Prediction markets are an interesting tool for determining the most likely answer or result for almost any question. Some economists hope that we could use prediction markets to make difficult political decisions. Many companies already use them internally.
Sadly there's only one prediction market that's accessible from the US, and it's an academic project with a 10% fee on profits and a 5% fee on all withdrawals. It's also limited in what you can predict or bet about. Augur or some other decentralized solution is probably our best bet for developing prediction markets further.
I really think these markets are the key to overcoming our failure to make good political decisions. It is a wild idea, but I don't know of any other solutions that directly incentivize truth-seeking.
Vitalik Buterin actually wrote about these concepts in more length
> Augur will probably be used for betting but really it's a prediction market.
A prediction market is an attempt to leverage a hypothesized predictive power of aggregated
betting, so being used for being is essential to being prediction market.
> Some economists hope that we could use prediction markets to make difficult political decisions.
Political decisions aren't verfiable fact questions, so they aren't really subject to prediction markets. You could use them as a tool to get possible answers to fact questions supporting policy decisions, but there is no real compelling case for them being better than the best available other methods in most domains for that, and in any case getting answers on fact questions related to policy decisions isn't even the hard part of getting good policy decisions.
theres definitely more than one prediction market available in the us. for instance, https://www.predictit.org/ (assuming you were referring to IEM in your comment)
The iCash team is working to solve the governance issues in blockchain. Their work towards creating an automated & self-sufficient economy has really impressed me.
Especially being their work is in the prediction market space and covers a lot of the current limitation issues we face.
There is a much larger global prediction market that comes with its own set of nuances and quirks, and that of course is the stock market. You can even get involved with no fee at all through Robinhood, but you will have to fill out some annoying and potentially costly IRS forms.
If I could paraphrase Charlie Munger, in the stock market, the only people who are successful long term are those who bet massive sums, very rarely, when they are sure that the price of a security is severely and unproperly valued.
If Tesla is currently trading at $355, and you have evidence for yourself that it should be worth something like $0 or $3,000, then this would be an example of the current market prediction being extremely wrong.
A stock's price is really just a prediction of the company's future cash flow in the event of profits, losses, sale of assets, so on.
prediction markets are not well regarded academically , outside of the cristall ball economics.
the academic consensus is that as soon as you create a second incentive (the prediction market itself) you lose all the insight you could gain from external factors. At that point they are no better than simply looking at the stocks (the predicted market). hence prediction markets are by definition, useless.
the cristall ball people still trying to make it happen are now trying to see how much they can limit the prediction market itself for it to not affect itself (hence the limitations you don't like on the one you mention)
The thing I don't like about prediction markets is the capped liquidity. I want to put my money where my mouth is but then find out there is only 1 share to buy in the market.
What I like about financial/forecasting crypto projects like Pareto Network is that there is no capped upside, and you can still determine the conviction some people have about an outcome
A close runner up is Numerai, given that you can tell the 'confidence' someone has, but the capped upside is arbitrarily capped, and the purpose of the project has nothing to do with censorship resistance and is beholden to the whims of the Numerai hedge fund.
The main problem on Augur right now is volume. Only a few markets have orders to trade against, and it seems like the cryptocurrency markets are the most actively used. I tried to use the platform to make a small bet against Tesla, but obviously you need someone to take the other side of the bet.
Still a very cool platform. A lot of people use predictions.global to get a birds eye view of the markets.
I think the "volume" problem breaks further into two critical sub-questions:
1. A big selling point of these markets is that there are theoretical commercial value to predictions- i.e. a company could get information of the likely success of their new product line ahead of time, to help them make strategic adjustments. However, Robin Hansen (one of the top economists working on betting markets) says, counterintuitively, that industries have been very luke warm about actually doing this in reality, for various psychological and economic reasons (he got into this in his econtalk interview I think)
2. Suppose bets on Augur start ramping up- How do we know these are real bets from real customers? The Augur company has immense funds on hand and its easy on blockchains to simulate fake volume through anonymous accounts. I have no reason to doubt the ethics of the Augur team, but it's unfortunate that if their marketplace starts taking off that it'll be so hard to tell how organic the growth is.
