The part about misinformation is very important, and unlike assassination markets it seems to be in a blind spot of the rationalist community.
I suspect that most people here perceive the prediction markets through the mistake theory perspective: “people try to do their best at predicting outcomes, some of them make honest mistakes, prediction markets create a financial incentive to get it right (or to become less confident about your predictions)”. A collective effort similar to scientific research, but distributed, open for everyone, and allocating money to the best researchers.
And that is true… kind of. In the same sense as the traditional market is a collective effort to produce goods for everyone at an affordable price, if possible.
That also is kinda true, but it also fundamentally misinterprets the gears of the situation by conflating “what typically happens at a free market” with “what motivates the participants in the market”. Some of them might be motivated by the desire to provide cheap goods for everyone, but most of them are probably there in order to make money, preferably lots of money. The fact that free markets often make things cheap is a good news for the customers, but the producers are not necessarily happy about it, any many use various tricks to avoid this outcome.
Free market is great for the new entrepreneurs, because it allows them to join the game. Free market is bad for the established entrepreneurs, because it allows their competitors to join the game. This is why established entrepreneurs often looks for ways to keep their dominance on the market (other than merely providing better products at lower costs), such as regulatory capture. Instead of collective effort, free market would be better described as an impersonal force pushing the participants towards the outcomes they do not really prefer.
Now apply the same logic to the prediction markets.
The fact that prediction markets provide good predictions is nice, but the true motivation of many participants is simply to make lots of money. This will be even more true than today if prediction markets become more popular. If at some moment anyone will be able to spend their savings on prediction markets, we could expect that most people will be there for the money, and from their perspective “providing correct prediction” will be like “providing cheap goods”—maybe something that can’t be avoided, but not their ideal outcome.
On the prediction market, you make money when people vote against you. Therefore, even if you are a super-forecaster and regularly make correct bets, your profit is maximized when other people are wrong. If your budget is large enough so that you could make millions (or even billions) on the prediction market (in the hypothetical future with trillions of dollars in prediction markets), it would be rational for you to spend lots of money to make sure that as many people as possible are wrong.
The tobacco companies tried to make people wrong about the dangers of smoking. Now imagine companies just as rich, and just as evil, trying to make you wrong about… well, everything they can bet on. They don’t even have to grow the tobacco and make the cigarettes in order to get rich; they can just as conveniently bet on other people’s tobacco, cigarettes, vaccination, autism, whatever.
In theory, prediction markets can push people towards sanity, by rewarding correct predictions and punishing incorrect predictions. In practice, prediction markets would also create huge financial incentives for unethical companies to push people in the opposite direction (so that they can then take their money in the market). It is not obvious to me which force would turn out to be stronger in real life.
“But won’t people stop betting on the prediction markets if they lose predictably?” No they won’t. First, gamblers already keep losing and they don’t stop. Second, if betting on a wrong but strongly held belief will feel emotional good at the moment of betting, even if it loses some money later, it may be worth it, emotionally. Not everything needs to be profitable: whenever you buy a cookie, you lose some money, but you still enjoy the cookie; perhaps the irrational people will enjoy placing their predictably wrong bets the same way.
The current prediction markets are systematically biased, because many forecasters there are motivated by the prestige, instead of / in addition to money. People willing to sacrifice prestige for money would bet slightly differently. They would actually probably often create new accounts, just to reduce the effect of “I know that this person is almost always right, so I hesitate to bet against them”. They would want you to perceive them as idiots instead, because that will encourage you to bet against them. They would want you to believe that they are acting completely stupid.
As a hypothetical scenario, imagine a super-forecaster who predicts that something will happen with probability X, and then creates a new account to make that bet with $1000000, adding some insane comment such as: “I prayed to Jesus to make me rich, and Jesus told me to bet that the value is 12.34, because chapter 12 verse 34 in the Bible mentions money, and I trust Jesus enough to put my lifetime savings here”. Then they would create another new account that bets $100 dollars against the position, saying “come on, this is so silly that this is practically free money!” And they they would share that screenshot on social networks. In my opinion, as a profit maximizing move, this would be more instrumentally rational than what participants in the prediction markets are doing these days (except for thisguy).
