This reminds me of how people who worked for Facebook despite it being obvious that nobody with moral fiber should work for Facebook are more listened to when criticizing Facebook than people who realized the obvious to begin with. It's such a farce.
But it also reminds me that prediction markets are one of those things that are transparently a terrible idea because they create problematic incentives, and not just because people ruin their lives gambling. If you can make $1 million by triggering something that or getting somebody to trigger something that basically has no business happening, whether it's stripping on the Senate floor, causing a volcano to erupt, or crops yields to reduce by secret herbicide dusting, or any other bologna, somebody will do it if the balance makes it worthwhile. Likewise, they give people reasons to vote that are negative - "I have $100 on prop XYZ passing, of course I support it." (Though side note: the ubiquity of betting being super terrible for society because people can't handle gambling at all is one of those things that I've been super surprised by that seems to have good evidence now. I guess because gambling mostly just doesn't do it for me to the degree that I find it shocking just how addictive it is and just how much it exacerbates bad situations for many people.)
And I can't see how there's any benefit that's bigger than the problems. If prediction markets are better than Nate Silver, why is it worth all the problems to society for that extra accuracy margin? I can see why individual actors might find value, but I don't see how their value accrues to society in any way that makes it worth it.
> And I know exactly what that costs: Before I was an economist, I was a teenager working for bookies on Australian racetracks. I once took five dollars from a coworker who “didn’t bet” and put it on number one in the next race. Six months later he was betting thousands a race and stealing from his own family. Compulsive gambling destroys lives — and the families it wrecks have no lobbyists.
> I don’t claim to know the exact right policy answer for America. But I know we never even had a grown-up debate.
If you've seen the destruction caused by something and can't figure it out, maybe you have a problem?
And let's be honest: the idea of "debating" things that are obvious is often one of the primary ways by which indefensible things are legitimized.
is this the author's attempt at washing their hands of the damage they've done? Smart enough to win all these prestigious economics awards and hold all these prestigious positions but too naive to be able to predict the consequences of what they've been fighting for? Things that were, in my opinion, very easy to predict, given all the regulation in place around existing markets. What does this say about the author and the field of economics? Every day we get to play the "dumb or awful?" game.
Put the same energy into championing regulation then. Don't walk away from a mess you claim to have helped create. (which the OP may indeed be doing, but it isn't clear they are, hence the chiding)
If you ever thought “prediction markets” were a good idea, you should leave economic judgement to other people. Go take up gardening or something instead. It’s a hack reference at this point I know, but it’s Idiocracy-level stuff.
I don't like prediction markets, but I think a lot of people in this thread are assuming that gambling vs. not is clear cut.
Insurance was illegal at different times in history because it was considered gambling. Ditto for commodity trading.
Even you look at the structure of a futures contact, the basics look really similar to a bet that can be traded with someone else.
The main differences are the regulatory environment, and the intention the actors in the market have.
Commodities, options, and futures are all legitimately used to hedge against future outcomes. The "gamble" (placing money on a future outcome) is a mechanism for the main goal: protection against instability.
When you look at stocks and - in particular - derivatives, it starts to look a lot closer to how gambling is structured. I'm pro stock market, but that doesn't mean I won't admit that the line between it and gambling is pretty hard to draw. It's a lot more grey than people give credit for
Prediction markets are a superior method for determining public sentiment, and understanding public sentiment is useful for many reasons. It can guide economic decisions, picking policy, etc.
Basically, prediction markets are for public sentiment what free markets are for supply and demand. They create an emergent system that balances/optimizes variables across a large domain.
Election prediction is an interesting one. The first digital prediction market on the US was election only, and it has a $500 cap. It was run by a university and had a limited scope, but it still be a surprising amount.
It did a better job of predicting election outcomes than the polls. For markets without a cap, companies have used them to have against a politician that would pass policy that's can for their business.
This doesn't mean we should have them, but there is utility. It's just not worth the trade-offs
Is their "greyness" between gambling and day trading? Sure.
Prediction markets are obviously, blatantly, gambling. There is no "greyness", we've skipped the slippery slope and gone straight to the bottom of the ravine.
> Trump Media may soon sell early access to the president’s Truth Social posts.
Think about whether the spirit of the domestic/foreign emoluments clause would be okay with this. I'm sure some will argue there's enough layers of BS in this scheme that it's totally fine.
Ethics and judgement aside, I think startup founders can learn a lot from this administration as to how "successful" people twist things in their favor. The industry is full of it.
The law only matters if there’s someone willing to enforce it. We learned from Trump’s first term that no-one is willing to enforce the emoluments clause.
>Trump Media may soon sell early access to the president’s Truth Social posts. Think about what this means. This is how the president announces war; every embassy on earth has to maintain a Truth Social account just to stay informed of American policy.
He is already so beyond the pale this doesnt even move the needle.
If they try this, multiple random people will write bots to republish everything instantly. The cash gusher they expected will turn into a trickle and the white house will look like a bunch of greedy Ferengi that lack the lobes to pull off a basic swindle. It's guaranteed to be an instant loss. I'll laugh pretty hard if they go ahead with it.