I wonder if the creators were aware of Robin Hanson's market maker mechanism, in which an automated market maker always accepts a trade. It limits its potential losses by offering increasingly worse terms as the market deviates from even chance of the outcome.
It also allows different predictions to be linked, so that you can bet on the outcomes of two events, or on the outcome of one event given a particular outcome of another event.
“Today, Augur had 30 active users and 123 transactions in the last 24 hours. The market cap is roughly $269.2 million. That means that each active user is now worth roughly $9 million.”
Please note that an "active user" is an active address( i.e one that has made a bet on the platform) in the past day.
This doesn't take into account users that made a bet in the past( most bets have long term horizons, >4 to 5 months) or users that have a current position but aren't betting anymore or users simply observing the markets( looking at a front end like predictions.global)
Also note that active users is probably not a great metric for this application, as it's not a consumer app/ time sink thing.
Yeah, and the only real crazy stuff that happened was people put up "death" or "assassination" contracts. Famous person X will die in 2018.... The problem with decentralized betting like this is who is the authority that determines who the winner is. External and honest oracles are hard.
> Settlement - once the reporting has been complete, and it’s verified by the community, the bettors who bought shares on the correct outcome are paid - as is the market creator.
Can anyone comment on how settlement actually works? A persistent problem with new tokens is handwavy explanations of absolutely core features. With a human legal system, humans can argue over intent. When “code is law”, pure intentions alone will not do.
I would love to use a functioning prediction market, and I believe it may be one of the legitimately useful non-money applications of blockchain. But I really wish they would focus on explaining how it solves the key problems rather than marketing the concept.
>>Can anyone comment on how settlement actually works?
The Augur whitepaper[1] explains the gory details, but at a higher level when the market creator defines the prediction market and event states through a smart contract, they must also specify the "designated reporter" and the "resolution source". The designated reporter should be somebody you trust (perhaps even yourself) to report on the event using the specified data source.
If the final event state is invalid, then you (the market creator) forfeit your validity bond, which is a form of punishment for creating a market that ends up in a state of ambiguity.
If the event state is valid (i.e. one of the set of outcomes that can be unambiguously determined) then the settlement proceeds.
After settlement finalizes, reporters get their REP token payout, market creators take their ETH cut, and traders who still hold shares corresponding to the settled reported outcome get their ETH. I believe each reporting cycle is still 7 days.
There are some edge cases where an event outcome can be disputed by other reporters in case the designated reporter is incorrect, but the system economic incentives are such that this type of behaviour is heavily discouraged.
Likewise, I was trying to figure this out. And haven’t yet. In most prediction markets the reason for centralization is as the market maker or arbiter. For example predictit.com will definitively say if some testified or not during the market term [0]. So arguments over what testifying means get handled fairly.
In augur the community seems to determine this based on how much they spend to reconcile the transaction. So lots of people could tip the scale. On big tickets this would likely attract attention, but on smaller items it could be a problem unless members of the community have reputation and identities.
It seems like, from reading the faq [1], that it really just boils down to a proof of stake consensus method with multiple rounds of dispute before and after a market is finalized. With a documented fork procedure. So if consensus gets manipulated, it is very clear and the market itself loses reputation through that they tried to design in their fork process. But would also get likely checked by a “hard fork” away from whomever is running that particular blockchain and manipulating accounts.
The “ethics arbitrage” opportunity would be to look for markets where the outcome is realistically fuzzy “did someone lie” or has an invalid outcome and tip the scales without detection.
For an interesting/insane/revolutionary application of this technology, check out Robin Hanson's futarchy[1], a theoretical governance structure which would use prediction markets to make decisions.
"Reporting - once an event has happened, Reporters are members of the network who verify the outcome. They place a bet on how much they believe their reporting is true. If they’re right they get a share of the pot. If they are wrong - or are at odds with how other reporters have documented the outcome - they are penalized and lose REP."
Isn't the reporting part qui susceptible to a sybil attack?
The maker of Augur, Joey Krug, recently posted an analysis[1] providing the arguments why Augur is at the moment still too expensive. For me this is very insightful into why Ethereum applications are not yet super successful.
"In the summer of 2018, assassination markets became popular among bettors. If those markets are seen to incentivise people to take illegal action, Augur could be shut down completely."
