deletedFeb 7, 2022·edited Feb 7, 2022
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"A few smart people will know ways around this." Outlaw something, only outlaws will use it, or those using it will be deemed to be outlaws. Such a waste. Other countries may be smart enough to make better policy choices.

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I don't think "real money" will be a key feature for prediction markets to go mainstream -- it will need to be a reputation-based system.

You're well aware of the "why would I invest money on something that is 99% likely to happen but will not resolve for 5 years" problem. There are also all the problems of poker sites - the few people that make money are subsidized by a large amount of financial losers. And losing money predicting the future is less fun than poker. And third -- you want an ecosystem where the top predictors more than double their "money" every year - which is possible with fake money but not real money.

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Was there a prediction on how quickly regulatory capture would be used to stifle competition and innovation?

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Have prediction markets or super forecasters had any luck in predicting the direction of stocks, the success of a startup, etc? This seems like a way to make profit off good predictions outside of the prediction markets themselves

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Feb 7, 2022·edited Feb 8, 2022

Hi Scott, the link to the CFTC decision is [broken, details omitted in edit]. Feel free to delete this if fixed.

Here's the CFTC press release https://www.cftc.gov/PressRoom/PressReleases/8478-22 - has a sidebar that links to an identical filename, though when you click it you won't get an ordinary file, just a download, which probably accounts for it. For the closest thing to a clickable link you can right-click and select 'copy link', which gets you https://www.cftc.gov/media/6891/enfblockratizeorder010322/download

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How do you structure a prediction market subsidy so that it encourages more/better forecasting?

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I think this is far too negative / absolute on the US regulatory piece. If the conditions for making it work are satisfied elsewhere and it begins to attract real money / real volume, the US will grudgingly accept it for fear of losing out on the position as the financial capital of the planet. I strongly doubt the CFTC wanted to accept bitcoin futures but eventually they had no choice; I expect you get that here eventually.

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Feb 7, 2022·edited Feb 7, 2022

Am I the only person around here who thinks prediction markets are a really bad idea and ideally should not exist? Like, I don't want to live in a world where (a) making money by gambling on your ability to predict the future accurately is a common thing or (b) where decisions are being made by [edit: I mean 'based on the predictions of'] an anonymous mass of gamblers trying to predict the future. Those both seem independently shitty. And prediction markets do not seem like the only solution to the problem of forecasting being difficult and hard to calibrate or scale.

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We need it to be legal (and high-volume-allowed) in part so that big hedge funds and the like can do superforecasting for insane profits. Making it illegal-but-accessible through darknet-style crypto schemes doesn't help, if when Goldman Sachs wants to do it, the government fines *them* or otherwise prevents it.

Getting firms into the prediction-for-profit business is a big part of how we get these more useful and accurate in the long run.

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One of the biggest reasons a decentralized prediction market hasn't happened yet is that deciding how a prediction resolves is very hard to do with just a smart contract. What is the source of truth (the oracle) that the code can look at the make the closing decision? A foundational step to building decentralized markets is building the oracles.

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Legalizing prediction markets is easy. Just figure out how the Vegas casinos can have a lucrative monopoly on the industry. Their lobbyists will take care of the rest. That's exactly how sports betting got legalized -- albeit with ridiculous rates of "vig."

Alternatively, all the autists who care about prediction markets should crowdsource a plan for political lobbying. I'd start with libertarian Senator Rand Paul, and then figure out who is on the committees overseeing the Commodities Board and how to persuade them intellectually and/or with a combination of political carrots and sticks.

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Balaji vs. Scott 4.5 hour podcast wen?

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Feb 7, 2022·edited Feb 7, 2022

It's so bizarre to think that I'm about to write this sympathy-for-the-regulator comment, but ...

In a recent subscriber-only thread, I asked you about the concern about people using futures markets, including prediction markets, to profit from causing harm when events aren't exogenous (they can short something and then actively damage that thing). I mentioned that a futures trader told me that the supposed solution to this in existing regulated financial markets is that regulators will sometimes investigate how someone profited from a specific short, and have indicia that they use that maybe work.

I recall that you answered that it seemed like the legal system was able to deal with this and that we didn't see some of the extreme cases, so it seemed like normal laws had kept this kind of behavior in check, and that the same might work for prediction markets with real money.

One thing I'm not sure of in that answer: is it more "normal laws" like "people who commit arson or murder are likely to get caught by the police, so people are unlikely to risk doing those crimes in order to profit from a short" or more "normal laws" like "people who profit from a short after murdering someone or burning something down are likely to get caught by the financial regulators, so people are unlikely to risk doing that"?

That is, do we think that people don't profit from shorting stuff and damaging it because they don't want to risk doing the damage, or because they don't want to risk getting the suspicious profit?

If it's more the former, then prediction markets shouldn't matter much because people are already being deterred from causing many relevant kinds of harm.

If it's the latter, then the regulation in the markets might matter a lot, because people who are currently afraid to short companies' stock in regular financial markets and then do something bad to the company may see ways to get away with it in a more unregulated and anonymous market.

(This also includes insiders: insiders may be reluctant to misuse their confidential knowledge, or use their positions for sabotage, if they know that financial market regulators may catch them. If they do either thing in a not-very-regulated real-money futures market, maybe they know that no regulator is likely to catch them, so the risk of disloyal behavior by insiders could go up a lot.)

To put this a different way, is it possible that the CFTC is saying not "we want power for no real reason because we are so hidebound and averse to change" (or not only that), but something like "if these markets get big, all kinds of people will be able to use them to profit a whole lot from doing bad stuff, and we are the ones who would be called upon to catch them doing that, and we know we don't have the resources and capabilities to do that"?

Of course, this is no justification at all for banning prediction markets in things where neither side of the question can be made more likely by causing harm or damage. And it's no justification at all for banning them in things where it's clearly impossible for people participating in the market to influence the outcome.

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The powers that be are betting on AI. It's a way of cutting everyone else out of the equation and maintaining control. Prediction markets are competition, and they have the potential to destabilize those currently in control by radically democratizing knowledge.

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I miss Polymarket. I found it fun, even if I did terribly at it. I turned 50$ into 9$.

Everything about your piece feels accurate to my experience. I went to Polymarket because it was available and added weight to my predictions in the form of money. I won't go to Metaculus because there's no real incentive to be right over imaginary internet points. I won't go to Kalshi because signing up looks like a chore.

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Feb 7, 2022·edited Feb 7, 2022

I feel like you could try to partner with some huge gaming company (like Riot or Blizzard) to bet for in-game money, which lots of people seem to want

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I think "easy ways to buy drugs" was probably a socially valuable consequence of crypto. The Silk Road was a more legitimate and trustworthy market for drugs than the street dealers it supplanted. It had an escrow system, a higher degree of quality assurance, and vendor reviews which could be verified through multiple sources. I don't have any data, and I think it would be a difficult question to study, but I strongly suspect it had a net positive effect.

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On the subject of prediction market design, I was thinking recently about Kelly bets and how doing that math yourself is an unnecessary inconvenience for prediction markets to require. Anyone have any thoughts on how valid/unoriginal this is?

