Betting and prediction markets

A couple of notes to the mechanism design questions for how to predict the future, but mostly tips on the practicalities of getting one’s hands dirty.

• Metaculus Monday 2/8/21 lists some emerging prediction markets.
• metaculus ai

Lesswrong’s prediction markets wiki entry:

People who buy low and sell high are rewarded for improving the market prediction, while those who buy high and sell low are punished for degrading the market prediction. Evidence so far suggests that prediction markets are at least as accurate as other institutions predicting the same events with a similar pool of participants.

It also has some useful links to explanatory blog posts. I cannot find a whole lot eof published academic research in this area. Curious.

Zvi, When do prediction work?:

If I bet on a nuclear war, and win, how exactly am I getting paid?

These signals are of course noisy - see some nice plots from David Rothschild via Andrew Gelman.

Khythe on Market making

Making markets doesn’t only work on binary propositions, it also works on quantities. For quantities you quote a market as well as a conversion factor for the contract’s pay-out, for example “I’m 8 at 30 for the number of people who show up to my talk, $2 per person”. That would mean I’m willing to buy a contract that pays out $2 for everyone who comes to my talk for $16 (8 people times 2 dollars/person) and sell such a contract for $60 (30 times 2). If I sold such a contract, and then 34 people came to my talk, I’d need to pay out $8 on net.