I'm having a hard time seeing a way assassination markets are actually a good business model for assassins.
If the prediction is tightly bounded (e.g. "Mr. X will be killed on Sept. 3, 2018") then you warn the victim.
If the prediction is loosely bounded ("Mr. X will be killed within the next year") then the odds won't be nearly as good, since many non-assassins may bet in favor. The assassin will have to put up a larger bet for a given payoff. Having done that, the assassin wins even if a different assassin does the work, so there's a public goods problem among assassins, and they all have some incentive to stay home playing Call of Duty instead.
Not sure if this is still the case, but iirc it was at least at one point part of the plan to have the reporters be able to report "this is an unethical market due to things like assasination markets" instead of yes or no, and if sufficiently many reported in that way, they would not be penalized for doing so.
But I don't know if it ended up like that in the final version
To shut down Augur you would have to shut down the Ethereum network, which would require coordination between world governments to pull off, and still probably wouldn't completely shut down the network.
I would like to bet if Buffet dies in the next 5 years because he is very old. That doesn't mean I want him killed or that someone would kill him. In fact we could diferentiate between natural causes or homicide.
Seems like a very low probability event. This would’ve been done in the stock market a long time ago if this was a problem. Buy put options on Berkshire Hathaway and then kill Warren Buffet a few days later. Profit.
A real challenge for prediction markets (with real-money stakes) will be to get sufficient liquidity on relatively small-ticket items outside of sports and politics.
For such items platforms like metaculus.com and Good Judgement seem more likely to provide more useful predictions, but without the ability to hedge against events that prediction markets have.
Hard pass. Blockchain and Gambling still don't really go together yet. Moreover, I wouldn't touch anything intersecting this space that doesn't have Rick Dudley directly involved. Not only does he have a 15 year headstart working on some of these problems, but he also owns patents on provably fair online gaming systems.
The site acts like the main challenges are legal when really they're technical.
The article says Augur's main advantages are 1) it's decentralised so anyone can create markets and 2) you don't have to trust a third party to distribute funds after a bet is over.
The only problem I could really see being solved by Augur is that maybe it can work around regulations that prohibit many forms of "bets". But the article also says that Augur is facing legal challenges already, and it will be determined in September whether they can continue.
Its decentralised, "illegal" nature reminds me of BitTorrent. Sure, there is money to be made. But the real change will come when companies akin to Netflix figure out how to do it centrally and legally.
Augur may not have many users at the moment... but i can imagine a near future where workers displaced by automation could make money on this platform. Who else is going to have time to place a bet and contantly monitor these markets? Or, more realistically the markets will be taken over entirely by bots and AI who also operate using smart contracts. The bots would be able to analyze billions of datapoints scraped from the web and pay for api access via crypto. How could a human ever compete? Welcome to the future.
No they do not. REP token holders get a "house take" in some contexts. Augur isn't a company, so a business model doesn't really make sense. Augur is a protocol, and the Forecast Foundation is a non-profit that supports some development.
For the record, augur raised during time when ether was less than $10
https://www.coingecko.com/en/coins/augur
Who knows what that fundraised amount can be worth now
My understanding is that the development of Augur was funded by the initial sale of REP, and that the organization presents itself as only developing the software, not as creating or running any of the specific markets.
So, no, I don't think they have a house take? However, the individual markets are each made by someone, and I believe that these "market makers" are financially rewarded through I guess a sort of a house take thing?
I looked at their site briefly and didn't quite see the answer to this, on the bottom of their FAQ (https://www.augur.net/faq/) it says:
Fees on the Augur protocol go directly to the market creator and REP holders who report and dispute outcomes. The Forecast Foundation does not recieve any fees from actions, trades, markets or use on the Augur protocol.
I guess this has to do with them being a decentralized marketplace, which as the article discusses does have some cool perks.
In the USA, PredictIt.org is a site that is also aimed at prediction, but they take a 10% fee on profit, and then a 5% fee on withdrawal. Seemingly a lot more volume on their markets than Augur at the moment, with some of their markets having hundreds of thousands of shares traded, and thousands of comments.
