What is new about prediction markets? To many, the key new idea is “crowd-sourcing”, which to many means that if you can “gamify” your problem enough, hobbyists will solve it for fun, much cheaper than if you had to hire employees. To me the key new idea is instead the “information prize”, a way to offer to pay others to find the info you want. (If they don’t find, you don’t pay.)
Wiki already made my point: The WMD case reminds us that the answer generated by aprediction market may depend on the amount of the subsidy. If the people with the best information alsohave a very high cost of supplying that information, the subsidy required toget a good prediction will be very high; a market with a lower subsidy, though it seems to be functioning properly, will actually produce poor predictions. And it may be difficult to determine howlarge a subsidy is needed to produce predictions of the desired quality.
There were subsidies to get the wrong answer in other forums, but not in the prediction markets. In prediction markets, the existence of manipulators willing to lose money to create a mistaken impression *is* a subsidy to other traders.
The failure of prediction markets regarding Iraq's nuclear nonprogram remains a major black eye. It's not that there was no information -- Here's physicist Gregory Cochran's 2002 correct analysis of the situation:
> I really wish I saw more extremely half-hearted endorsements of the conventional wisdom.
At first, I agreed with this, but then I realized that they're everywhere. Show me a crowd of people, and I will show you as many walking, talking extremely half-hearted endorsements of the conventional wisdom as you could ever want.
There is no minimum subsidy required for efficiency or for "ungamed." The attempts to game are themselves a subsidy and thus increase accuracy. http://marginalrevolution.c...
Isn't there a problem here? How will we know a market on any specific prediction is subsidized enough to give efficient predictions in a neutral, ungamed fashion? Won't badly setup trades leech off the success of "good" questions while being gamed? And how would an observer know that the markets set up by managers to test ideas are neutral? Wouldn't the same incentives to rent seek also hold for companies setting up internal prediction markets? Especially if subsidies ate required?
I thought this from Miles Kimball/Noah Smith, on how the no-trade theorem doesn't occur unless you explicitly remind traders of it, was interesting and of some relevance.
That said, yes, it's cheaper and easier to win an election than to win an armed revolution, and the collateral damage is much lower, so assuming that you would end up with the same leaders in either scenario, Democracy would strictly dominate military dictatorship. It doesn't actually achieve that standard of strict domination, as we see in cases like Turkey, but it seems to me to be at least as plausible that in developed Western nations Democracy produces better leaders than military dictatorships do on average than that it does worse on average, causing the scale to favor Democracy even more strongly.
I really wish I saw more extremely half-hearted endorsements of the conventional wisdom. Casually, I expect that these are what honest analysis would usually ultimately arrive at.
Prediction Markets “Fail” To Mooch
Wiki already made my point: The WMD case reminds us that the answer generated by aprediction market may depend on the amount of the subsidy. If the people with the best information alsohave a very high cost of supplying that information, the subsidy required toget a good prediction will be very high; a market with a lower subsidy, though it seems to be functioning properly, will actually produce poor predictions. And it may be difficult to determine howlarge a subsidy is needed to produce predictions of the desired quality.
There were subsidies to get the wrong answer in other forums, but not in the prediction markets. In prediction markets, the existence of manipulators willing to lose money to create a mistaken impression *is* a subsidy to other traders.
The failure of prediction markets regarding Iraq's nuclear nonprogram remains a major black eye. It's not that there was no information -- Here's physicist Gregory Cochran's 2002 correct analysis of the situation:
http://www.jerrypournelle.c...
It's that prediction markets analyzed the information wrongly.
Subsidy is hardly the solution, since there were large subsidies by pro-war interests to get the answer wrong.
> I really wish I saw more extremely half-hearted endorsements of the conventional wisdom.
At first, I agreed with this, but then I realized that they're everywhere. Show me a crowd of people, and I will show you as many walking, talking extremely half-hearted endorsements of the conventional wisdom as you could ever want.
There is no minimum subsidy required for efficiency or for "ungamed." The attempts to game are themselves a subsidy and thus increase accuracy. http://marginalrevolution.c...
Isn't there a problem here? How will we know a market on any specific prediction is subsidized enough to give efficient predictions in a neutral, ungamed fashion? Won't badly setup trades leech off the success of "good" questions while being gamed? And how would an observer know that the markets set up by managers to test ideas are neutral? Wouldn't the same incentives to rent seek also hold for companies setting up internal prediction markets? Especially if subsidies ate required?
I thought this from Miles Kimball/Noah Smith, on how the no-trade theorem doesn't occur unless you explicitly remind traders of it, was interesting and of some relevance.
You beat me to it.
That said, yes, it's cheaper and easier to win an election than to win an armed revolution, and the collateral damage is much lower, so assuming that you would end up with the same leaders in either scenario, Democracy would strictly dominate military dictatorship. It doesn't actually achieve that standard of strict domination, as we see in cases like Turkey, but it seems to me to be at least as plausible that in developed Western nations Democracy produces better leaders than military dictatorships do on average than that it does worse on average, causing the scale to favor Democracy even more strongly.
I really wish I saw more extremely half-hearted endorsements of the conventional wisdom. Casually, I expect that these are what honest analysis would usually ultimately arrive at.
Do you think democracy has some other value?