The Kelly bet is the optimal bet to make based on your confidence and edge, but the Kelly bet is denominated as a fraction of your net worth (or more realistically, investment pool). Yet prediction markets in practice require you to section off a fixed piece of your investment cash and leave it in escrow until the prediction is resolved. A professional forecaster would obviously rather have a prediction market where they could demonitate bets as a percentage of their net worth, where they could leave their pool invested in equities while also pledging it to bets, and where they could make leveraged bets on a greater balance than their net worth.

And that doesn't seem like it should be impossible? It basically requires a frictionless autotrading system. If you plug in your perceived real probability, or even better your buy and sell cutoffs, then the computer can calculate your edge and thus your bet. And then so long as all bets resolve in a well-ordered manner, your net worth is always a known value at the resolution of each bet.

Turning those perceived odds and net worth numbers into prices is trickier. You'd need something which profitably divests participants as the resolution becomes apparent and trends towards their prediction. But you'd also need something which doesn't blow up unrelated markets when a participant loses somewhere else. It's fine if unrelated markets are somewhat affected, because the participant's new, lower net worth does, in fact, give their opinion lower weight.

Anyone know if an existing algorithm handles that kind of aggregation?

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Seems you answered your own question re: prediction markets: if prediction markets are really more accurate - that's bad from a narrative control and population control perspective.

Equally crypto: You can't live on Crypto without the ability to convert to fiat. The conversion to fiat means you can't avoid the KYC/AML and the banksters.

So Bored Apes is really the purest crypto: collective nerd art as I've been saying all along - value via scarcity and perceived value, and nothing more or less.

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>My favorite commentary on this decision is Nuno Sempere’s The American Empire Has Alzheimers. He lists various bad decisions the US has made, from Vietnam to the bungled withdrawal from Afghanistan last year.

Putting aside the question of whether POTUS' comments should be seen as predictions, I would have found the linked bit far more persuasive if there was any attempt made to show how prediction markets performed on the kind of high-profile political embarassments in question. The fall of Kabul to Taliban forces seems like it would be the perfect opportunity - anyone have a link to market performance on an appropriate question?

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Feb 7, 2022·edited Feb 7, 2022

> You’ll try to use Coinbase

Was about to mock that but then it turned out I mocked myself by recalling the pushes against private wallets.

Think a good solution would be a crowdfunded ad campaign against „hosted“ „wallets“. Do the Facebook-thing to the rest of the misbirths.

Only missing piece is to figure out how to profit from that, then it should happen automatically. EDIT: Shorting is the boring default solution and would require lawyers, rat holes or proper oracles.

Now another trouble could be the cysts running the simulation outlawing advertisements against themselves, to protect their users or because racism hesitancy or something like that. Unfortunately crypto is not quite ready to bear it’s own social media. But I‘m sure the proper incentives can have angry nerds come up with deliciously sinister schemes. EDIT 2: One idea would be rewarding sharing of ads I mean funny may mays with tokens. Have fun paying out the ass just to ban like a quarter of your 15-25 male userbase (my guess what the archetypical target audience for something like that would be).

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Feb 7, 2022·edited Feb 7, 2022

If prediction markets are so effective, why not use them as a sort of substitute UBI?

Each unemployed citizen gets a very basic income together with an non-transferable amount that can only be used to buy shares on an electronic prediction market addressing questions of societal importance, and which can be cashed out. Something like lottery tickets, but playing a game of skill, not chance, and more potentially useful than poker.

Not only does this give people something to do and potentially gives society a better predictive capability, skilled players can make serious bank and it also allows society to scout for real-world talent from among consistent winners.

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If you accept Scott's view, "who will win prediction markets" depends on if Manifold can land crypto/fiat faster than Kalshi or any of the crypto markets land "anyone creates their own markets". This framing is quite good for Manifold! Crypto is central to our 3 month roadmap, whereas none of the other prediction markets seem to believe in "anyone creates your own market". (Scott mentioned that this mechanism is prime for any other market to steal -- and I actually agree! It would be great to have more competition on this front.)

Some reasons Scott might be wrong:

a. Reputation or fun is a sufficient motivator, so Real Money is not necessary. This is something we as a team are interested in, since it means we can skip crypto shenanigans and just focus on a good web2 product -- and looking at advanced F2P economies, there's reason to think that people may want to earn in-game currency on its own merits. (I'm personally a bit skeptical though.)

b. "Create your own markets" is not something that traders actually need; traders prefer to trust platforms over creators as a schelling point, or fragmentation in markets leads to insufficient liquidity on a per-market basis. Aka a long tail of niche content doesn't work for markets (unlike blogs, songs, or books) because markets rely on network effects to be valuable, whereas other content consumption works in single-player mode.

c. Overall, trading on predictions is too niche, as something that grey-tribe people like but not everyone. I face this a lot when trying to explain Manifold Markets, or the whole concept of prediction markets, to any of my friends and family. "Isn't this just gambling?" they ask. However, the amount of liquidity in stock markets suggests that not everyone needs to participate for this to be valuable; just interested parties willing to put money on the line.

I'd place <20% credence on b and c -- otherwise I wouldn't be building Manifold! -- but would definitely love to hear other estimates.

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Is there a reason Manifold Markets isn't taking the european/technically literate american only approach and allowing real money?

Also, to your point on genuinely decentralized black market alternatives, that misses the point entirely. Nobody (I don't) really wants a black market alternative crypto prediction market, they want a squeaky clean mainstream one that does have the sort of institutional wall street, think tank, academic attraction that can make it actually important. The big money and influential people simply won't, and if they manager other people's money often legally can't, show up to a prediction market that is not heavily regulated and ideally has a board full of people like them. In that regards, I think that Kalshi spreading its wings and scaling up dramatically is the best bet by far

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Brilliant article, Scott! I'm glad to see your vision for prediction markets is so expansive and includes personal topics like whether a date will succeed! If it weren't for the regulators we could be so much further along. Nevertheless, I think we can eventually reach this vision!

While real money is a great motivator, I do think play money markets will work one day, whether or not we succeed with Manifold Markets. Virtual currencies in places like Roblox or Second Life ultimately can become just as scarce and valuable. In other words, we can escape the US legal system through virtual worlds which have the freedom to set their own rules.

But I hope that you needn't build a virtual world to make a currency valuable just so you can create some legal prediction markets. Our hypothesis so far with Manifold is that an ecosystem with enough market creators and traders would bring that sense of value to our play money.

If you have a critical mass of traders (even if a minority) that are trading to win, then even play money markets become accurate. With accurate markets, people tune in, and create their own markets. Then the play money has value in how it changes forecasts that people are sharing. It's a chicken and egg game, and once it's started, maybe it will fulfill your prediction market vision.

Obligatory link to our site: https://manifold.markets

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There are a couple of important points that Scott seems to have missed here.

1. Decentralized services don't really have to make money, in the same way Ping, BitTorrent, Sip or HTTP (the protocols) don't make money. After all, if the service is decentralized, there's nobody who could make money from it, it's just a specification, or, in the case of smart contracts, just code.

Once written, specifications (and a smart contract is essentially a specification that a computer understands) don't really need money to continue existing. If someone takes the time and effort to develop such a market, it's here to stay and it doesn't have to be profitable to anyone, except the players of course. That's the beauty of blockchain-based solutions.