The part about misinformation is very important, and unlike assassination markets it seems to be in a blind spot of the rationalist community.
I suspect that most people here perceive the prediction markets through the mistake theory perspective: “people try to do their best at predicting outcomes, some of them make honest mistakes, prediction markets create a financial incentive to get it right (or to become less confident about your predictions)”. A collective effort similar to scientific research, but distributed, open for everyone, and allocating money to the best researchers.
And that is true… kind of. In the same sense as the traditional market is a collective effort to produce goods for everyone at an affordable price, if possible.
That also is kinda true, but it also fundamentally misinterprets the gears of the situation by conflating “what typically happens at a free market” with “what motivates the participants in the market”. Some of them might be motivated by the desire to provide cheap goods for everyone, but most of them are probably there in order to make money, preferably lots of money. The fact that free markets often make things cheap is a good news for the customers, but the producers are not necessarily happy about it, any many use various tricks to avoid this outcome.
Free market is great for the new entrepreneurs, because it allows them to join the game. Free market is bad for the established entrepreneurs, because it allows their competitors to join the game. This is why established entrepreneurs often looks for ways to keep their dominance on the market (other than merely providing better products at lower costs), such as regulatory capture. Instead of collective effort, free market would be better described as an impersonal force pushing the participants towards the outcomes they do not really prefer.
Now apply the same logic to the prediction markets.
The fact that prediction markets provide good predictions is nice, but the true motivation of many participants is simply to make lots of money. This will be even more true than today if prediction markets become more popular. If at some moment anyone will be able to spend their savings on prediction markets, we could expect that most people will be there for the money, and from their perspective “providing correct prediction” will be like “providing cheap goods”—maybe something that can’t be avoided, but not their ideal outcome.
On the prediction market, you make money when people vote against you. Therefore, even if you are a super-forecaster and regularly make correct bets, your profit is maximized when other people are wrong. If your budget is large enough so that you could make millions (or even billions) on the prediction market (in the hypothetical future with trillions of dollars in prediction markets), it would be rational for you to spend lots of money to make sure that as many people as possible are wrong.
The tobacco companies tried to make people wrong about the dangers of smoking. Now imagine companies just as rich, and just as evil, trying to make you wrong about… well, everything they can bet on. They don’t even have to grow the tobacco and make the cigarettes in order to get rich; they can just as conveniently bet on other people’s tobacco, cigarettes, vaccination, autism, whatever.
In theory, prediction markets can push people towards sanity, by rewarding correct predictions and punishing incorrect predictions. In practice, prediction markets would also create huge financial incentives for unethical companies to push people in the opposite direction (so that they can then take their money in the market). It is not obvious to me which force would turn out to be stronger in real life.
“But won’t people stop betting on the prediction markets if they lose predictably?” No they won’t. First, gamblers already keep losing and they don’t stop. Second, if betting on a wrong but strongly held belief will feel emotional good at the moment of betting, even if it loses some money later, it may be worth it, emotionally. Not everything needs to be profitable: whenever you buy a cookie, you lose some money, but you still enjoy the cookie; perhaps the irrational people will enjoy placing their predictably wrong bets the same way.
The current prediction markets are systematically biased, because many forecasters there are motivated by the prestige, instead of / in addition to money. People willing to sacrifice prestige for money would bet slightly differently. They would actually probably often create new accounts, just to reduce the effect of “I know that this person is almost always right, so I hesitate to bet against them”. They would want you to perceive them as idiots instead, because that will encourage you to bet against them. They would want you to believe that they are acting completely stupid.
As a hypothetical scenario, imagine a super-forecaster who predicts that something will happen with probability X, and then creates a new account to make that bet with $1000000, adding some insane comment such as: “I prayed to Jesus to make me rich, and Jesus told me to bet that the value is 12.34, because chapter 12 verse 34 in the Bible mentions money, and I trust Jesus enough to put my lifetime savings here”. Then they would create another new account that bets $100 dollars against the position, saying “come on, this is so silly that this is practically free money!” And they they would share that screenshot on social networks. In my opinion, as a profit maximizing move, this would be more instrumentally rational than what participants in the prediction markets are doing these days (except for this guy).