I'll admit that I still see some value in prediction markets in theory, but in practice the way they were implemented seems to have caused an order of magnitude more harm.
In retrospect their misuse as a loophole for sports gambling was an obvious outcome. Seems like every promising new technology inevitably is used for evil. Cryptocurrency is mostly used for criminals. Social media displaced more meaningful forms of connection. We're already starting to see this with AI (psychosis, slop, assisting bad actors) but I'm afraid it will get much worse.
> In retrospect their misuse as a loophole for sports gambling was an obvious outcome.
This isn't a 'benefit of hindsight' thing; a lot of people called this out in advance, just like all the other tech you listed.
We need to stop listening to the people who are wrong about everything, rather than pretending the maximalist seeking of profit with no regulation is a reasonable position. We know it doesn't work.
I guess most of my positions on prediction markets came from Scott Alexander, e.g. https://www.astralcodexten.com/p/prediction-market-faq which was posted in 2022. The implicit argument seems to be "We should come up with some way to regulate these so that it's less harmful than existing forms of gambling." I think the part that was harder to foresee was the Trump admin suddenly seizing on them as a loophole to override state regulation of sports betting. Certainly there does not seem to have been any careful consultation with prediction-market experts to determine the most robust, socially beneficial laws.
I understand that "Things would be great if they'd done it right!" is in some sense unfalsifiable. But also I think it's pretty clear that the current regime is geared solely towards maximizing the profits of prediction market companies and Trump Jr.
So I will admit the idea of "maybe you could make some guesses about the future and if you're right it's worth something" sounds appealing - like if I guessed people would get perfect nutrition by IV and not bother with eating and it came true and I made money from it, or the same about making money speculating on when the first Mars colony is founded, etc. But what I don't get, taking a step back, and never have, is what society and the world get out of having more accurate guesses about this. Even setting the obvious negatives (if you have your retirement savings sitting against a Mars colony before 2030 maybe you have some incentive to sabotage a launch in early 2029) aside, what are the positive values supposed to be? And I've never really understood this.
If we knew the COVID pandemic was coming, we could have prepared better. If we knew what AI would look like in 5 years, we could write laws for that proactively rather than reactively. The Fed could look at prediction markets to decide whether to raise the interest rate.
Basically, it depends on there being competent, good-willed people in power using them to inform their decisions. That feels like a bit of a joke right now, but things weren't always this way.
What would the COVID pandemic market have been before COVID existed, and what information would have been available to steer the market towards a useful prediction?
“Will there be another coronavirus mutation resulting in a pandemic in 2005, 2006, 2018, 2019…” doesn’t seem like it would have been helpful, except in the like two month or so window after detection and the WHO announcement when alarm bells were already going off but it still hadn’t diffused into popular consciousness yet.
It was quite clear covid was potentially a danger months before the "full outbreak". There were short news articles "in the margins" about a disease in Wuhan, with conspiracy theorists talking it up. It would plausibly have given us a month early notice. Hard to say how much that would have helped, but it might have improved the total outcome somewhat.
> We built a superior information aggregation machine for the economy
Wow, no you built an avenue for corruption, insider trading and problem-gambling, and you should have known this beforehand. Would have known it beforehand if you'd bothered to consult with non-economists.
The author was instrumental in a colleague ruining their life through a gambling addiction. Then they helped make the case for prediction markets, which also went wrong.
Their track record is not great, and I don't think they fully realise that the issue is them: the principles and axioms they rely on don't lead to good results.
> I don’t claim to know the exact right policy answer for America.
Perhaps start by reversing your positions, and throwing support behind those trying to undo the damage you caused.
I don’t think we should hold a transaction worth $5 someone did as a teenager over their head as a dark mark on their character for the rest of their life
If you're consistently wrong, then it's time to stop being a thought leader, and really examine the lens through which you view the world.
The author still thinks they were "freeing prediction markets from unnecessary restrictions", but clearly some restrictions are necessary, and totally free markets aren't actually an economic panacea. This is not really new information, so the flaw is in the thinker, not the data.
If your ideas are consistently proved harmful, acting against your instincts is a better play than continuing to trust them.
The author wrote their article--they had the chance to clarify their position. The facts remain: on multiple occasions, they have been instrumental in negative outcomes because of their support for things that we already knew were a bad idea. They should stop giving advice.
> He said that he helped build a case for it -- not that he still supports it.
I would expect that if they didn't think they were unnecessary anymore, they would have said something like "I helped build the case for freeing prediction markets from restrictions that I thought were unnecessary". Their description of the predictions being unnecessary is still stated as a present tense fact (and the entire clause is in bold-face, making it clear that it's something they want to draw attention to).
Sometimes gambling has some social value then. Isn't trading on the stock market gambling? Do you also support abolishing the stock market? What about issuing loans to someone with poor credit?