2. Crypto, in itself, isn't really more regulated than it once was. It's as easy to send your Bitcoin to someone else as it was in 2010, or even easier. What changed is the process to convert your crypto to other, non-crypto assets, assets that government can (directly or indirectly) control. If you want to interact with the Fiat currency system, you need to interface with payment card processors, banks, wire transfer companies (think Swift) and so on. All those companies have real offices to search and real people to arrest, so they have to follow government rules, which often require them to ban you if you don't do so too. It would be much simpler for a crypto company to operate illegally if they didn't need those connections, though that street goes both ways. After all, if you're structured in a way that's hard for governments to crack down on, you can get up to other shady behaviors, including stealing all the money you're currently holding and running away with it. Darknet markets are a perfect example of what often goes wrong in these situations. This is a self-perpetuating loop, if crypto isn't popular enough, you need to interact with Fiat, which governments can regulate, which makes crypto less enticing. If crypto becomes popular enough, though, the need to interact with fiat suddenly lessens, which makes crypto easier to use, which makes it more popular, and that basically leads to a state of crypto domination.

3. I don't think the internet freedom situation is as dire as you make it to be. It's all a matter of friction and a matter of incentives. In Poland where I live, everybody and their dad once knew how to use BitTorrent and burn pirate DVDs. Even if they didn't, they knew someone who did, or, at worst, knew someone who knew someone. The need was there, it was so much better to torrent than it was to buy CDs, iTunes Store wasn't really a thing here, so people overcame the friction to learn. The main reason people stopped using it is not that it became more difficult, but that people just don't need it any more. The centralized platforms (like Netflix) have caught up, and are now easy enough to use to justify their cost.

I read somewhere that approximately 30% of people in Russia or China know how to use a VPN, and that would be consistent with the anecdotal evidence I've heard. In most of those places, though, the VPN users aren't really interested in political activism and world news, porn, Youtube and WhatsApp are often much more important.

Maybe the best thing that could ever happen to internet freedom is social media companies cracking down on anti-vaxxers, conspiracy theories and other such movements. If they do it with enough force and at the right moment, the number of people who believe in those will be big enough to warrant a better, decentralized solution, and people are willing to go a long way for their faith.

4. With that said, there are a few very important trends that endanger internet freedoms. The first one is the trend for maximum security and cryptographic signatures everywhere. It's most evident on smartphones, where running unauthorized apps is much more difficult than it was on Windows approximately 20 years ago, but computers aren't immune either. Windows warns you if you're trying to run apps that Microsoft hasn't signed, although it's still possible to run them if you know what you're doing. Installing an unauthorized operating system is also more difficult, SecureBoot requires every OS to be signed with a private key of your computer manufacturer. Those checks can still be disabled on most computers, although Microsoft is tightening their OEM policies concerning this issue. The web was always a safe haven from such shenanigans, but that ended with the universal push to HTTPS everywhere. Browsers now warn you whenever you try to enter sensitive data on a website that doesn't have a valid TLS certificate, and those can only be issued by a small number of entities, which are easy to regulate. They aren't regulated yet, not in that way at least, but once governments see the opportunity to do so, I don't think they'll pass it up. This system isn't fully airtight yet, it's still pretty easy to install unauthorized software at almost every layer, but the number of holes we still have is shrinking with every year, until eventually none remain. Even now, the most popular platforms of all, which are the mobile operating systems, make it pretty difficult. Sure, there are always jailbreaks, but with the multi-million-dollar exploit market on one side and newer, much better security systems (and particularly memory-safe languages like Rust) on the other, those are also becoming more difficult to discover, even without the risk of government action.

A second important trend is the inability for most end-users to accept internet connections. NATs are one reason for this, the pool of IPV4 addresses is small, therefore IP addresses are expensive, so ISPs often try to assign one address to multiple users. The exact same thing is done by most home routers, users usually have at most 1 public IP address, but much more than 1 device. Because of how the internet is structured, this means that users are able to make outgoing connections to other hosts, but are often prevented from accepting incoming ones. This is fine for connecting to big sites like Facebook, after all, it's enough if one side is allowed to connect and the other is allowed to accept, but it's much more problematic when cryptocurrencies are concerned. If two users need to connect to each other directly, but none of them can accept connections, there's a need for a central server

Another reason for this trend is the move to mobile. Laptops and PCs are less popular than they once were (though the pandemic has reversed that trend somewhat). Those devices often limit what apps can do in the background, which basically makes it impossible for a smartphone to actively participate in a blockchain at all times. This is done for good reasons, battery life being the main one, but it does have internet freedom implications.

5. In the end, I think smart people will always find a way, and if I'm understanding this correctly, that's what we need for prediction markets to succeed. Once a decentralized solution is found, people will use it and get rich. At first, we don't need average Joe Shmoes on the platform, predicting the next 9/11, the next Trump win and the next pandemic, with millions won or lost, will probably get a service noticed anyway, and the might set us on the path of legalization.

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What are the laws like on lotteries?

Thinking of the “scratch-and-win as oddly-shaped savings strategy”: could you let people purchase initial reputation or whatever, and periodically draw a lottery winner from the reputational pool?

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One way to understand cryptocurrency is to look into the divide between 'bitcoin maximalists' and literally everyone else in cryptocurrency. That makes phrases like this:

> the crypto infrastructure, crypto social norms, and crypto user base

Sound like someone describing 'internet social norms', or 'the internet' user base. Bitcoin maximalists see nakamoto consensus as a fundamental technological breakthrough, and everything else, even ethereum, as a ponzi scheme and scam. So when you write a pharagraph like this:

> > You’ll try to use Coinbase to send your crypto the prediction market, and it will warn you that this is a Non-Preferred Site that isn’t a Coinbase Partner and they’ll be informing the IRS of this transaction so don’t try anything funny.

The outcome you are describing was obvious to bitcoin maximalists a long time ago. Bitcoiners have the lightning network, and a culture around self custody of our coins. Bitcoiners have deployed satellites running bitcoin full nodes, and work on projects assuming governments will eventually try to ban private ownership. Meanwhile, 'crypto' projects include companies raising a million dollars from venture capital firms and having CEO's.

I think you're right to be skeptical of 'crypto' projects, but not bitcoin.

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Just a thought:

With some fields having such poor replication numbers, I think it would be good to pay professors who publish research partially in binary prediction options which pay $1 if the study replicates and $0 if it doesn't. The professor wouldn't have the ability to sell the options for a certain number of years.

People can often intuit how likely something is to replicate and people are often searching for counter-intuitive and cool findings. When you can p-hack, you get a perverse situation in which people publish a bunch of counter-intuitive findings and you get poor replication in the field. But we want to have genuine counter-intuitive findings. A professor who publishes a counterintuitive finding, would see the value of his prediction options plummet to near zero. But he could buy more of his options if he is confident in his research.

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Manifold could be improved with the policy that if enough people object to the resolution of a question, it gets escalated to an arbitrator (but the objectors lose a little money if the arbitrator decides against them)

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A quick note on the trivial inconvenience and censorship thing. Sadly since the original article https://www.lesswrong.com/posts/reitXJgJXFzKpdKyd/beware-trivial-inconveniences was written places like China have become a lot more aggressive and effective at blocking VPNs. So it's no longer the case that basically every middle class person can get one.

The concept of trivial inconveniences is probably one of the most useful things I picked up from early LW. Very helpful to structure your life around avoiding them and keeping them in mind when you want people to do things.

