The purpose of any price-based system is to communicate knowledge, not necessarily insider knowledge.
There are actually two theories on insider knowledge. One states that allowing insider trading is beneficial, as it allows prices to better match the underlying reality, the other states that this discourages non-insider trading, which actually makes the prices worse. Stock markets lean heavily towards the second theory, while prediction markets seem to be leaning towards the first.
Why would encouraging non-insider training be desirable in the first place, other than to create a more high-status form of gambling, with higher spouse acceptance factor than smoke-filled room poker games? People with no inside knowledge[0] are just trading on vibes, how is that useful for the economy?
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[0] - Or external knowledge, but actual knowledge - thinking of hedge funds stalking CEOs as they fly in private jets, or counting cars in parking lots from satellite photos, to get some probability estimates on factors actually relevant to the performance of a business and possible future events.
>the other states that this discourages non-insider trading, which actually makes the prices worse
This theory is fundamentally not credible, the other side of any trade you make on the stock market is essentially always going to be vastly more sophisticated than you. Insider trading makes zero difference to the end-user.
The credible argument against insider trading is that it's a form of theft. You are making trades based on information which does not belong to you, and which you have an obvious duty to protect. You are essentially stealing from the people you work for.
Stock markets also want to keep executives honest. When the insider can affect the outcome, it creates bad motives. They don't want the CEO selling a bunch of puts, then deliberately tanking the stock. Not for the other bettors, but because the institution is about business.
Prediction markets are doing a bit of that. Some won't take bets on an assassination.
In the hypothetical Anarcho-Capitalist finance world, the remedy for a breach of fiduciary duty (corporate graft / insider tips) looks more like Jim Bell than Chuck Rhoades.
To say the purpose of a market is to reveal insider information is how you say insider trading is a good thing without saying insider trading is a good thing.
There's a ton of scholarly debate about it, and at least most of the early stuff was pretty earnest. But rather than the debate becoming more refined and nuanced over time it seems to have bifurcated along partisan (or partisan adjacent) lines like everything else, similar to the Keynesian/Misesian divide.
Yes. And indeed, when aggregated and averaged across all betters, nobody makes any money.
The question isn't what percentage of bets resolve to no, but whether there is a consistent bias in the prices away from the fair price, which has an expected value of 0, and what direction that bias is in.
They're far from facts, but have an important advantage over most other sources: the bettors are motivated to predict truth.
News sources are motivated to get clicks, to appeal to certain audiences, and to retain tribal customers. None of these create incentives for truth. You can seek out smart, well-informed and principled journalists who will prioritize truth-seeking over money-making. There are some. But the fact remains you are relying on character to override incentives. With prediction markets, incentives and truth are naturally aligned. This makes them a powerful and valuable resource imo, even if there is a lot of scumminess that comes along for the ride. The insiders, more than anyone, are contributing to the truth signal.
on the other hand, similar to that one old assassination page, where you bet on the death date of people, it might encourage someone to make an event happen and thus fabricate the insider knowledge if the price is high enough.
So the feedback from prediction market turns around, so you can essentially buy events if you put enough money in.
They are motivated to pick what they believe is most likely to happen. The develope their idea of what is most likely to happen for the news. The reporters use their bets to wrote stories predicting what will happen.
The purpose of prediction markets is to communicate insider knowledge.
The purpose of any price-based system is to communicate knowledge, not necessarily insider knowledge.
There are actually two theories on insider knowledge. One states that allowing insider trading is beneficial, as it allows prices to better match the underlying reality, the other states that this discourages non-insider trading, which actually makes the prices worse. Stock markets lean heavily towards the second theory, while prediction markets seem to be leaning towards the first.
Why would encouraging non-insider training be desirable in the first place, other than to create a more high-status form of gambling, with higher spouse acceptance factor than smoke-filled room poker games? People with no inside knowledge[0] are just trading on vibes, how is that useful for the economy?
--
[0] - Or external knowledge, but actual knowledge - thinking of hedge funds stalking CEOs as they fly in private jets, or counting cars in parking lots from satellite photos, to get some probability estimates on factors actually relevant to the performance of a business and possible future events.
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>the other states that this discourages non-insider trading, which actually makes the prices worse
This theory is fundamentally not credible, the other side of any trade you make on the stock market is essentially always going to be vastly more sophisticated than you. Insider trading makes zero difference to the end-user.
The credible argument against insider trading is that it's a form of theft. You are making trades based on information which does not belong to you, and which you have an obvious duty to protect. You are essentially stealing from the people you work for.
Stock markets also want to keep executives honest. When the insider can affect the outcome, it creates bad motives. They don't want the CEO selling a bunch of puts, then deliberately tanking the stock. Not for the other bettors, but because the institution is about business.
Prediction markets are doing a bit of that. Some won't take bets on an assassination.
In the hypothetical Anarcho-Capitalist finance world, the remedy for a breach of fiduciary duty (corporate graft / insider tips) looks more like Jim Bell than Chuck Rhoades.
https://en.wikipedia.org/wiki/The_purpose_of_a_system_is_wha...
Compare and contrast https://www.astralcodexten.com/p/come-on-obviously-the-purpo...
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and facilitate insider trading, like how do people miss that part
To say the purpose of a market is to reveal insider information is how you say insider trading is a good thing without saying insider trading is a good thing.
There's a ton of scholarly debate about it, and at least most of the early stuff was pretty earnest. But rather than the debate becoming more refined and nuanced over time it seems to have bifurcated along partisan (or partisan adjacent) lines like everything else, similar to the Keynesian/Misesian divide.
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Yes. And indeed, when aggregated and averaged across all betters, nobody makes any money.
The question isn't what percentage of bets resolve to no, but whether there is a consistent bias in the prices away from the fair price, which has an expected value of 0, and what direction that bias is in.
I hate that many people or even the news and scientists have already started to see the odds of prediction market as fact.
I'm sure in the near future, policy decisions or war strategies will be decided by prediction markets' odds, if they are not already being used.
They're far from facts, but have an important advantage over most other sources: the bettors are motivated to predict truth.
News sources are motivated to get clicks, to appeal to certain audiences, and to retain tribal customers. None of these create incentives for truth. You can seek out smart, well-informed and principled journalists who will prioritize truth-seeking over money-making. There are some. But the fact remains you are relying on character to override incentives. With prediction markets, incentives and truth are naturally aligned. This makes them a powerful and valuable resource imo, even if there is a lot of scumminess that comes along for the ride. The insiders, more than anyone, are contributing to the truth signal.
> the bettors are motivated to predict truth.
But also motivated to bend the truth to their bet as the journalist in Israel found.
on the other hand, similar to that one old assassination page, where you bet on the death date of people, it might encourage someone to make an event happen and thus fabricate the insider knowledge if the price is high enough.
So the feedback from prediction market turns around, so you can essentially buy events if you put enough money in.
They are motivated to pick what they believe is most likely to happen. The develope their idea of what is most likely to happen for the news. The reporters use their bets to wrote stories predicting what will happen.
See the loop?
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See also: https://mason.gmu.edu/~rhanson/futarchy.html