> Do you also support abolishing the stock market?
An anti-capitalist here: Yes... Oh heavens, yes. There are few things I desire more then to see all the stock markets in the world burn and never to be rebuilt. For me, people who make money at the stock market are participating in a systematic exploitation of the working classes. The siphoning of profits away from the workers who created them and earned them, and into the hands of the rich who contribute nothing, yet get everything.
What is the alternative? I'm sure there will still be trade of labor even in a socialist economy. This is assuming the labor theory of value is right, which it isn't, but I'll be charitable.
There is no need for an alternative. Trading stocks is not a necessary precondition for trading goods and services. Most of mine, and probably your businesses are done without anybody holding stocks in the stuff you are buying or selling. You can abolish the stock market, and pretty much everything stays the same... except the rich lose one (of many) avenues of systemic exploitation.
They'll just exploit you another way. At least those invested in the stock market actually have upward mobility from being poor or middle class, see Bogle heads or the FIRE movement.
Stock markets serve(d) a function as vehicles to invest in risky ventures. In other words, a way to channel investment.
In the average case scenario, removing the stock market results in rich people being the ones who can afford to fund projects, and thus owning the outcomes.
The underlying case would be for wealth concentration and therefore power concentration. Addressing that would give the working class more options to fund projects or work, more than being the right type of person in the right network to land a rich patron.
If they ever served such a function, they no longer do so. Today’s risky ventures are funded by venture capital and the results are disastrous. I propose an alternative system where you fund your risky venture by taking out a loan at your local credit union, by crowd-sourcing it, or better yet, just don’t. I think we can give risky ventures a brake for 20-100 years.
Maybe concentrate our efforts on undoing the damage this era of capitalism has wrought us, maybe starting with reinstating consumer protection, dismantling the state surveillance system, protecting against the effects of the climate disaster. If you have a good idea on any of those, run for office, or get a degree and work with your local (state funded) university on the matter.
The sucky rule about history seems to be - “is this better than what was there before.”
Equity markets can definitely be made more competitive, and being ungodly rich needs to be more expensive than it currently is.
Loans don’t work the same way as equity investments, because loans are essentially low risk tools. They have a fixed payoff every month/year, whereas something like an expedition or new product launch can recoup its investments only post a certain period, if at all.
As a result loans originators don’t invest in high risk ventures.
This is a rule of thumb, there are many instruments you can create which will fill the gap.
We definitely need more competition and user protection in markets (and in general). The pendulum has swung very far in favor of firms in the US, and that needs to be balanced.
Good luck with that pause. Things like the climate disaster require risky ventures these days like carbon sequestration at scale, you can't undo it just by doing the same things as today, which is basically what you're advocating for, upholding the status quo, for 20 to 100 years. You'll probably say that's not what you mean but that's what the outcome will become.
Day trading is gambling. Buy-and-hold is investing. Algorithmic micro-trading is investing, despite looking like gambling. It's about whether there's an immediate dopamine release or not.
Did he argue for the current implementation, or only for deregulation relative to the previous state? As I understand it, up until recently they were totally illegal.
That is not so simple. The lottery is gambling, but the lottery doesn’t trigger the dopamine receptors like slot machine or scratch tickets (also gambling) do. This is because the response is too far behind the behavior in time (hours or days) for it to trigger the same addictive behavior as slot machines and scratch tickets where the behavior-response cycle is in seconds.
Now I don‘t consider day trading to be gambling (even though it is packaged and marketed to appeal to and sell to gambling addicts). For it to be gambling, it would need to be a game.
It is something far more sinister and far worse then gambling. I consider it exploitation, or more accurately capitalist exploitation. This also applies other aspects of the stock market, even the ones which are not marketed to exploit gambling addicts, including investment backed retirement funds [401(k) in the USA], index funds, and publicly traded companies. To me, all these things are equally bad (well actually the retirement funds may be the most sinister of the bunch) even though day trading might have the ugliest manifestation. These are all exploitation of the working class.
Look what they've become? You mean look at what they have been from the get go?
The corrupting influence they are having on society has been obvious from the start and was predicted by anyone with any familiarity of the effects of "traditional" gambling on people. Except the author apparently, because they had seen precisely what gambling can do to people and still pushed this.
"The dream was that markets would surface useful information"
The dream was that the markets would make the people who owned them stupid amounts of money like any casino owner. Pretending otherwise is self-delusion at it's finest but the author seems good at that.
My position is that prediction markets are bad and harmful but so are all mainstream stock markets. They're all prediction markets. People collaborate to pump up the value of specific assets or contracts, leading to undesirable outcomes.
It would be dishonest to ban prediction markets without banning stock markets.
The best which can be done, under the current system, is to punish unfair information asymmetries, which is practically impossible to do reliably... And even if we could find a way to punish it reliably; what would happen is that most rich people would end up in jail. Information asymmetry is almost never fair and it's how people make big money these days.
I think the best solution is to create conditions to allow people to earn big money in other ways; ways which create value. If there were other ways to make big money besides unfair information asymmetry, then skilled people would find it easier to do that instead...