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This is exactly the sort of thing that the administrative state makes more illegible, regardless of whatever fiction we tell with notice-and-comment rule making. I work in a heavily regulated industry and have occasionally had to interact with the small handful of people who deal directly with the regulators, and I am amazed at how little actual effort goes into having expert rules and how much goes into keeping things as static as possible. I get that there are good reasons for not letting things change too much too fast (Chesterton's fence), but no one *ever* seems to want to let things grow with little regulation. If someone is looking for a book review topic, I would be very interested in any sort of deep dive into how much (or, I suspect, little) things have changed with regards to the thirst for regulation from early internet to present day COMPETES Act regulation.

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More on crypto pessimism (not fully related, but curious to hear people's thoughts): why does everyone (or at least every crypto fiend) say that "Crypto cannot be stopped"? The most regulation that Scott's post discusses consists of forcing non-savvy people to "let the IRS know". But as far as I understand, although a government may be hard pressed to stop the actual network on which (proof-of-stake-based) crypto is run, it's, technically speaking, trivial to stop crypto from being used in anything like an economically emancipatory way just by banning major retailers from accepting it as I understand China has already done. The American and other governments have a vast interest in not allowing other currencies from circumventing their monetary policies, their tax laws, their money laundering laws, their sanctioning policies, etc. etc. (the power of printing currency in particular, while effectively a regressive tax, is arguably vaulable for emergency spending needed for financial crises, wars, pandemics, etc.). Even if it'd be politically expensive to stop crypto, in my mind doing so can be easily justified. It would simply require a sustained campaign of political messaging and dropping spooky messages from the Fed/regulators to let all the big players get out with their profits and (potentially) not stand in the way... Best case scenario is crypto as a movement forces banks to lower their transaction fees before it's banned completely. I'm just not seeing the whole "it's unstoppable!!!!" libertarian dream from ever being realized through cryptocurrency (maybe encrypted communications is as good as it gets).

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I'm surprised by the pessimism about Kalshi. It's true that having lots of questions with real prediction markets is better than having only a few such questions, but having only a few is much, much better than none! It's not just "war in Afghanistan" level stuff: there's also several "how much Covid will there be in X place at Y time" questions, which, while they aren't so useful to people not in X, are still very nice to have for stuff like wedding planning.

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One possible way to get around gambling regulations would be to develop "charity prediction markets", where people are required to distribute their winnings to nonprofits:


I see this as being a middle ground between metaculus' "internet points" approach and real money markets. I hope that these could catalyze the transition to real money markets.

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>Manifold figures out some kind of weird crypto thing that isn’t real money from a legal perspective, but is real money from a “people really want it and will put a lot of effort into getting it” perspective.

Perhaps they can tie it to some sort of pseudo currency like airline miles points or some in-game MMO currency. Doubtless won't be wildly effective, but if they can pair it with people who're doing it for completely imaginary points already, they might get somewhere.

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Good question. I’m quite embedded in this world — I’m the author of the first blog post about Bitcoin and a founder of Zcash. There is an arms race between innovators and regulators, to be sure, but this kind of oppressive regulation just increases the profit margins of a future successful innovator, so the innovation side is going to win eventually. That’s because the regulators don’t know the trick of co-opting the movement by providing a more convenient alternative and funneling all the users into it. Instead they’re just flailing around trying to bully everyone into stopping this newfangled weirdness and going back to being part of the boomer society that they know and love. And control.

So why haven’t the innovators already won? It’s just been too early so far (ie the first decade). Everything was too early a few years ago: technology, product design, user awareness, organizational structure (which is critical as your post above observes), etc. It looks to me like the first successful experiments and the accompanying social learning cycle is now in effect, so I predict that in five years there will be a prediction market with all of your wishlist items (assuming they turn out to be good) and with deep liquidity, huge numbers of users, and more.

P.S. omg not Monero. Zcash is the real deal. I’m not just saying this because I’m a founder of Zcash — causality flows in the other direction. I became a founder of Zcash because I knew Monero would never stand the test of time.

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It seems like the three "prediction markets will strike big" criteria would be filled best by a system which entirely chain-based, with no privileged market-resolution oracles sitting in NYC offices for the CFTC to raid, and with no particular limitations on who can launch new market questions. Something like this exists, namely Augur; I don't know if Augur's particular design is how I would have built it ("include a special coin we can ICO" seems to have been a key design constraint) but it sounds broadly workable, and they launched over a year ago. Why hasn't this taken off?

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Hi everyone,

Appreciate the discussion Scott and others are having here. There are definitely costs to the route we’ve gone at Kalshi–as you mention--but we’re really confident there are huge benefits to come (which hopefully justify the time and crazy effort we spent doing the regulatory grunt-work to make legal PMs a reality). You're right regulation is not fun at all! Regulation isn’t just for its own sake. The protection and safeguards offered by CFTC oversight could be the difference and what brings risk-averse institutions and individuals with large amounts of capital into the fold, which would allow PMs to properly blossom. Our current position limits don’t support that, but you can expect those to incrementally change over time.

If the US is the North Korea of prediction markets, Kalshi’s designation by the CFTC was the first step towards liberalization (what’s the equivalent here? Giving up their nukes? Free markets?). We might be the first, but I really doubt we’ll be the last.

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Regarding the crypto-focused part of the article: at what point does it become more productive to work to change the culture back to an anti-censorship ethos, rather than continuing to trying to route around all the censorship with an endless series of increasingly intricate technical bodges that are all easily defeated with xkcd's five dollar wrench (https://xkcd.com/538/)?

Yes, changing the culture is a big job. But if you don't change the culture, it can simply just keep applying the five-dollar wrench to anybody it doesn't like. No "self-executing contract" can counter sufficiently motivated government force, unless you're going to put Skynet on the blockchain.

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A genuinely functional prediction market seems like a perfect example of a Moldbuggian power leak: a source of theoretically unbiased social/political power which will attract ideologues and other bad actors like spilled sugar attracts ants. If decisions are being made based on the outcome of a prediction market, how long before the Chinese Communist Party (or whatever wealthy and malevolent force floats your boat) starts buying up enough shares to tilt that outcome?

We need to stop assuming we can somehow subcontract out political leadership to abstract forces.

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Feb 8, 2022·edited Feb 8, 2022

Meditations on Moloch (italics replaced with *asterisks*):

>In the links post before last, I wrote:

>>The latest development in the brave new post-Bitcoin world is crypto-equity. At this point I’ve gone from wanting to praise these inventors as bold libertarian heroes to wanting to drag them in front of a blackboard and making them write a hundred times “I WILL NOT CALL UP THAT WHICH I CANNOT PUT DOWN”

>A couple people asked me what I meant, and I didn’t have the background then to explain. Well, this post is the background. People are using the *contingent* stupidity of our current government to replace lots of human interaction with mechanisms that cannot be coordinated even in principle. I totally understand why all these things are good right now when most of what our government does is stupid and unnecessary. But there is going to come a time when – after one too many bioweapon or nanotech or nuclear incidents – we, as a civilization, are going to wish we hadn’t established untraceable and unstoppable ways of selling products.

Have you changed your mind again? (The only other option I can see is that a substantial fraction of this current post was an angry mistake.)

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Prediction markets are, in some sense, as much about incentivizing action as they are about prediction. Has anyone tried starting up a prediction market that's presented as "bounties with a complicated resolution and payoff mechanism"? Anyone can either "add to the bounty" (bet on a lower probability) or "stake a claim on the bounty" (bet on a higher probability). It seems like this should get around the claim that it's "gambling" or "futures trading", but maybe means that you'll need to police the market for antisocial "bounties"?