Not sure when this paper was written, but AFAICT Augur was launched with a lot of noise, caused a brief storm in a teacup as assassination markets were mooted/predicted, and then entered a steep decline as it became apparent (as with most blockchain-relates projects it seems) that nobody was actually going to use it, and the daily active users number was only in the double figures.
Is the primary value proposition of Augur (at least from a USA perspective) regulation evasion, and the ability to participate in betting markets at scale? Supposing the USA legalized betting markets, would Augur still have a value proposition over legal (but centralized) betting markets?
[+] [-] hedgew|7 years ago|reply
https://en.wikipedia.org/wiki/Prediction_market
Prediction markets are an interesting tool for determining the most likely answer or result for almost any question. Some economists hope that we could use prediction markets to make difficult political decisions. Many companies already use them internally.
Sadly there's only one prediction market that's accessible from the US, and it's an academic project with a 10% fee on profits and a 5% fee on all withdrawals. It's also limited in what you can predict or bet about. Augur or some other decentralized solution is probably our best bet for developing prediction markets further.
I really think these markets are the key to overcoming our failure to make good political decisions. It is a wild idea, but I don't know of any other solutions that directly incentivize truth-seeking.
Vitalik Buterin actually wrote about these concepts in more length
https://blog.ethereum.org/2014/08/21/introduction-futarchy/
[+] [-] klenwell|7 years ago|reply
https://www.gjopen.com/
https://www.gjopen.com/questions/813-before-1-october-2018-w...
https://goodjudgment.com/superforecasting/index.php/2018/06/...
It's karma-driven rather than wager-driven but seems fairly active.
[+] [-] dragonwriter|7 years ago|reply
A prediction market is an attempt to leverage a hypothesized predictive power of aggregated betting, so being used for being is essential to being prediction market.
> Some economists hope that we could use prediction markets to make difficult political decisions.
Political decisions aren't verfiable fact questions, so they aren't really subject to prediction markets. You could use them as a tool to get possible answers to fact questions supporting policy decisions, but there is no real compelling case for them being better than the best available other methods in most domains for that, and in any case getting answers on fact questions related to policy decisions isn't even the hard part of getting good policy decisions.
[+] [-] kingbirdy|7 years ago|reply
[+] [-] the_cat_kittles|7 years ago|reply
[+] [-] dillonsettle|7 years ago|reply
Especially being their work is in the prediction market space and covers a lot of the current limitation issues we face.
Source Link: https://medium.com/@iCash.io/processes-for-arbitration-on-sm...
[+] [-] anoncoward111|7 years ago|reply
If I could paraphrase Charlie Munger, in the stock market, the only people who are successful long term are those who bet massive sums, very rarely, when they are sure that the price of a security is severely and unproperly valued.
If Tesla is currently trading at $355, and you have evidence for yourself that it should be worth something like $0 or $3,000, then this would be an example of the current market prediction being extremely wrong.
A stock's price is really just a prediction of the company's future cash flow in the event of profits, losses, sale of assets, so on.
[+] [-] gcb0|7 years ago|reply
the academic consensus is that as soon as you create a second incentive (the prediction market itself) you lose all the insight you could gain from external factors. At that point they are no better than simply looking at the stocks (the predicted market). hence prediction markets are by definition, useless.
the cristall ball people still trying to make it happen are now trying to see how much they can limit the prediction market itself for it to not affect itself (hence the limitations you don't like on the one you mention)
[+] [-] gammateam|7 years ago|reply
What I like about financial/forecasting crypto projects like Pareto Network is that there is no capped upside, and you can still determine the conviction some people have about an outcome
A close runner up is Numerai, given that you can tell the 'confidence' someone has, but the capped upside is arbitrarily capped, and the purpose of the project has nothing to do with censorship resistance and is beholden to the whims of the Numerai hedge fund.