Unfortunately, skill/talent does not allow you to gain an information advantage; only social connections do. So the current system is really bad in terms of wasting specialized skills/talents... Current system takes talented people and re-orients them towards adversarial games of deception where they're just a number in a sea of increasingly desperate untalented people who are better at playing the deception game... And the talented folks eventually lose their talents through lack of practice; they're so focused on learning ways to trick people and algorithms, that their actual talents atrophy; by the time they become well known, if they ever do (most don't), they've become mediocre; corrupted by their participation in the process of trying to become relevant; their main talent always takes the back seat.
I disagree with this - plenty of people treat stock as just wanting a share of profits/ownership and not as value speculation. That said, I do think we should be making rules that devalue speculation, perhaps turn-based trading since there's no particular benefit to the world from high frequency trading or value discovery happening in 5 milliseconds instead of 5 seconds, and making it so that being publicly traded requires not having controlling owners or preferential share classes.
Edit: and with prediction markets you don't own anything. Even with commodity futures you can end up having to take possession of cows or something.
You could ban stock market trading but the market itself is a very useful vehicle for investment and has democratized wealth and retirement planning to some extent.
How to ban trading? You could heavily addon tax profits from short term trading under 3 months at 90% say, tapering to zero as time increases maybe 2 years. With zero ability to offset any losses with other tax forms.
Shorts, options et. included unless it can be proven as part of a bigger trade or insurance but then apply to bigger trade.
This could also apply to market makers making that closer to a public service.
I feel like democratizing wealth and retirement has become harmful.
Now we have a small number of extremely influential people who are essentially bribing and propagandizing the masses into voting them more money... Each win gives them even more money to buy even more votes at the next election.
Politicians change but the people behind them keep accumulating more wealth.
Democratization of wealth creates massive capital centralization which creates anti-competitive dynamics; the monetary playing field is itself inherently anti-competitive by design.
I often give the example of a skilled coffee shop owner having to compete with a coffee shop 'pet project' of a multimillionaire passive investor who is running their shop at a loss... The person without passive income cannot win no matter how much better they are.
Now extend this metaphor to every aspect of the economy. There will be two kinds of businesses remaining; monopolistic megacorps receiving government handouts and small businesses which would all be some millionaire shareholder's unprofitable pet project.
Also, the biggest shareholders of various companies are using their leverage to find anti-competitive synergies between companies in their portfolios and coercing the executives of certain companies into favoring specific suppliers and clients on that basis.
I think it is the lesser evil where the bigger evil is private trillionaire companies owned by families. Murdochs and asian conglomorates everywhere. No ownership by ordinary people. Or indirect opaque ownership via something closer to SPACs than an open market. I.e. pensions getting scammed.
The uniquely problematic aspect of prediction markets is not really the personal aspects of gambling. There are plenty of speculative vehicles. The problem is it subverts natural incentive structures that society has evolved to reward, by introducing another incentive signal; one that sometimes can be many times bigger, thereby manipulating the natural, real-world, outcomes.
If you were playing in the World Cup in the lesser teams, very often betting+sabotage/plausible negligence would have been a more profitable enterprise for you than to actually do your best to win.
Stock markets have this problem too, but they are much more regulated, and even if manipulated by insiders, the blast radius is smaller and often auditable.
Yes, just one obvious example -- extrapolate to general life. That said, ease of access and scale beyond a critical point can make it qualitatively different.
Some people gamble by trading stocks. Should we also abolish the stock market?
Prediction markets are meant to be the stock market but for events besides the value of a certain corporation. They were co-opted as a thin veneer of legitimacy over deregulated sports gambling. The concept itself theoretically has some value, however insignificant compared to the damage caused by the current policy.
This reminds me of how people who worked for Facebook despite it being obvious that nobody with moral fiber should work for Facebook are more listened to when criticizing Facebook than people who realized the obvious to begin with. It's such a farce.
But it also reminds me that prediction markets are one of those things that are transparently a terrible idea because they create problematic incentives, and not just because people ruin their lives gambling. If you can make $1 million by triggering something that or getting somebody to trigger something that basically has no business happening, whether it's stripping on the Senate floor, causing a volcano to erupt, or crops yields to reduce by secret herbicide dusting, or any other bologna, somebody will do it if the balance makes it worthwhile. Likewise, they give people reasons to vote that are negative - "I have $100 on prop XYZ passing, of course I support it." (Though side note: the ubiquity of betting being super terrible for society because people can't handle gambling at all is one of those things that I've been super surprised by that seems to have good evidence now. I guess because gambling mostly just doesn't do it for me to the degree that I find it shocking just how addictive it is and just how much it exacerbates bad situations for many people.)
And I can't see how there's any benefit that's bigger than the problems. If prediction markets are better than Nate Silver, why is it worth all the problems to society for that extra accuracy margin? I can see why individual actors might find value, but I don't see how their value accrues to society in any way that makes it worth it.