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Yeah, I always imagined that crypto's "success" is going to stem from boring uses like Debit Cards, tickets, and online shopping, plus some Business 2 Business stuff where the giant companies find some use for blockchain. At the end of the day, most people can't risk having their money tied up in anything that isn't safe/boring.

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I'm not sure that crypto can offer what you want. Let's distingush two possibilities.

1) Crypto allows for a few people who are willing to go to a lot of trouble to evade regulation (and thus take the risk that regulation won't protect them) are able to place bets on prediction markets from the US.

This doesn't seem even as good as non-US based prediction markets. At least in that case major firms and rich investors are going to have some willingness to participate since they can count on reasonable regulation in the host country to protect them.

2) Someone creates a crypto system that's both extremely easy to use and so resistant to regulation that people can invest substantial sums (in the 100s of thousands at least) and somehow evade US regulation.

I'm not even sure 2 is possible in a system that is sufficiently reliable for people to trust with large amounts of money. As all the various smart contract exploits show there is considerable risk involved in a system in which you can't appeal to any body to arbitrate disputes in a way that aligns with prior expectations and that itself becomes a barrier to use. But let's suppose that it is possible.

At that point I don't see how you avoid all the really bad uses of crypto (paid assassinations disguised as death pools) from becoming enough of a problem that the government cracks down hardcore (or at least it becomes socially unacceptable to participate).

I mean, sure, the government might put priority on catching murders etc.. but, at the end of the day, there is some amount of money that they are willing to spend on murder investigations. At the point where the prediction market has large enough transactions that the government can make money confiscating/fining those involved in the prediction market they'll probably start doing that eventually if they can. So, for the prediction market to be safe and easy to use for relatively large transactions in cases where the government only has to prove it's civil case by the preponderance of the evidence I don't see how you aren't in a scenario where you've effectively made the opsec so easy that every person who wants to off their spouse is able to do it.


Look, I agree that you could potentially make a market that's enough of a pain for the government to bother enforcing things against that they won't bother as long as it doesn't do anything too crazy. But, the problem with that system, is that it's always going to be precarious and the larger the system gets the more likely someone in government decides to go after it. I don't see how this then doesn't itself become just as problematic an issue limiting liquidity as banning it's use inside the US.

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I’m rather embarrassed at this point for still not understanding the appeal of prediction markets. I get why they’re effective at making predictions. I just don’t know how they attract enough people with both money and insight.

This probably has a lot to do with a personal aversion to gambling. I just don’t have the money or the desire to gamble on anything, ever. Are people into prediction markets having fun the way people in Las Vegas are having fun?

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" Every other civilized country allows prediction markets. " Not Australia (banned in May 2021) https://moneysmart.gov.au/investment-warnings/binary-options

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Prediction markets are gambling markets. There's nothing wrong with saying "put your money where your mouth is", but financial markets, like insurance markets, are about funding investments and protecting assets from risks intrinsic to an enterprise. There was already a prediction market for the outcome in Afghanistan. How many businesses were investing in that country? How many investors were buying shares of enterprises within that country? Who was making loans? All of those who weren't but could have were making predictions and placing bets, usually elsewhere. I get the impression that most investors understood the game well, as did everyone else who didn't open a McDonald's in Kabul or the like.

Sure, it might have fun putting a few bucks down as a bet predicting the rather obvious outcome, but anyone who had dealings in the area knew what was going to happen. Biden probably did too, but politicians often cannot say what they know. I may think Nixon was an asshole and made a lot of bad decisions, but it's a stretch to think he actually believed South Vietnam was going to fight off the North Vietnamese and Vietcong. It didn't take a prediction market. It's just with 50K Americans dead, the nation divided over the war and the draft, and so many voters having been sold Cold War religion, saying the obvious wasn't going to happen.

Maybe we should just legalize gambling in the US and let companies like Ladbrokes - is that really their name? - lad broke (s) - who the hell names gambling a company "lad broke"? - make book on whatever the hell. There would be no need for cryptocurrency and the government could tax the winners.

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i've come to grudgingly admit that prediction markets are probably better than my own fanciful ideas for internet tools. that is, prediction markets partially replace [and likely outperform] two full pillars of my idea [trust aggregation, and memetic/reason chains/structures]. [but i guess my ideas are meant to be useful in a bunch of other ways as well that cannot be replicated by prediciton markets]

but the third pillar is matching and alignment, and you're inclusion of it [you use dating compatibility as an example] is what prompted me to make this comment. prediction markets seem like a terribly inefficient way of doing that. what if the prediction is that you're a bad match? then you have to ask about the next person. and the next. and the next.

prediction markets don't seem like a good way of *finding* people who you will match with. and, i think for most people, that's like half the difficulty.

i was very happy to see someone in the ACX + + grants is trying to re-create the model that OkCupid used. It is the best example i've seen so far [though it was always limited to dating, and yes the questions were often unanswerable].


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Feb 8, 2022·edited Feb 8, 2022

Until we can solve double spend problems without constantly ramping up how much electricity we have to burn to validate a transaction, I think it's extremely irresponsible to do anything on the blockchain, even ignoring all the other problems with crypto (see the Line Goes Up video essay for that, it's truly outstanding). I'm not even sure solving the double spend problem is possible to do without something equivalently expensive/wasteful to burning crazy amounts of electricity. Proof of stake as currently theorized doesn't actually work at all.

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Prediction markets built essentially entirely on crypto have been demonstrated and employed to some degree - e.g. Gnosis, Augur. There were a variety of resolution mechanisms employed, including some fancy reputation-weighted oracles as well as various "invalid" resolution schemes.

When they were active I remember seeing a bit of volume and diversity on the posted question. Recently the projects have been floundering - likely due to the high gas costs on Ethereum. I think a semi-uncensorable crypto prediction market is inevitable, but it first requires solving major technical challenges in scaling smart contract execution. Then some significant work has to be spent on the user experience such that it's reasonable for someone to interact with these smart contracts directly from a personal device (with some reasonable security). This is assuming you don't believe smart contract platforms have inherently spiraling gas costs due to the profit mechanisms in DeFi.

I don't think it's unreasonable to consider crypto now much like the dot com boom. There's a lot of stuff that doesn't make sense with current tech or adoption, but that doesn't mean it won't eventually make sense. E.g. pets dot com boomed and blew up, but not because the idea was inherently bad. Rather, the ideas were being pursued with too much investment before there was the tech and adoption (internet users) to make it work.

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Feb 8, 2022·edited Feb 8, 2022

Prediction markets as you describe would be perfect money laundering vehicles. Create a market asking "At midnight, will <50/50 event that you can control> occur?", bet the dirty money on "No", bet an equal amount of clean money on "Yes", make "Yes" happen at midnight. Dirty losses turn into clean winnings. Sure, there will be leakage from others betting, but if the event is supposedly 50/50, the leakage should be small.

In general, all forms of betting can be used for money laundering quite easily. The classic method is to exchange the dirty money for chips at a casino, play for a few minutes, then cash them all back out as clean winnings. Highly obfuscated and anonymized betting like the sort of prediction markets you want are even better for the job. That's why all forms of betting are tightly controlled.

