Prediction markets are financial markets, but compared to typical financial markets they are intended more to aggregate info than to hedge risks. Thus we can use our general understanding of financial markets to understand prediction markets, and can also try to apply whatever we learn about prediction markets to financial markets more generally.
I basically agree, you need the open market to find the elite 2% in the first place. You can’t just go hire the elite forecasters, that’s like saying, instead of having the stock market, simply let the good stock pickers allocate capital.
What this does seem like evidence for is that prediction markets should try hard to eliminate caps on activity. Ideally the elite 2% makes money and starts doing even more trading on the site. You could end up with the marginal dollar being allocated by one of the elite 2%. As opposed to the sort of market where each person has a similar amount of influence.
Mellers and Tetlock founded a company (Good Judgment Inc) that sells forecasting services to the private sector. As such they have an obvious financial interest in the outcome of this research. This doesn't appear to be disclosed in the "Declaration of competing interest" in the paper (although in fairness I can't read the entire statement).
How is it that stock markets function to direct investment in a socially useful way. The overwhelmingly large fraction of stock transactions involving transfer of preexisting shares from one owner to another. Markets rise because market participants have more money to use for this purpose over time. More money per share means a higher price. I did a crude look into this idea and it seems to hold water.
Jesus fucking Christ, how long can we dick around about this. It's as simple as this: you want reliable prediction markets for issues that matter and will be used to make important decisions then you need to eliminate rules that limit market size/investor position size etc.
The stock market is supposed to select its own elites! Whoever made profit trading previously, now has that much more money to spend on their trading in the future. A trader that is consistently more accurate than others will acquire money (and, therefore, influence) at an exponential rate with a higher exponent than the other traders. Given enough time, the most accurate traders will compound their wealth so much that they crowd everyone else out.
I wonder if the prediction markets the paper analyzed simply hadn't run long enough or didn't involve enough real money for this effect to be dominant. Perhaps if that effect is dominant, there is no advantage to selecting the top 2%.
Holbo was trying to argue that Hayek was more enthusiastic about Nietzchean elitism than any classically liberal egalitarianism, but my take was on the opposite. He was posing as a utilitarian (in ways that could be more suited to elitism), but was actually only willing to endorse relatively deontological classical liberal conclusions. He allowed for the theoretical possibility that the people whose freedom was most useful to society could be the only ones permitted it, but dismissed out of hand the possibility of actually identifying such people. I think he had no interest in whether that identification was actually possible. Here you are explicitly acknowledging it as an option while listing out your misgivings over the possible corruption of such a process.
Licenses for floor trading on the NYSE sell for $40k, and as recently as 2005 were capped at a certain number. In practice people who don't have some licenses are clearly able to buy stocks anyway. The above suggests maybe that's a bad idea. A flat fee to participate at all certainly seems like it would clear out some of the dumb money.
I basically agree, you need the open market to find the elite 2% in the first place. You can’t just go hire the elite forecasters, that’s like saying, instead of having the stock market, simply let the good stock pickers allocate capital.
What this does seem like evidence for is that prediction markets should try hard to eliminate caps on activity. Ideally the elite 2% makes money and starts doing even more trading on the site. You could end up with the marginal dollar being allocated by one of the elite 2%. As opposed to the sort of market where each person has a similar amount of influence.
Mellers and Tetlock founded a company (Good Judgment Inc) that sells forecasting services to the private sector. As such they have an obvious financial interest in the outcome of this research. This doesn't appear to be disclosed in the "Declaration of competing interest" in the paper (although in fairness I can't read the entire statement).
How is it that stock markets function to direct investment in a socially useful way. The overwhelmingly large fraction of stock transactions involving transfer of preexisting shares from one owner to another. Markets rise because market participants have more money to use for this purpose over time. More money per share means a higher price. I did a crude look into this idea and it seems to hold water.
https://mikealexander.substack.com/p/looking-at-the-stock-market-in-terms
Jesus fucking Christ, how long can we dick around about this. It's as simple as this: you want reliable prediction markets for issues that matter and will be used to make important decisions then you need to eliminate rules that limit market size/investor position size etc.
Short of that it's just a fun game.
The stock market is supposed to select its own elites! Whoever made profit trading previously, now has that much more money to spend on their trading in the future. A trader that is consistently more accurate than others will acquire money (and, therefore, influence) at an exponential rate with a higher exponent than the other traders. Given enough time, the most accurate traders will compound their wealth so much that they crowd everyone else out.
I wonder if the prediction markets the paper analyzed simply hadn't run long enough or didn't involve enough real money for this effect to be dominant. Perhaps if that effect is dominant, there is no advantage to selecting the top 2%.
This reminds me of Crooked Timber on Hayek:
https://crookedtimber.org/2013/05/20/o-upright-judge-is-hayek-like-nietzsche-or-not/
Holbo was trying to argue that Hayek was more enthusiastic about Nietzchean elitism than any classically liberal egalitarianism, but my take was on the opposite. He was posing as a utilitarian (in ways that could be more suited to elitism), but was actually only willing to endorse relatively deontological classical liberal conclusions. He allowed for the theoretical possibility that the people whose freedom was most useful to society could be the only ones permitted it, but dismissed out of hand the possibility of actually identifying such people. I think he had no interest in whether that identification was actually possible. Here you are explicitly acknowledging it as an option while listing out your misgivings over the possible corruption of such a process.
Licenses for floor trading on the NYSE sell for $40k, and as recently as 2005 were capped at a certain number. In practice people who don't have some licenses are clearly able to buy stocks anyway. The above suggests maybe that's a bad idea. A flat fee to participate at all certainly seems like it would clear out some of the dumb money.