Cross-posting my long comment from the EA Forum:
I always appreciate your newsletter, and agree with your grim assessment of prediction markets’ long-suffering history. Here is what I am left wondering after reading this edition:
Okay, so the USA has mostly dropped the ball on this for forty years. But what about every other country? China seems pretty ambitious and willing to make things happen in order to secure their place on the world stage—where is the CCP-subsidized market hive-mind driving all the crucial central planning decisions? Well, maybe a prediction market doesn’t play well with wanting to exert lots of top-down control and suppress free speech. Okay, what about countries in Europe? What about Taiwan or Singapore? Nobody has yet achieved some kind of Hansonian utopia, so what is the limiting factor?
Maybe there is a strong correlation between different countries’ policy decisions caused by a ‘global elite culture’ that picks similar policies everywhere, and occasionally screws up by all deciding to ignore the potential of nuclear power, all choosing the same solutions to covid-19, etc. This is Hanson’s idea; I find it a bit conspiratorial compared to my framing in the next point. (But if it’s true, what are we to do? Perhaps try to build up EA/rationalism as a movement until we can influence global elite culture for the better? Or maybe become advisers to potential outliers from global elite culture, like the Saudi Arabian monarchy or something? Or somehow construct whole alternative institutions using stuff like crypto and charter cities, “Atlas Shrugged” style?)
Maybe it’s less about ‘elite’ culture and more about universal human biases. Perhaps prediction markets are abhorrent to normal folks insofar as they offend traditional status hierarchies (by holding people too closely to their word and showing the hypocrisy of leaders, or something), and that causes them to be rejected wherever they are tried. That might sound nutty, but personally I think a big part of why healthcare systems are so complicated and expensive is because so many reform ideas that look great on paper run into universal deeply-engrained cultural preferences—for instance, the taboo tradeoff between money & lives prevents healthcare systems from making price information too obvious or making inequalities in care quality too visible. Similarly, the human desire to show that we care causes us to overspend late in life when help would not do much good, and underspend on some cheap preventative things (like doing more to push people towards better exercise/diet/etc). If this is true for prediction markets, what do we do? Maybe it suggests that we should start building the prediction-market future starting from stock markets (via services like Kalshi), since stock markets are (grudgingly!) tolerated by human culture, rather than trying to persuade governments or corporations to adopt them (where it is too easy for a leader to veto it based on their gut opposition).
Maybe it’s misleading to frame the question this way, as “why is EVERY COUNTRY failing in the SAME WAY”, because most prediction market advocates have all been inside the USA/anglosphere, so other countries haven’t really had a fair shot at being persuaded? (In this case, maybe all that’s necessary is to fund some prediction-market advocacy groups in Taiwan, Singapore, India, Dubai, South Korea, and other diverse locations until somebody finally takes the offer! Then, once one country is doing it, that will make it easier for the innovation to spread elsewhere.)
Maybe there’s no special explanation, and every nation is just failing for its own distinct reason, just because governments aren’t that competent and reform is hard and the possibility space of failure is much larger than the small target of success. Countries make dumb decisions all the time and are constantly leaving large amounts of potential economic growth on the table, just because life is tough and it’s hard to make good decisions. Null hypothesis! In which case we just need to try harder and then our dreams might come true (even here in the USA, despite the grim history of defeats). This hypothesis gets stronger when you consider that the existing community of prediction-market advocacy is quite small and there is not much funding in it.
Maybe prediction markets are somehow not ready for prime-time, lacking some crucial feature that would speed adoption and retrospectively seem like an obvious part of the complete package? (In this case, the challenge is to figure out what feature to add or how to otherwise tweak the design to get product/market fit, and then it’s off to the races. Hanson has often identified “the difficulty of finding a customer willing to pay for info” as the most difficult piece of the puzzle. Hence the appeal of corporate prediction markets more usable, or of persuading governments to subsidize prediction markets on topics of public interest. This reasoning also lines up with your complaint about how, without a customer willing to subsidize the market, markets gravitate towards covering meaningless emotional topics like sports, where people are irrational.) Maybe we need to make prediction markets easier to use so they can be adopted more easily by corporate customers (my “gitlab of prediction markets” idea), or maybe we need to increase liquidity of markets by lowering fees and doing things like parking the invested funds in the S&P 500 so that prediction stops being a zero-sum game. Maybe we just need to figure out better and better ways around the regulations banning prediction markets. Et cetera.
Of course I would be eager to hear your thoughts on what the key limiting factor(s) might be.
In your last newsletter, you remarked, “It’s kind of interesting how $40k [given away by Astral Codex Ten Grants] feels like a significant quantity of all the funding there is for small experiments in the forecasting space. This is probably suboptimal.” What prediction-market experiments would you be most interested to see run?
Do you think that advocacy/lobbying for prediction markets (perhaps in other countries as mentioned) is a worthwhile endeavor? Or do you think that would be less effective than experimenting with different market designs?
Robin Hanson wanted to run a “Fire the CEO” conditional prediction market about companies’ stock price if the CEO did / did not resign by the end of the quarter. I guess the plan would be to initially subsidize the market yourself, then prove the worth of the idea, then run a service where companies pay you to be included among your many company-specific markets. Do you think this is a promising plan? Is money the biggest roadblock, or would it be illegal to offer this service in the USA / without the companies’ permission / etc? (Could we just run it in the UK or something?)
FTX is a huge crypto exchange, they’ve already done prediction markets on the past for presidential elections, and they’re apparently EA-aligned. Could we ask them if they’d please run other prediction markets that we think would be useful, such as a conditional prediction market about the stock market’s performance conditional on a presidential election outcome, or a prediction market about some high-minded EA-relevant topic?
There is kind of a difference between “studying forecasting to benefit EA” (which seems to describe many of your projects at Quantified Uncertainty Research Institute, such as creating software to help grantmakers estimate impact), versus “prediction markets as an EA cause area” (under the heading of “improving institutional decision-making”, progress studies, and improving “civilizational adequacy”). How do you feel about the relationship between the two, and which side do you tend to feel is the better place to focus effort in terms of impact?
This is a lot of questions, so no pressure to respond to everything—I mostly intend this as food for thought. Also, I wrote this post casually, but let me know if you think it would be good to rework as a top-level post (ie, if you think these are good questions that people should be thinking more about).
I don’t think this particular idea is much of a concern (people could already profit from assassinating CEOs just by shorting the company’s stock on the ordinary market, yet they do not...), but I would be interested to see some metaculus questions (or just community discussion, as here) about some of the key cruxes I’m wondering about. Like “how much would liquidity increase/decrease if funds were stored in an S&P 500 index instead of just sitting in cash?”, or perhaps “Which country will be first to see more than $100 million of daily of volume (or whatever) on legal prediction platforms?”