> And I know exactly what that costs: Before I was an economist, I was a teenager working for bookies on Australian racetracks. I once took five dollars from a coworker who “didn’t bet” and put it on number one in the next race. Six months later he was betting thousands a race and stealing from his own family. Compulsive gambling destroys lives — and the families it wrecks have no lobbyists.
> I don’t claim to know the exact right policy answer for America. But I know we never even had a grown-up debate.
If you've seen the destruction caused by something and can't figure it out, maybe you have a problem?
And let's be honest: the idea of "debating" things that are obvious is often one of the primary ways by which indefensible things are legitimized.
is this the author's attempt at washing their hands of the damage they've done? Smart enough to win all these prestigious economics awards and hold all these prestigious positions but too naive to be able to predict the consequences of what they've been fighting for? Things that were, in my opinion, very easy to predict, given all the regulation in place around existing markets. What does this say about the author and the field of economics? Every day we get to play the "dumb or awful?" game.
Put the same energy into championing regulation then. Don't walk away from a mess you claim to have helped create. (which the OP may indeed be doing, but it isn't clear they are, hence the chiding)
The people regulating this are the people profiting from it. Championing change isn't too different from prostrating in front of the King.
Your advice might work in a different world.
Substitute “regulating” with “lobbying Congress”
If you ever thought “prediction markets” were a good idea, you should leave economic judgement to other people. Go take up gardening or something instead. It’s a hack reference at this point I know, but it’s Idiocracy-level stuff.
I don't like prediction markets, but I think a lot of people in this thread are assuming that gambling vs. not is clear cut.
Insurance was illegal at different times in history because it was considered gambling. Ditto for commodity trading.
Even you look at the structure of a futures contact, the basics look really similar to a bet that can be traded with someone else.
The main differences are the regulatory environment, and the intention the actors in the market have.
Commodities, options, and futures are all legitimately used to hedge against future outcomes. The "gamble" (placing money on a future outcome) is a mechanism for the main goal: protection against instability.
When you look at stocks and - in particular - derivatives, it starts to look a lot closer to how gambling is structured. I'm pro stock market, but that doesn't mean I won't admit that the line between it and gambling is pretty hard to draw. It's a lot more grey than people give credit for
> Insurance was illegal at different times in history because it was considered gambling.
And it was, in fact, gambling. You could take out a life insurance policy on anyone without any relationship with them.
I mean I get how there are benefits to society from crop futures and insurance. I don't get how there are from an election prediction.
Prediction markets are a superior method for determining public sentiment, and understanding public sentiment is useful for many reasons. It can guide economic decisions, picking policy, etc.
Basically, prediction markets are for public sentiment what free markets are for supply and demand. They create an emergent system that balances/optimizes variables across a large domain.
Election prediction is an interesting one. The first digital prediction market on the US was election only, and it has a $500 cap. It was run by a university and had a limited scope, but it still be a surprising amount.
It did a better job of predicting election outcomes than the polls. For markets without a cap, companies have used them to have against a politician that would pass policy that's can for their business.
This doesn't mean we should have them, but there is utility. It's just not worth the trade-offs
Is their "greyness" between gambling and day trading? Sure.
Prediction markets are obviously, blatantly, gambling. There is no "greyness", we've skipped the slippery slope and gone straight to the bottom of the ravine.
I read a sci-fi story years ago that had prediction markets in it that helped markets become more efficient. I thought it was a good idea at the time.
What neither I nor the author anticipated was that the easiest way to make the markets "efficient" was to rig them.
In hindsight it's obvious, but optimism is one of the most powerful blinders out there.
> Trump Media may soon sell early access to the president’s Truth Social posts.
Think about whether the spirit of the domestic/foreign emoluments clause would be okay with this. I'm sure some will argue there's enough layers of BS in this scheme that it's totally fine.
Ethics and judgement aside, I think startup founders can learn a lot from this administration as to how "successful" people twist things in their favor. The industry is full of it.
The law only matters if there’s someone willing to enforce it. We learned from Trump’s first term that no-one is willing to enforce the emoluments clause.
>Trump Media may soon sell early access to the president’s Truth Social posts. Think about what this means. This is how the president announces war; every embassy on earth has to maintain a Truth Social account just to stay informed of American policy.
He is already so beyond the pale this doesnt even move the needle.
If they try this, multiple random people will write bots to republish everything instantly. The cash gusher they expected will turn into a trickle and the white house will look like a bunch of greedy Ferengi that lack the lobes to pull off a basic swindle. It's guaranteed to be an instant loss. I'll laugh pretty hard if they go ahead with it.
Whilst true, that extra 0.5-1 second edge is huge for HFT firms.
I'll admit that I still see some value in prediction markets in theory, but in practice the way they were implemented seems to have caused an order of magnitude more harm.
In retrospect their misuse as a loophole for sports gambling was an obvious outcome. Seems like every promising new technology inevitably is used for evil. Cryptocurrency is mostly used for criminals. Social media displaced more meaningful forms of connection. We're already starting to see this with AI (psychosis, slop, assisting bad actors) but I'm afraid it will get much worse.