I don't think that it is worthwhile asking how to evade regulation to create good prediction markets. This is not a mistake of governments; stopping money laundering has real value to society, especially if you have an existential risk mindset and value controlling tail risks over maximizing expected value. Instead, the question should be what sort of regulation is needed for a safe form of prediction markets to exist. Work with government, not against it. (Same for crypto, though I'm more skeptical it has any value in a socially safe form.)

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I just want to address the subject of crypto currencies and governments.

I believe that the government of the United States, and those of other major powers, will eventually ban crypto currencies.

The right and power to issue currency, declare it to be legal tender, and to license and regulate intermediaries in the currency markets (banks) is one of the most important sets of powers and privileges of the modern (Westphalian) states.

The first modern banking system was created by the Dutch republic in the early 17th Century with the creation of the Bank of Amsterdam, which propelled the rise of a tiny country into a world spanning power.

!n 1688, the Whig grandees of England conducted a coup d'etat called the Glorious Revolution. Their chosen instrument in that drama was James II's nephew, William of Orange and his wife, James II's daughter Mary (family quarrel). William had been the Stadtholder of the Dutch Republic (more like a president than a king). One of the things that William brought to England with him, was the technology of central banking. He chartered the bank of England with the express intention of financing the construction of a navy. The magic worked, England (then the UK) became a world power, faced down and defeated its ancient enemy France, and constructed the largest Empire in History.

England's redheaded step-child, the United States came to the banking game late. The genius Hamilton understood the importance of a banking system and tried to create a bank of the United States. His political enemies, the Planter Aristocracy opposed him partly out of sheer bloody-mindedness and partly out of their addiction to an Arcadian fantasy. They did not want to see the United States become a commercial republic. The tension was resolved by the Civil War.

In order to finance the Civil War, the United Sates created the system of national banks which were authorized to issue circulating currency notes, and suppressed private issuance of circulating currency. The system was not a true central banking system. Within 50 years it was supplemented by the creation of the Federal Reserve System, which was just in time to finance the conduct of World War I, World War II, and World War III (the Cold War). It also enabled the Federal Government to create a welfare state that could undertake the massive redistribution of income necessary to pacify the urban lumpen proletariat.

Crypto was invented by hackers committed to a romantic anarchist view of the internet. They wanted to replace the existing financial system with an system that is completely decentralized and unregulated by national authorities.

The conflict is stark, if crypto and its cousin de-fi (decentralized finance) take over, the Fed is out of business, the US government cannot collect taxes, issue bonds, and cannot finance the welfare state or the military.

The US Government will not voluntarily fade away. No existing political faction of any size wants to so thoroughly geld the Federal Government. Right wing utopians may want to abolish welfare, turn Social Security into a savings program, and replace public schools with vouchers, but they are not clamoring to defund the police, or the Army, Navy, and Air Force. Left wing utopians might be desirous of those ends but they treasure the welfare state and want to see it expand mightily.

The conclusion is inevitable. Crypto will be regulated, taxed, and blocked from the banking system. It will be relegated to being what it was a few years ago, a gambling game for hackers of little interest to anyone else.

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Stripped of the novel terminology and the hypothesis of some emergent wisdom to be gained by integrating over sufficient ignorance, you're just talking about online bookies, and gambling indeed has a long history of concerning social side effects, which is why it's been regulated up the wazoo since forever, at least in the United States. The idea that this is going to change any time soon strikes me as a priori dubious.

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Feb 8, 2022·edited Feb 8, 2022

Mostly questions at this point but maybe helpful for discussion:

Would prediction markets still be banned in the US if it were organizations participating instead of single natural persons?

Related: Can we look at / turn to private financial markets instead of more tightly regulated public markets for inspiration?

Could "vertical" prediction markets (e.g. only foreign policy, only science) help get faster and greater acceptance for prediction markets? (Could sports betting be an inspiration for how to or not go about it? [Edit: answer seems an obvious yes])

Could initiatives such as xprize be part of a solution? (E.g. by providing liquidity to markets based on the outcome of their prizes or by opening a prize for "building a prediction market")

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Why (not only) prediction markets are evil: "Will the pope/POTUS/Putin be killed till end of year by a drone attack?" - What about if any of the Scott A.s instead? DON'T! - Put-option can be just as bad: Imagine a sports-club with traded shares. Then someone buys put warrants, then bombs the team bus. Oh: no need to imagine, Sergej Wenergold did it in 2014: https://en.wikipedia.org/wiki/Borussia_Dortmund_team_bus_bombing (my pet-theory: inspired by GTAV)

I get that hedges can be a useful tool, I doubt 98% are - looking at XKCD "money chart": https://xkcd.com/980/huge/#x=-6432&y=-5968&z=2

I get prediction markets being cool and even informative - and that there must be skin/money in the game - but not so sure I want those markets to be BIG.

"Will Biden still be president at 1.1.23"/"Will Cheney win"/"Will X be nominee of D/R in Y" can all be solved in a similar manner. :/ Without Crypto only a misguided person would do - but hey, no lack of those. Sergej W. got just 14 years, should be out after 2/3.

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Assuming that prediction markets are fully legalized, what would prevent them from developing the exact same pathologies as the stock markets have done ? In fact, what prevents all of the existing financial instruments from being immediately applied to prediction markets ?

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Are the weird strong-markups meant to be a hidden message?

<p>So: Polymarket got fined $1.4 million, and was ordered to make its real-money markets inaccessible to US-based traders (the rest of the world is still fine). It’s <strong>v</strong>ery <strong>p</strong>oor <strong>n</strong>ews to hear that a <strong>v</strong>illanous <strong>p</strong>olitical <strong>n</strong>onentity blocked this <strong>v</strong>ital <strong>p</strong>rediction <strong>n</strong>exus, and I guess we Americans have no other options besides accepting that we’re <strong>v</strong>astly <strong>p</strong>oorer <strong>n</strong>ow. </p>

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"most people think crypto only has another 0 - 2 doublings left in it; after everyone who’s going to invest invests, what then?"

Perhaps after that 0 - 2 doublings, cryptoasset systems will need to create actual value instead of relying on market activity to make a token's price go up. Current incentives are stacked against long-term value. Why build long-term value when you could just stick a dog picture on your token and call it a day?

And there are projects out there building things with long-term value if you look hard and long enough. They just get drowned out by the pump and dump garbage.

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Does the title image of Vopnafsomething have a deeper meaning other than it having VPN in its first letters?

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There are some dangers involved in unregulated prediction markets, mostly giving people bad incentives. The problem is well known, here are some classic examples:

1. Henry would like to see Thomas dead. Henry can go onto a betting market and bet a large sum at even money that Thomas - a healthy 50 year old - will live out the year. Reginald and Hugh take up the bet, and after taking the appropriate steps to ensure Thomas' death, they win their bet and Henry "loses".

2. Lester would like to win contracts in the state where Spiro is governor. He offers to bet 5% of the value of the contracts that his company will not win some tender. Spiro is sure Lester is wrong and takes the other side of the bet, and takes steps to ensure that Lester's firm does indeed win the tender.

3. Osama is capable of carrying out a terror attach in midtown Manhattan, but doesn't have any particular political interest in doing so. But the CIA is interested in predicting attacks like this, and starts an exchange. Most people understand that Osama has nothing to gain by making an attach in Manhattan so the odds are steep against. Osama is willing to bet that an attack actually will take place.