[+] [-] gamblorrrr|7 years ago|reply
[deleted]
[+] [-] camjohnson26|7 years ago|reply
Still a very cool platform. A lot of people use predictions.global to get a birds eye view of the markets.
https://predictions.global/
And the Discord channel is always busy. The mods there are very responsive.
https://discordapp.com/invite/faud6Fx
[+] [-] drcode|7 years ago|reply
1. A big selling point of these markets is that there are theoretical commercial value to predictions- i.e. a company could get information of the likely success of their new product line ahead of time, to help them make strategic adjustments. However, Robin Hansen (one of the top economists working on betting markets) says, counterintuitively, that industries have been very luke warm about actually doing this in reality, for various psychological and economic reasons (he got into this in his econtalk interview I think)
2. Suppose bets on Augur start ramping up- How do we know these are real bets from real customers? The Augur company has immense funds on hand and its easy on blockchains to simulate fake volume through anonymous accounts. I have no reason to doubt the ethics of the Augur team, but it's unfortunate that if their marketplace starts taking off that it'll be so hard to tell how organic the growth is.
[+] [-] sorokod|7 years ago|reply
I think that the relevant term is liquidity
[+] [-] dminor|7 years ago|reply
It also allows different predictions to be linked, so that you can bet on the outcomes of two events, or on the outcome of one event given a particular outcome of another event.
[+] [-] 0xdeadbeefbabe|7 years ago|reply
Wasn't obvious to me. Can't a prediction stand alone, as in real life?
[+] [-] ordinaryradical|7 years ago|reply
“Today, Augur had 30 active users and 123 transactions in the last 24 hours. The market cap is roughly $269.2 million. That means that each active user is now worth roughly $9 million.”
https://mobile.twitter.com/lawmaster/status/1027188396291235...
[+] [-] MusaTheRedGuard|7 years ago|reply
Copying my comment from below:
Please note that an "active user" is an active address( i.e one that has made a bet on the platform) in the past day. This doesn't take into account users that made a bet in the past( most bets have long term horizons, >4 to 5 months) or users that have a current position but aren't betting anymore or users simply observing the markets( looking at a front end like predictions.global)
Also note that active users is probably not a great metric for this application, as it's not a consumer app/ time sink thing.
Money at stake is much a better metric
[+] [-] snarf21|7 years ago|reply
[+] [-] jrockway|7 years ago|reply
[+] [-] wskinner|7 years ago|reply
Can anyone comment on how settlement actually works? A persistent problem with new tokens is handwavy explanations of absolutely core features. With a human legal system, humans can argue over intent. When “code is law”, pure intentions alone will not do.
I would love to use a functioning prediction market, and I believe it may be one of the legitimately useful non-money applications of blockchain. But I really wish they would focus on explaining how it solves the key problems rather than marketing the concept.
[+] [-] otoburb|7 years ago|reply
The Augur whitepaper[1] explains the gory details, but at a higher level when the market creator defines the prediction market and event states through a smart contract, they must also specify the "designated reporter" and the "resolution source". The designated reporter should be somebody you trust (perhaps even yourself) to report on the event using the specified data source.
If the final event state is invalid, then you (the market creator) forfeit your validity bond, which is a form of punishment for creating a market that ends up in a state of ambiguity.
If the event state is valid (i.e. one of the set of outcomes that can be unambiguously determined) then the settlement proceeds.
After settlement finalizes, reporters get their REP token payout, market creators take their ETH cut, and traders who still hold shares corresponding to the settled reported outcome get their ETH. I believe each reporting cycle is still 7 days.
There are some edge cases where an event outcome can be disputed by other reporters in case the designated reporter is incorrect, but the system economic incentives are such that this type of behaviour is heavily discouraged.
[1] https://www.augur.net/whitepaper.pdf
[+] [-] prepend|7 years ago|reply
In augur the community seems to determine this based on how much they spend to reconcile the transaction. So lots of people could tip the scale. On big tickets this would likely attract attention, but on smaller items it could be a problem unless members of the community have reputation and identities.
It seems like, from reading the faq [1], that it really just boils down to a proof of stake consensus method with multiple rounds of dispute before and after a market is finalized. With a documented fork procedure. So if consensus gets manipulated, it is very clear and the market itself loses reputation through that they tried to design in their fork process. But would also get likely checked by a “hard fork” away from whomever is running that particular blockchain and manipulating accounts.
The “ethics arbitrage” opportunity would be to look for markets where the outcome is realistically fuzzy “did someone lie” or has an invalid outcome and tip the scales without detection.
[0] https://www.predictit.org/Contract/9262/Will-Trump-testify-t...