> In retrospect their misuse as a loophole for sports gambling was an obvious outcome.
This isn't a 'benefit of hindsight' thing; a lot of people called this out in advance, just like all the other tech you listed.
We need to stop listening to the people who are wrong about everything, rather than pretending the maximalist seeking of profit with no regulation is a reasonable position. We know it doesn't work.
I guess most of my positions on prediction markets came from Scott Alexander, e.g. https://www.astralcodexten.com/p/prediction-market-faq which was posted in 2022. The implicit argument seems to be "We should come up with some way to regulate these so that it's less harmful than existing forms of gambling." I think the part that was harder to foresee was the Trump admin suddenly seizing on them as a loophole to override state regulation of sports betting. Certainly there does not seem to have been any careful consultation with prediction-market experts to determine the most robust, socially beneficial laws.
I understand that "Things would be great if they'd done it right!" is in some sense unfalsifiable. But also I think it's pretty clear that the current regime is geared solely towards maximizing the profits of prediction market companies and Trump Jr.
So I will admit the idea of "maybe you could make some guesses about the future and if you're right it's worth something" sounds appealing - like if I guessed people would get perfect nutrition by IV and not bother with eating and it came true and I made money from it, or the same about making money speculating on when the first Mars colony is founded, etc. But what I don't get, taking a step back, and never have, is what society and the world get out of having more accurate guesses about this. Even setting the obvious negatives (if you have your retirement savings sitting against a Mars colony before 2030 maybe you have some incentive to sabotage a launch in early 2029) aside, what are the positive values supposed to be? And I've never really understood this.
If we knew the COVID pandemic was coming, we could have prepared better. If we knew what AI would look like in 5 years, we could write laws for that proactively rather than reactively. The Fed could look at prediction markets to decide whether to raise the interest rate.
Basically, it depends on there being competent, good-willed people in power using them to inform their decisions. That feels like a bit of a joke right now, but things weren't always this way.
What would the COVID pandemic market have been before COVID existed, and what information would have been available to steer the market towards a useful prediction?
“Will there be another coronavirus mutation resulting in a pandemic in 2005, 2006, 2018, 2019…” doesn’t seem like it would have been helpful, except in the like two month or so window after detection and the WHO announcement when alarm bells were already going off but it still hadn’t diffused into popular consciousness yet.
It was quite clear covid was potentially a danger months before the "full outbreak". There were short news articles "in the margins" about a disease in Wuhan, with conspiracy theorists talking it up. It would plausibly have given us a month early notice. Hard to say how much that would have helped, but it might have improved the total outcome somewhat.
> We built a superior information aggregation machine for the economy
Wow, no you built an avenue for corruption, insider trading and problem-gambling, and you should have known this beforehand. Would have known it beforehand if you'd bothered to consult with non-economists.
The only true winners in those prediction markets are the insider whales that already know what will happen.
Anyone who is not an insider is a loser.
The author was instrumental in a colleague ruining their life through a gambling addiction. Then they helped make the case for prediction markets, which also went wrong.
Their track record is not great, and I don't think they fully realise that the issue is them: the principles and axioms they rely on don't lead to good results.
> I don’t claim to know the exact right policy answer for America.
Perhaps start by reversing your positions, and throwing support behind those trying to undo the damage you caused.
I don’t think we should hold a transaction worth $5 someone did as a teenager over their head as a dark mark on their character for the rest of their life
I would agree, except the author has continued behaviour in that pattern over a larger scale for years after that.
Jesus. Literally. Can any HNer really throw a stone at this?
Finally a solution to being wrong - just invert all your opinions!
If you're consistently wrong, then it's time to stop being a thought leader, and really examine the lens through which you view the world.
The author still thinks they were "freeing prediction markets from unnecessary restrictions", but clearly some restrictions are necessary, and totally free markets aren't actually an economic panacea. This is not really new information, so the flaw is in the thinker, not the data.
If your ideas are consistently proved harmful, acting against your instincts is a better play than continuing to trust them.
You're mischaracterizing. He said that he helped build a case for it -- not that he still supports it.
As far as I can tell, prediction markets went from totally illegal to basically unregulated. Presumably the author was arguing for a middle ground.
The author wrote their article--they had the chance to clarify their position. The facts remain: on multiple occasions, they have been instrumental in negative outcomes because of their support for things that we already knew were a bad idea. They should stop giving advice.
Fair point.
> He said that he helped build a case for it -- not that he still supports it.
I would expect that if they didn't think they were unnecessary anymore, they would have said something like "I helped build the case for freeing prediction markets from restrictions that I thought were unnecessary". Their description of the predictions being unnecessary is still stated as a present tense fact (and the entire clause is in bold-face, making it clear that it's something they want to draw attention to).
Did you watch the podcast? I didn't, but I think it's unfair to judge the author's true position on prediction markets based only on the hook.
