue too strongly against Robin on that since I’ve barely dipped my toe in the pool so to speak, but the scenario you described above only works with a very high rate of participation.

      So it seems that without that very large volume of participants, big money movers behind people in both parties would be more capable of skewing the information. In theory the billionaires on both sides of the political spectrum would balance each other out, but I’m not so sure it would work like that in practice.

      I might be wrong, and I think transparency in and of itself is problematic, and creates its own set of problems in that enforcing it the bureaucrats would attempt to put limits with those transparency rules. This would of course completely nullify the purpose of predictive markets, but again, I admit I’m speculating.

      • Tyrrell McAllister

        the scenario you described above only works with a very high rate of participation.

        I expect you’re right about high participation being necessary to counteract the effects of manipulators on the market. Part Robin’s point is that this is a problem that solves itself. The presence of manipulators encourages participation. If you think that Big Oil is skewing the market to give too-low odds to human-caused climate change, then you think that there is free money to be had by buying those bets.

    • Hopefully Anonymous

      Predictive markets about elections is a different set of problems than predictive markets on coming existential threats, for example.
      That we don’t already have robust and innovative predictive market designs for a whole bunch of things that aren’t even repugnant isn’t much a of a wicked problem, just a silly problem.

      The problem with political market manipulators is that its often smart to bet on the side of a powerful political market manipulator -sort of like not betting against the casino.

      • Tyrrell McAllister

        The problem with political market manipulators is that its often smart to bet on the side of a powerful political market manipulator -sort of like not betting against the casino.

        Could you be more specific about what problem with prediction markets you are describing?

        I don’t follow your analogy. It’s not wise to bet against the casino because the casino makes its bets based on an accurate knowledge of the odds (a knowledge that is better than yours if you were tempted to bet). But manipulators make bets as though the odds are different than the manipulators really think. Otherwise, they wouldn’t be manipulating the market; they would be helping it be more accurate.

        Or do you just mean that it wouldn’t make sense to take a bet offered by someone more knowledgeable than you? I grant that anyone who can influence the outcome has access to special knowledge, since they probably know their intentions better than you do.

      • Hopefully Anonymous

        “Or do you just mean that it wouldn’t make sense to take a bet offered by someone more knowledgeable than you?”

        A combination of more knowledgeable and more powerful -they factor in the existence of other existing and potential market participants when they make a decision to manipulate.

  • daedalus2u

    That analysis ignores the value of the effect of those betting markets on systems outside the betting market. If I can bet $1 in a global warming market and by skewing that market make $1000 on my fossil fuel holdings, I would be a fool to not place large bets on what ever increased the net present value of my fossil fuel holdings.

    Not surprisingly, that is what AGW deniers are doing. Spending money on disinformation, skewing public opinion on AGW and by doing so increasing the net present value of their energy assets.

    • Tyrrell McAllister

      That analysis ignores the value of the effect of those betting markets on systems outside the betting market.

      I’m not sure what you mean. The effect you describe (deep pockets skewing betting markets to make their pockets deeper) is precisely the effect that the analysis is considering.

      • daedalus2u

        If I can bet $1 and skew the global warming market such that my fossil fuel assets increase in value from $100 to $500, then I have made a profit of $399 for each $1 that I bet. I may lose that $1, but so what? The person without fossil fuel assets doesn’t have the assets to back up bets comparable in value to my fossil fuel assets. I can spend $10 here, $25 there, and I am still way ahead of the people who are trying to protect the environment which is not monetized and which they don’t own anyway.

  • Ray

    More on manipulators:

    In short term scenarios such as elections, big money backers of both parties could and would throw in huge amount of money in order to make it seem as if the odds were in their favor. That they might lose their money is irrelevant since they would be spending X amount of millions in a normal campaign anyway. To them it’s just another expense. If it pays off then it’s a bonus, if not, it’s just another sunk cost of the operation.

    Longer term windows involving things like pollution or global warming would definitely work differently.

  • TGGP

    Robin, you should add an update to the main body of this post with gwern’s link.

    daedalus2u, you say the problem exists in all markets, so can you provide evidence of it in futures markets? Those are the ones Robin usually uses as analogies.

    “The person without fossil fuel assets doesn’t have the assets to back up bets comparable in value to my fossil fuel assets.”
    Someone betting the wrong way is essentially offering free money to anyone willing to put up assets against them. There is no person on earth rich enough to outweigh the combined assets of all speculators willing to take their money.

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  • Mike Wengler

    Good post, you do have to explain the limited use of prediction markets so far.

    The success of prediction markets is real so far. Stock markets, bond markets are prediction markets. The growth of commodity markets, options markets, effectively markets for billion dollar bets mediated by wall street firms, etc etc. do need to be counted as successes. Presumably their existence speaks to where it is really possible to draw value from prediction.

    When I contemplate betting in new prediction markets, I ask myself why I would put the effort in to making a well formed and rational prediction. My choice is to do my job, to take a narrow set of data and develop new algorithms for use primarily in the support and creation of wireless portable devices. So far, working always wins over figuring out how I would bet in prediction markets.

    And that seems to make sense. Prediction markets are a zero-sum game. Work is not, when I have created something it can then be used by other people to do stuff they want to do. So perhaps one flaw with prediction markets is that until everything useful is already invented, the kinds of efforts required to do well in prediction markets will be competed away into development of new software and algorithms.

    And that non-zero-sumness is also a feature of many of the successful prediction markets that already exist. The stock market I have read has returned an average of 7% a year for 150 years or something. Presumably you could get the same effort we see in predicting stocks in other prediction markets by the simple expedient of subsidizing them to the tune of 7% per year for 100 years. At 0% expected return, I have better things to think about.

    There do seem to be some other predictino markets that are not as obviously providing a non-zero sum. Do commodity markets provide a consistent return? It is possible that they do, since these are essentially futures markets. Has anybody ever studied whether there is an average return to buying commodities now for delivery in 3, 6, or 9 months? There could be, it seems, the producers might be willing to pay, on average, the bettors, in return for cash now, for a laying off of risk.

    What about options markets? On the one hand, it looks zero sum since there are as many long as short positions, as many call contracts sold as bought. But the bid-ask and laying-off strategies may mean that it is not zero sum: market makers may make money on the bid-ask spread while market participants may generally trend towards being long the underlying stock rather than short the underlying stock, thus “importing” some part, at least, of the 7% stock return. And the market makers don’t lose that 7% since they can lay off their risk by being long the underlying stock themselves.

    SO fantastic blog post, what explains the difference between prediction markets that have succeeded and those that haven’t? Some fruitful areas to look at: successful prediction markets I can think of are subsidized by many % of nominal per year, AND the kind of effort that averages a 0% return in a prediction market averages a significant return when harnessed towards producing new algorithms (and presumably towards doing other sorts of intellectual creation).

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