In general, there is a good reason that regulations require that anything that could be considered "insurance" is given only to an agent with an insurable interest. These contracts would fall afoul of that requirement. Reginald and Hugh don't stand to lose from Thomas death, Spiro has nothing to lose if Lester's firm wins a tender, Osama doesn't have anything to lose from a terror attack etc.

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Prediction market question: I don't think the average prediction market player can make money (am I wrong?), so I don't think they will be able to devote a substantial amount of time to research in support of predictions. Is this a problem?

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> Real money

The fact that there's not yet too much real money is probably why they have not yet been flooded by corruption. Right now the big corruption money is in stuff like the good old LIBOR manipulation. But if nonregulared/decentralized prediction markets become a zillion-dollar industry, what incentive has someone who can affect important public decisions to place bets against the market's expectation (and possibly common sense)?

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A couple dumb newbie questions about prediction markets:

* is the current stock market a good or bad example of a prediction market? I ask because theoretically the price of an asset is supposed to predict the income stream you get from owning that asset. But in practice, because you can make money by guessing what other investors will do in the short term, regardless of how the asset does long term, it gives rise to a bunch of anti-inductive behavior. Stuff like bubbles, momentum and technical trading, etc. Most serious institutional traders seeking alpha these days (ie, hedge funds), don’t think in terms of asset fundamentals and haven’t for decades, and I don’t think the stock market provides accurate predictions about things external to itself for the most part. Are there structural flaws in the stock market that prediction markets fix? Or would we expect the same dynamics to manifest at scale if there were enough market participants incentivized by real money?

* what’s the case for thinking that micro-prediction-markets (questions of interest to only a few people) will yield accurate predictions? I thought the usefulness of prediction markets was premised on the market having a lot of liquidity and attracting a lot of serious players doing dedicated research. Wouldn’t that mean that a market with fewer, higher-profile questions would yield more accurate predictions than a market with many predictions (splitting investor attention span?). I suppose if the diversity of questions were repetitive, big firms could build a general algorithm (predict the weather at any specific date in any specific location) and then participate automatically across all questions of that type, but who would be the counter-parties that would lose money to them? There needs to be a pool of dumb money willing to play each question to create profit opportunity. Also, for things with more non-public information — will this couple’s date succeed —I can imagine big firms would be hesitant to try to use a general algorithm when they are up against that couple’s friends; not sure general “dating science” would be enough of an edge to trade on versus insiders

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Feb 8, 2022·edited Feb 8, 2022

Can I propose a different reason? Because Wall Street and tech are basically evil blood octopi searching every corner of the globe for money, wouldn't prediction markets basically create Tomorrow Never Dies-esque incentives to influence geopolitics in a way where hedge funds, tech companies, and I-banks can literally profit off war and incentivize war through overt and clandestine means? Why can't google spy on gmail user holdings and then use that info to game prediction markets? Isn't a big prediction market just an additional profit opportunity for the collection of deeply nefarious tech and finance actors to essentially make everyone worse off in order to solidify the wealth of their SF and NY enclaves?

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Yes! Outrageous, unexpected, devious, out-there. Nice trick. Scott unlocks (the) control keys. I, for one, welcome our hypnotic overlords.

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Suppose, like in Scott's example, a prediction market was strongly predicting that large gatherings would be banned in a specific town on a specific day. The mayor of the town saw this, bet on gatherings being allowed, and then used her authority to allow gatherings, thereby making a ton of money. My question for prediction market advocates is whether this is a legitimate use of the market, and if not, how could this sort of thing possibly be prevented.

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I kinda feel like a business model that revolves around very technically worded payout functions or has to result to "caveat emptor" is something the government really should be regulating quite strictly. Imagine if Polymarket2 was regularly running billions of dollars in predictions with either "what we say goes, so we decide who gets paid" (and all the resulting legal headaches of that stance) or "caveat emptor, you're on your own!"

It would quickly become a site filled with scammers. That, and lots of money laundering.

Small markets, especially with no real money in them, can avoid that problem. Once markets get big enough, there's no way to avoid opportunists trying to scam some easy money. Intentionally worded and misleading markets would be the least of the concerns.

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I'm surprised there aren't more comments about Scott's disambiguations concerning vampiric philosophy nerds. Wasn't that the main point of the post?

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Feb 8, 2022·edited Feb 8, 2022

"What I really wanted last year (and would have subsidized!) was a market about whether Alameda County, California, would permit indoor gatherings of 50 people on January 8th 2022 (ie would I be forced to cancel my wedding). But I also would have appreciated the ability to put a few questions to prediction markets before starting my psychiatry practice, or my grants program, or any of a dozen other things I did. A friend has gone further, and half-jokingly said they want to create conditional prediction markets about whether they’re compatible with various women in our friend group, to be paid out six months after the first date."

And there's the problem: what does somebody in Malaysia or Ireland or Kiribati know (or care) about Californian weddings or will Joe get a date?

For questions like that, you need local knowledge which means smaller which means the entire problem of "it can only be a toy". For a large userbase, you either get (1) everybody and anybody can bet on it, which means prediction markets will become gambling sites, or (2) big institutional investors gobble up the majority of bids, as with the stock market:


I don't believe in the magic of prediction markets finding the One Weird Trick to solving the problem of [honking great social problem of governance that has bedevilled society for millennia]. If the idea is Very Smart And Knowledgable People will put money on "yes this is the cure for cancer" and an awful lot of them do so, therefore we may believe that rubbing snails on your warts is the cure, then the big institutions will hire those Very Smart And Knowledgable People to work for them so they can make money for the big institution. And that's going to deform the entire principle of the market, because the impetus will be not "is this bid correct?" but "is this bid profitable?".

It sounds too much like bookies' sites for people who don't use a bookies, and I don't see the appeal of it past that: make money out of being very smart about your guesses as to 'will it rain in southern California?'

EDIT: I may be a tiny bit biased in my appraisal of these since I remember all the Very Smart And Knowledgable People being hugely enthused over Andrew Yang running for mayor of New York, while an average idiot like me could see that, poll or no poll, he hadn't a snowball in Hell's chance of winning and that the eventual winner would be one of the candidates with experience in local government plus local to New York (minority status a bonus). If you can't work out that the candidate that appeals to *you*, Very Smart And Knowledgable Person, is not necessarily that candidate that will appeal to the Average Joe, then how do I trust you can figure out what the mass of Average Joes will end up doing, in your predictions?

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There's this thing called the internet.

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Perhaps the reason our elites are outlawing prediction markets is because they don't want the public to see how often their own predictions fail. After all, if important skills like "being right" or "accurately analyzing situations" were prerequisites for leadership, we might rightly question whether our current leadership caste deserves to be in power.

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"It’s very poor news to hear that a villanous political nonentity blocked this vital prediction nexus, and I guess we Americans have no other options besides accepting that we’re vastly poorer now."

lol of the day... no week... hell, maybe month!

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I feel like a lot of the push back on prediction markets is 'rich people will do bad stuff with their money' and a common response is that rich people could do mostly the same bad thing now, and they are not. I think this interacts in an interesting way with https://slatestarcodex.com/2019/09/18/too-much-dark-money-in-almonds/ but I am not smart enough to write something up exploring the relationship between these ideas.