The current admin has bungled better ideas than prediction markets.
Gambling isn't some brilliant new idea, even if you rename it. I understand the technical distinction trying to be made, but seriously, it's gambling.
No one "bungled" anything. They just aren't being prosecuted..yet.
Sometimes gambling has some social value then. Isn't trading on the stock market gambling? Do you also support abolishing the stock market? What about issuing loans to someone with poor credit?
> Do you also support abolishing the stock market?
An anti-capitalist here: Yes... Oh heavens, yes. There are few things I desire more then to see all the stock markets in the world burn and never to be rebuilt. For me, people who make money at the stock market are participating in a systematic exploitation of the working classes. The siphoning of profits away from the workers who created them and earned them, and into the hands of the rich who contribute nothing, yet get everything.
What is the alternative? I'm sure there will still be trade of labor even in a socialist economy. This is assuming the labor theory of value is right, which it isn't, but I'll be charitable.
There is no need for an alternative. Trading stocks is not a necessary precondition for trading goods and services. Most of mine, and probably your businesses are done without anybody holding stocks in the stuff you are buying or selling. You can abolish the stock market, and pretty much everything stays the same... except the rich lose one (of many) avenues of systemic exploitation.
They'll just exploit you another way. At least those invested in the stock market actually have upward mobility from being poor or middle class, see Bogle heads or the FIRE movement.
Eh.
Stock markets serve(d) a function as vehicles to invest in risky ventures. In other words, a way to channel investment.
In the average case scenario, removing the stock market results in rich people being the ones who can afford to fund projects, and thus owning the outcomes.
The underlying case would be for wealth concentration and therefore power concentration. Addressing that would give the working class more options to fund projects or work, more than being the right type of person in the right network to land a rich patron.
If they ever served such a function, they no longer do so. Today’s risky ventures are funded by venture capital and the results are disastrous. I propose an alternative system where you fund your risky venture by taking out a loan at your local credit union, by crowd-sourcing it, or better yet, just don’t. I think we can give risky ventures a brake for 20-100 years.
Maybe concentrate our efforts on undoing the damage this era of capitalism has wrought us, maybe starting with reinstating consumer protection, dismantling the state surveillance system, protecting against the effects of the climate disaster. If you have a good idea on any of those, run for office, or get a degree and work with your local (state funded) university on the matter.
They definitely served that function.
The sucky rule about history seems to be - “is this better than what was there before.”
Equity markets can definitely be made more competitive, and being ungodly rich needs to be more expensive than it currently is.
Loans don’t work the same way as equity investments, because loans are essentially low risk tools. They have a fixed payoff every month/year, whereas something like an expedition or new product launch can recoup its investments only post a certain period, if at all.
As a result loans originators don’t invest in high risk ventures.
This is a rule of thumb, there are many instruments you can create which will fill the gap.
We definitely need more competition and user protection in markets (and in general). The pendulum has swung very far in favor of firms in the US, and that needs to be balanced.
Good luck with that pause. Things like the climate disaster require risky ventures these days like carbon sequestration at scale, you can't undo it just by doing the same things as today, which is basically what you're advocating for, upholding the status quo, for 20 to 100 years. You'll probably say that's not what you mean but that's what the outcome will become.
Day trading is gambling. Buy-and-hold is investing. Algorithmic micro-trading is investing, despite looking like gambling. It's about whether there's an immediate dopamine release or not.
Properly regulated, couldn't the same distinction be applied to prediction markets?
Except the author argued against regulation for prediction markets.
Did he argue for the current implementation, or only for deregulation relative to the previous state? As I understand it, up until recently they were totally illegal.
Yes. Banning is also considered proper regulation
> Algorithmic micro-trading is investing, despite looking like gambling.
It's skimming.
That is not so simple. The lottery is gambling, but the lottery doesn’t trigger the dopamine receptors like slot machine or scratch tickets (also gambling) do. This is because the response is too far behind the behavior in time (hours or days) for it to trigger the same addictive behavior as slot machines and scratch tickets where the behavior-response cycle is in seconds.
Now I don‘t consider day trading to be gambling (even though it is packaged and marketed to appeal to and sell to gambling addicts). For it to be gambling, it would need to be a game.
It is something far more sinister and far worse then gambling. I consider it exploitation, or more accurately capitalist exploitation. This also applies other aspects of the stock market, even the ones which are not marketed to exploit gambling addicts, including investment backed retirement funds [401(k) in the USA], index funds, and publicly traded companies. To me, all these things are equally bad (well actually the retirement funds may be the most sinister of the bunch) even though day trading might have the ugliest manifestation. These are all exploitation of the working class.
Look what they've become? You mean look at what they have been from the get go?
The corrupting influence they are having on society has been obvious from the start and was predicted by anyone with any familiarity of the effects of "traditional" gambling on people. Except the author apparently, because they had seen precisely what gambling can do to people and still pushed this.
