Thanks for writing this up. I agree that subsidies are a crucial ingredient. I don’t agree completely with everything else you wrote, so I’m going to write a longish reply.
Having enough interest in the market is the best solution, but this isn’t always available, and the markets we want to see don’t always coincide with the ones that people are most interested in participating in. There are spillover effects, so hosting popular questions on sports, politics and celebreties can bring in enough people that a few of them will also bet on the questions that provide actionable intelligence on the future, like technology and legislation.
I agree that it’s important to have well-defined outcomes, so people can rely on the correct outcome, and a transparent interpretation of the question. This is pretty straightforward when you stick to popular, highly repetitive areas like sports. When you want to support questions in a variety of areas, this means you have to write custom descriptions for each question, and there’s a lot more room for the vagaries of the real world to throw curveballs at you.
I worry most about this with systems like Augur, where anyone can write a claim. If the trading platform has no way to ensure consistent quality, the traders will learn to be sceptical of all innovative claims. Foresight Exchange (play money, somewhat moribund) got around this by having an active community that participated in writing the claims. They occasionally still got into disputes, and but I think their approach of having named judges with declarations on how they were going to judge made the most sense. Augur’s voting system seems like a bad compromise to me: all questionable outcomes turn into beauty contests. The voters all have an incentive to favor the most popular outcome, which seems unlikely to lead to results that are predictable.
I doubt that paying off both sides on tough judgement calls will induce more participation. I agree that that incentives bettors to raise a stink on any sligthly unusual outcome. You don’t want to encourage people to put money on bad claims because they’ll be paid off regardless.
I think quick payouts matter much more in the highly repetitive markets (especially sports) than in questions that take a long time to settle. In the case of sports, you’re competing with sports books for the attention of bettors who often have several questions open at a time, and want to get their money back into play. If they’ve invested in a quesion that will be open for 6 months or a year, getting the answer right matters much more, particularly if your interest is in getting the market to be active enough that the prices can be used as guides by people who aren’t putting their money on the line.
I’m interested in your ideas about paying off early, and “recognizing when a profit has been locked in, or risk has been hedged”. Prediction Markets already do this so much better than other betting venues that I’m not sure what could be added. Markets that support combination claims have been designed, but none have become popular. (Hanson’s Combinatorial design, mentioned above; Peter McCloskey’s USIFEX; Dave Pennock also developed something at Yahoo) In the absence of these, what can be done?
I agree that getting rid of fees matters a lot. The most frequent betters are the ones that pay the most attention to how much the house’s cut is.
The problem with being a market maker, as you alluded to, is that it’s hard to do it without being a money pump that can be exploited for unlimited gains. Robin’s design (which is demonstrated by my Zocalo) shows how the house can do it. If you aren’t the house and mediating all trades, it’s hard to write a hard and fast rule for entering bids that can’t be exploited, or doesn’t lose money just because it doesn’t participate sufficiently during rapid price movements. If your program says to enter a bid at a certain price, but the market has already moved, then the opportunity is gone.
Thanks for writing this up. I agree that subsidies are a crucial ingredient. I don’t agree completely with everything else you wrote, so I’m going to write a longish reply.
Having enough interest in the market is the best solution, but this isn’t always available, and the markets we want to see don’t always coincide with the ones that people are most interested in participating in. There are spillover effects, so hosting popular questions on sports, politics and celebreties can bring in enough people that a few of them will also bet on the questions that provide actionable intelligence on the future, like technology and legislation.
I agree that it’s important to have well-defined outcomes, so people can rely on the correct outcome, and a transparent interpretation of the question. This is pretty straightforward when you stick to popular, highly repetitive areas like sports. When you want to support questions in a variety of areas, this means you have to write custom descriptions for each question, and there’s a lot more room for the vagaries of the real world to throw curveballs at you.
I worry most about this with systems like Augur, where anyone can write a claim. If the trading platform has no way to ensure consistent quality, the traders will learn to be sceptical of all innovative claims. Foresight Exchange (play money, somewhat moribund) got around this by having an active community that participated in writing the claims. They occasionally still got into disputes, and but I think their approach of having named judges with declarations on how they were going to judge made the most sense. Augur’s voting system seems like a bad compromise to me: all questionable outcomes turn into beauty contests. The voters all have an incentive to favor the most popular outcome, which seems unlikely to lead to results that are predictable.
I doubt that paying off both sides on tough judgement calls will induce more participation. I agree that that incentives bettors to raise a stink on any sligthly unusual outcome. You don’t want to encourage people to put money on bad claims because they’ll be paid off regardless.
I think quick payouts matter much more in the highly repetitive markets (especially sports) than in questions that take a long time to settle. In the case of sports, you’re competing with sports books for the attention of bettors who often have several questions open at a time, and want to get their money back into play. If they’ve invested in a quesion that will be open for 6 months or a year, getting the answer right matters much more, particularly if your interest is in getting the market to be active enough that the prices can be used as guides by people who aren’t putting their money on the line.
I’m interested in your ideas about paying off early, and “recognizing when a profit has been locked in, or risk has been hedged”. Prediction Markets already do this so much better than other betting venues that I’m not sure what could be added. Markets that support combination claims have been designed, but none have become popular. (Hanson’s Combinatorial design, mentioned above; Peter McCloskey’s USIFEX; Dave Pennock also developed something at Yahoo) In the absence of these, what can be done?
I agree that getting rid of fees matters a lot. The most frequent betters are the ones that pay the most attention to how much the house’s cut is.
The problem with being a market maker, as you alluded to, is that it’s hard to do it without being a money pump that can be exploited for unlimited gains. Robin’s design (which is demonstrated by my Zocalo) shows how the house can do it. If you aren’t the house and mediating all trades, it’s hard to write a hard and fast rule for entering bids that can’t be exploited, or doesn’t lose money just because it doesn’t participate sufficiently during rapid price movements. If your program says to enter a bid at a certain price, but the market has already moved, then the opportunity is gone.