[1] https://docs.augur.net/#tentative-outcome
[+] [-] adbge|7 years ago|reply
[1] http://mason.gmu.edu/~rhanson/futarchy.html
[+] [-] briatx|7 years ago|reply
https://thenextweb.com/hardfork/2018/08/20/dapps-userbase-dr...
[+] [-] guiomie|7 years ago|reply
Isn't the reporting part qui susceptible to a sybil attack?
[+] [-] whazor|7 years ago|reply
[1] https://medium.com/@joeykrug/fees-fees-and-fees-8939c2b5ecae
[+] [-] inputcoffee|7 years ago|reply
Write a program to take the opposite side of any bet that you can hedge in the public market.
For example: if someone bets against Tesla, and you can take the opposite side, but (more) cheaply offset your risk in the option market.
[+] [-] blanderman|7 years ago|reply
[+] [-] DennisP|7 years ago|reply
If the prediction is tightly bounded (e.g. "Mr. X will be killed on Sept. 3, 2018") then you warn the victim.
If the prediction is loosely bounded ("Mr. X will be killed within the next year") then the odds won't be nearly as good, since many non-assassins may bet in favor. The assassin will have to put up a larger bet for a given payoff. Having done that, the assassin wins even if a different assassin does the work, so there's a public goods problem among assassins, and they all have some incentive to stay home playing Call of Duty instead.
[+] [-] xu_ituairo|7 years ago|reply
[+] [-] drdeca|7 years ago|reply
But I don't know if it ended up like that in the final version
[+] [-] camjohnson26|7 years ago|reply
[+] [-] arisAlexis|7 years ago|reply
[+] [-] AznHisoka|7 years ago|reply
[+] [-] AnthonyAguirre|7 years ago|reply
For such items platforms like metaculus.com and Good Judgement seem more likely to provide more useful predictions, but without the ability to hedge against events that prediction markets have.
I discuss this in depth in this podcast: http://rationallyspeakingpodcast.org/show/rs-214-anthony-agu...
[+] [-] busterarm|7 years ago|reply
The site acts like the main challenges are legal when really they're technical.
[+] [-] mherrmann|7 years ago|reply
The only problem I could really see being solved by Augur is that maybe it can work around regulations that prohibit many forms of "bets". But the article also says that Augur is facing legal challenges already, and it will be determined in September whether they can continue.
Its decentralised, "illegal" nature reminds me of BitTorrent. Sure, there is money to be made. But the real change will come when companies akin to Netflix figure out how to do it centrally and legally.
[+] [-] deevolution|7 years ago|reply
[+] [-] wyldfire|7 years ago|reply
Conspicuously missing from this article: Augur's business model. They presumably get a house take?
[+] [-] gibsons77|7 years ago|reply
[+] [-] granaldo|7 years ago|reply
[+] [-] drdeca|7 years ago|reply
So, no, I don't think they have a house take? However, the individual markets are each made by someone, and I believe that these "market makers" are financially rewarded through I guess a sort of a house take thing?
[+] [-] justacat|7 years ago|reply
Fees on the Augur protocol go directly to the market creator and REP holders who report and dispute outcomes. The Forecast Foundation does not recieve any fees from actions, trades, markets or use on the Augur protocol.
I guess this has to do with them being a decentralized marketplace, which as the article discusses does have some cool perks.
In the USA, PredictIt.org is a site that is also aimed at prediction, but they take a 10% fee on profit, and then a 5% fee on withdrawal. Seemingly a lot more volume on their markets than Augur at the moment, with some of their markets having hundreds of thousands of shares traded, and thousands of comments.
https://www.predictit.org/About/HowItWorks?page=home
Edit: After I posted I now see that Gibsons77 gave a better and more concise answer to the question
[+] [-] Nursie|7 years ago|reply
[+] [-] georgewsinger|7 years ago|reply
[+] [-] fabricexpert|7 years ago|reply
[+] [-] ponderatul|7 years ago|reply
[+] [-] bowmessage|7 years ago|reply
[+] [-] symlinkk|7 years ago|reply
I don't know that there is much value to running it on the blockchain though.
[+] [-] yummybear|7 years ago|reply