"The dream was that markets would surface useful information"
The dream was that the markets would make the people who owned them stupid amounts of money like any casino owner. Pretending otherwise is self-delusion at it's finest but the author seems good at that.
My position is that prediction markets are bad and harmful but so are all mainstream stock markets. They're all prediction markets. People collaborate to pump up the value of specific assets or contracts, leading to undesirable outcomes.
It would be dishonest to ban prediction markets without banning stock markets.
The best which can be done, under the current system, is to punish unfair information asymmetries, which is practically impossible to do reliably... And even if we could find a way to punish it reliably; what would happen is that most rich people would end up in jail. Information asymmetry is almost never fair and it's how people make big money these days.
I think the best solution is to create conditions to allow people to earn big money in other ways; ways which create value. If there were other ways to make big money besides unfair information asymmetry, then skilled people would find it easier to do that instead...
Unfortunately, skill/talent does not allow you to gain an information advantage; only social connections do. So the current system is really bad in terms of wasting specialized skills/talents... Current system takes talented people and re-orients them towards adversarial games of deception where they're just a number in a sea of increasingly desperate untalented people who are better at playing the deception game... And the talented folks eventually lose their talents through lack of practice; they're so focused on learning ways to trick people and algorithms, that their actual talents atrophy; by the time they become well known, if they ever do (most don't), they've become mediocre; corrupted by their participation in the process of trying to become relevant; their main talent always takes the back seat.
I disagree with this - plenty of people treat stock as just wanting a share of profits/ownership and not as value speculation. That said, I do think we should be making rules that devalue speculation, perhaps turn-based trading since there's no particular benefit to the world from high frequency trading or value discovery happening in 5 milliseconds instead of 5 seconds, and making it so that being publicly traded requires not having controlling owners or preferential share classes.
Edit: and with prediction markets you don't own anything. Even with commodity futures you can end up having to take possession of cows or something.
You could ban stock market trading but the market itself is a very useful vehicle for investment and has democratized wealth and retirement planning to some extent.
How to ban trading? You could heavily addon tax profits from short term trading under 3 months at 90% say, tapering to zero as time increases maybe 2 years. With zero ability to offset any losses with other tax forms.
Shorts, options et. included unless it can be proven as part of a bigger trade or insurance but then apply to bigger trade.
This could also apply to market makers making that closer to a public service.
I feel like democratizing wealth and retirement has become harmful.
Now we have a small number of extremely influential people who are essentially bribing and propagandizing the masses into voting them more money... Each win gives them even more money to buy even more votes at the next election.
Politicians change but the people behind them keep accumulating more wealth.
Democratization of wealth creates massive capital centralization which creates anti-competitive dynamics; the monetary playing field is itself inherently anti-competitive by design.
I often give the example of a skilled coffee shop owner having to compete with a coffee shop 'pet project' of a multimillionaire passive investor who is running their shop at a loss... The person without passive income cannot win no matter how much better they are.
Now extend this metaphor to every aspect of the economy. There will be two kinds of businesses remaining; monopolistic megacorps receiving government handouts and small businesses which would all be some millionaire shareholder's unprofitable pet project.
Also, the biggest shareholders of various companies are using their leverage to find anti-competitive synergies between companies in their portfolios and coercing the executives of certain companies into favoring specific suppliers and clients on that basis.
I think it is the lesser evil where the bigger evil is private trillionaire companies owned by families. Murdochs and asian conglomorates everywhere. No ownership by ordinary people. Or indirect opaque ownership via something closer to SPACs than an open market. I.e. pensions getting scammed.
People always assume that others will use something with good intentions, but in practice, malice tends to take root before goodwill does.
And some things always are malicious, like "prediction markets", which is just gambling reworded to sound like something else.
This was never, ever going to end well. There is no good use of "prediction markets".
The uniquely problematic aspect of prediction markets is not really the personal aspects of gambling. There are plenty of speculative vehicles. The problem is it subverts natural incentive structures that society has evolved to reward, by introducing another incentive signal; one that sometimes can be many times bigger, thereby manipulating the natural, real-world, outcomes.
If you were playing in the World Cup in the lesser teams, very often betting+sabotage/plausible negligence would have been a more profitable enterprise for you than to actually do your best to win.
Stock markets have this problem too, but they are much more regulated, and even if manipulated by insiders, the blast radius is smaller and often auditable.
You're just describing the preexisting problems that led to bans and regulations on sports gambling.
Yes, just one obvious example -- extrapolate to general life. That said, ease of access and scale beyond a critical point can make it qualitatively different.
Some people gamble by trading stocks. Should we also abolish the stock market?
Prediction markets are meant to be the stock market but for events besides the value of a certain corporation. They were co-opted as a thin veneer of legitimacy over deregulated sports gambling. The concept itself theoretically has some value, however insignificant compared to the damage caused by the current policy.
Restricting retail trading of derivatives and short positions doesn't sound like the worst idea.
Not so much malice as greed and lack of empathy.
> Look What They've Become
Another shit hole of insider trading...