Eric Neyman's Shortform

Eric Neyman

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There's been increased discourse on whether prediction markets are net-positive for the world.

My take: so far, they haven't been clearly net-positive. However, when I think back to Covid, I sure wish that prediction markets had been as mature of a technology as they are today; prediction markets in February 2020 on how many cases there would be in April 2020 would have probably made the world marginally more sane.

Prediction markets are probably most useful in a crisis, where decisions need to be made quickly based on uncertain information. I find it plausible that we'll have such a crisis within the next decade, particularly in the context of AI. And I think that the benefits that prediction markets are likely to provide in such a crisis will likely outweigh the negatives incurred thus far through things like increased sports gambling.

6Daniel Kokotajlo6mo

Brainstorming more examples: --China and US are in a tense standoff, negotiating a possible AI Deal to end the AI race. Tech company propagandists are bleating that if POTUS accepts the latest proposal, China will win and we'll all be slaves forever. Prediction markets 40% credence to "deal accepted" claim and 4% probability to the "China wins conditional on deal acceptance?" claim, because traders correctly realize that actually things will be pretty normal if the Deal is accepted. They also assign 6% probability to "China wins conditional on Deal rejection" claim because they assign 50% probability to "WW3 if no Deal by EOY" and they think China has a 24% chance of winning WW3 and that if this Deal is rejected then there's a 50% chance that no Deal will be made by EOY. --There's a round of mass layoffs in some sectors, and lots of people freak out about AI unemployment. Then there's a backlash to the freakout, with lots of economists and tech shill types saying that actually things will be fine just like previous automation waves. However, the prediction markets aren't buying it; they say that a year from now unemployment will be above 50% with 75% probability. "If you're so smart" people say to the economists "why don't you 4x your money in a year by betting on the markets?" (I could get back to work but I suspect I could do this all day)

3yams6mo

I think I should have asked more like ‘the current instantiation of prediction markets’. I agree that prediction markets could be useful in principle, but I‘m not aware of any cases, in practice, where there’s tightly correlated multi-market action of the kind you describe in your first example painting a vivid and cohesive predictive picture. I’m also not aware of cases where commentators have been successfully pressured to bet on their beliefs via prediction markets (I wouldn’t be surprised by a single example in this second case, but I would be surprised by a very high profile example involving a commentator well outside our sphere). My suspicion is that, for prediction markets to pay off around big events, we may need to fix them (in ways other than increasing the liquidity/user count) ahead of time (I don’t have strong guesses for how to do this). [sorry if any phrasing is awkward; I’m concussed]

I'm more optimistic than you I guess.

Remember Liberation Day? Trump's Tariffs? The reaction of the stock market was crucial for determining how all that played out; things would have been much worse if not for the clear unambiguous signals being sent by the market about the expected future effect of various announcements. I count this as a win for prediction markets, because stock markets are basically a form of prediction market about the value of companies. Seems plausible to me that we can use prediction markets to bring the magic of stock markets to other domains, and that if we did that, it would be really good.

Eric Neyman's Shortform

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Eric Neyman's Shortform

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