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If you could only share a single article about prediction markets with a high-profile politician (who has no familiarity with the rationalist community), what article would it be? Asking because there's a plausible chance such a scenario could pop up in the future, and it would be nice to have a single link I can push for maximum effect.

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I guess what I don’t really get about these prediction market ideas is if one ever did get critical mass wouldn’t it become small-p politicized and unreliable - pretty much like meme stocks?

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Sports betting is legal now, can you piggy back on that? (I know nothing of prediction markets.)

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"Optimistically, the brilliant coders will need something else to do, and someone will try creating things like genuinely decentralized, impossible-to-shut-down prediction markets. I feel like this should be possible, but I also don’t understand why it hasn’t happened already. Maybe the technical challenges are too hard."

Does anyone know why this hasn't been done? Or can anyone give me a primer on the technical challenges in crypto prediction markets? I'm a comp sci major taking a distributed systems class and think the space would make for an interesting final project.

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I liked Polymarket but it has three big issues for me:

1. It's complicated and expensive getting crypto into their system. DeFi is intriguing but way to complex for mainstream.

2. They claim you are in control of your own wallet but it's not that simple. The private key they provide doesn't actually have your funds and you have to use their interface to withdraw.

3. "The markets listed here are for informational purposes only. We take no profits from them" sounds like a bunch of bullshit to avoid any responsibility. Kalshi's legal mumbo jumbo (https://kalshi.com/regulatory/rulebook) is actually an interesting contrast. A bunch of it concerns insider trading and the recordkeeping necessary to make compliance auditable. Polymarket is very opaque in comparison.

Polymarket's crypto-infrastructure is actually open enough that anyone can theoretically make bets, or even new markets, without access to their front end. There is a user-created command line interface (polymarket-trading). If you're willing to fund it, I think you can find the talent amongst the Discord crowd to create an alternate front end with a proper GUI.

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So, I've been curious why a prediction market can't just ape the tricks of exploitative video-game designers in order to get around the CFTC's bout of petulance.

- You can buy "gems" from the market platform that aren't redeemable (at least in the US) for cash.

- "Gems" can be traded between users or buy positions on various questions in the prediction market.

- The markets themselves work just like you'd expect, but operate entirely in gems.

- There's another company that operates outside of US that offers a spread on gems, pinning them to the euro somehow.

Within the US, gems wouldn't be redeemable for anything outside the game. Presumably placing them into the same class of "not-dosh" that gift-cards, airline rewards points, and WoW gold all inhabit.

Outside the US, there would be a legal way to arbitrage "gems" back into real money, one that would inevitably lead to an emergent, deniable, secondary market to allow US users to get a monetary reward from their predictions.

It would be easy enough to wrap this all up in a veneer of crypto shenanigans if needed.

This seems like an obvious idea to anyone familiar with video game monetization strategies, a demographic with enough relevant overlap that there's no way it hasn't been considered. Given that there doesn't seem to be a market implementing this, I'm assuming the idea isn't viable for legal or economic reasons. Does anyone know why it's not viable?

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Prediction tournaments with prizes could serve as a substitute for prediction markets. Here's one idea how to do them:

Everyone is allowed to create tournaments with as many or as few questions as they prefer. They can also offer a prize that is distributed among the predictors based on how informative their predictions turn out to be. Past performance affects the weight a predictor is given, and so it also affects the portion of the prize money they will get. If you have a good track record and also provide informative predictions in the current tournament, you'll get the most money.

Past performance can't be computed over all tournaments since that makes gaming the system possible: Ask thousands of vague questions and resolve them in your favour. Enter federations: they're comprised of users and other federations and everyone is allowed to form them. When creating a tournament, you can choose which federations are included when computing the past performance of a predictor. You'd only include federations whose members are known to ask meaningful questions and resolve them fairly.

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<blockquote>It’s not that the Internet can’t create a magical censorship-resistant infrastructure</blockquote>

Depending on what you mean by "Internet," some people think this isn't so, and they've decided to start over: <urbit.org>

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I am updating my priors to "Scott sometimes dog-whistles stuff, but when he does so it's with really obvious hints that would stand out like bold letters in an otherwise normal paragraph."

Related: Brett Deveraux is pessimistic about crypto for exactly the reason that happened here, the state can still go after the real-world parts of whatever crypto operation you're running: https://acoup.blog/2022/02/04/fireside-friday-february-4-2022/ Even if you're as decentralised as it gets, you still have to convert your magic money into the kind of money your landlord accepts as rent at some point.

Maybe also related: most commercial providers are also very poor news if you're doing something illegal enough that the state actually cares about it. Generally they will advertise privacy, but because they also have CEOs and offices and servers, and don't like the police turning up for those any more than the next guy, they'll hand over your data more easily than you think.

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I think you are overly optimistic about a few brilliant coders being able to hide a decentralized market from the government. In the ACOUP blog, ancient historian Bret Devereaux basically sums it up: https://acoup.blog/2022/02/04/fireside-friday-february-4-2022/.

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Sorry if this is a rookie comment, but I'm a pretty casual Alexander reader and I'm new to a lot of these issues. Can someone steelman the value of prediction markets a little better than "they outperform CIA analysts?" Based on my understanding of history, the CIA has long offered a weird mix of operational skill, incompetent long-term decision making and strategic idiocy. Is there more to recommend prediction markets? With so many confounding factors affecting outcomes, how do you differentiate between a better-than-average-on-his-own-merits predictor and an worse-than-average predictor that has a long lucky streak?

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I find it somewhat peculiar that you seem unaware about the abuse potential of this, and the tech history surrounding that.

Back in the old days, when "crypto" was still about encryption technology, and when people considered David Chaum's Digicash as the proverbial example of a digital currency, roughly 13 years before Bitcoin, in 1995 a crypto anarchist named Jim Bell posted an extensive multi part essay named "Assassination Politics" to the then leading crypto anarchist mailing list. In it he described in great detail how an assumed anonymous digital currency and an assumed legal prediction market could be combined to essentially create a crowdfunded assassination market without ever using the word.

Problem was, of course, he did not consider that a cautionary tale. He was intrigued by the possibility, even outright giddy, and wrote at length about what great thing it would be if a few hundred thousand nobodies could wipe out a public figure who had aggrieved them.

What followed was a sordid tale that you might have seen before. Some mid level bureaucrats in the IRS and law enforcement decided to rid the world of the man and started to harass him. Harassment was answered with counter harassment, and after a spiral of escalations, Bell ended up spending the better part of the next 17 years in jail, for founded but trumped up charges of tax evasion, intimidation and stalking (among other things Bell reacted to federal agents surveilling him 24/7 for months by doing (some of) the same to them).

Why do I bring this up? Well, I had assumed that by now this thing would have entered public awareness enough for everyone to at least see some of the dangers of "prediction markets".

Basically, any prediction market with enough funding at some point has a tendency to transfer from prediction to effect. What prevents a participant who "predicted" your Alameda question to bribe or blackmail a decision maker to make his "prediction" come true in order to cash in on the result? "Na, they would never do that" doesn't really cut it.

Generations of sports bet fixers say otherwise.

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> President Biden said there was “no circumstance where you see people being lifted off the roof of an embassy” barely a month before we saw exactly that.

Are you sure about that? I was under the impression that we *didn't* see people being lifted off the roof of an embassy and would be curious if there is any evidence that it did happen.

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How is PeerBet.io legal then ?

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