If your wondering why this doesn't feel "revolutionary"... we have had lots of prediction type things before. We had polls, and forecasts, and whatnot. And sure, these new markets are apparently more accurate.
But consider weather forecasting. Far, far more accurate than it was 20 years ago! If the forecast says "20% of the day will be rainy", it will be rainy for 20% of the day. Does that really change your actions on that day, vs the older prediction where a 20% would really mean somewhere between 0% and 50%? You grab your raincoat and off you go. The increase in accuracy didn't do much for you.
Scott has a bunch of interesting forecasts in there. But for all of these... are you going to take an action based on them? What action will you do if, say, Orban is out of power? If Machado is the leader of Venezuela? Was Covid leaked from a lab? For most of us, it will be a "Huh, neat. The prediction market was/wasn't right." Its less impactful that the weather forecast!
Even what I see as the strongest statement, that "Prediction markets are a security risk", wasn't because of the accuracy. The linked article said it was because people would accidentally leak info making bets! Its not risky due to the extra info, its risky because some idiot decided to leak info through this insider trading to make a buck, and wasn't smart enough to know they were leaking the info.
So it doesn't feel revolutionary, because its mostly just betting for funsies. More gambling. How amazingly revolutionary. Whee.
Weather forecasting accuracy has had a lot of benefits that I notice. For example now predictions 3 days out are quite accurate, whereas when I was a kid it was mostly pointless. This makes it useful for shorter trips when you know you should/shouldn't pack an umbrella, jacket, shorts, etc.
Obviously it's not revolutionary but I would still say it is noticeable. Most progress isn't revolutionary after all, but all those small things do add up.
That's exactly my point: Small things adding up. Its like cars, year over year. Sure, my 2026 Chevy Trax is super cool compared to the 2015 Ford Escape. But compared to the 2023? 2020? There really isn't a breakpoint where I can point and say "THAT is the revolution in cars!"
All the new bits and bobs, and its still... a car. It goes the same speed, on the same roads. Better gas economy, comfier, safer... but its a car. Weather predictions are far more accurate, but it used to be "Rain in the afternoon", now its "Rain starting about 3pm"... which is kind of exactly the same for most purposes. Polling would get you "Bob wins the election by 2 points, +/- 1 point. Now we have "Bob wins by 1.8 points, +/- 0.5 points." Which feels like the same thing.
And well over half is just betting. Which is honestly ruining a lot of things. Really ruins the vibe when I see outright gambling stuck next to serious predictions.
Maybe revolutionary is the wrong approach. But there are definitely benefits to futures generally. Knowing what the Fed will set interest rates at is genuinely helpful in tons of personal finance situations, like knowing when to purchase CDs or when to get a mortgage or refinance. Having direct NGDP markets like Scott Sumner has advocated for, would be a genuine boon to macroeconomic stability policy. While it would pretty esoteric for most people, having good central bank policy is a big deal, and even a small improvement on that front would be billions of dollars in economic benefits.
I also agree with Scott that conditional markets on actual policy changes impacting economic indicators would be a big deal! Would this ever be "revolutionary"? Maybe not, but even small improvements to policymaking can have large impacts.
The bond market already prices in Fed decisions. They’ve been using that to say “the market is predicting a 25 bp decrease” or whatever for many years.
I don't think that's correct? You can definitely get an idea for imminent interest rate decisions by looking at changes in bond yields. But there's also a much more straightforward way to get both next and future months' rate estimates via the CME Fed Futures contracts which is a direct prediction market. https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
These could be great things for the small amount of people who have the ability and knowledge to take advantage of them. Then there is what I would estimate at 90%+ of the population, who don't know what NGDP is, don't have the time or inclination to try and fuss out mortgage refinancing, etc.
I'm not saying these things are bad! Far from it. Just... its a minor improvement to the system. Gets you an extra 0.5% gain at year end or whatever. Worth billions for the big money players, in 10 years life will (hopefully) be measurably better, but day to day completely unnoticeable.
And unfortunately, it comes with the great social cost of stuffing gambling into everything. I've seen enough families ruined over gambling, I just have a negative gut reaction when I see it. And on Polymarket et al, its scattered around next to all the good stuff. My look on the weekend had enough sports betting going on that it was like being on Facebook with adblock off. Just wait until they hire some retired big athlete to come on at halftime and tell everybody to go on Polymarket, the best way to get your sports bet on...
it’s mostly degenerate gambling, especially sports betting.
some of the remainder is things like this $686,000 market on how often Elon Musk will tweet this week
and
Will Zelensky wear a suit?
How many people watched the Oscars
What words will be used in Coinbase’s earnings call?
Who will rank highest on Google Search volume this year?
How long will Karoline Leavitt speak at the White House briefing?
... This is "Bike Shed Goes to the Casino" -
people within an organization commonly give disproportionate weight to trivial issues.
[E.g.] a fictional committee whose job was to approve the plans for a nuclear power plant spending the majority of its time on discussions about relatively minor but easy-to-grasp issues, such as what materials to use for the staff bicycle shed
The positive benefit is free knowledge of the aggregated opinion of all market participants on an event happening. The benefit correlates with the importance of the event. To the extent that you spend some of your time thinking about what will happen in the future, prediction markets are a free positive externality to you about what the future will look like. I wrote some about this last year, especially the second half of this post. https://www.calibrations.blog/p/should-we-let-ourselves-see-the-future
The question nobody seems to be asking, and perhaps that's just because it obviously needs a whole new post, is whether or not prediction markets are actually all that accurate right now. In general, Scott seems to assume that any fair and accurate prediction market will naturally end up rational, but never forget that the market can remain irrational longer than any investor can remain solvent.
The majority of markets linked in this post, and that I have seen in general, tend to hover around the 20%-50% mark. Things people don't think are super likely but there's still active debate over. But has anyone actually done statistical analysis on the results? On the markets which closed at 20% Yes, did approximately 1/5 of them pay out Yes? Or does everyone kinda-sorta think they're accurate because they usually end up No? It seems, on first glance, that everything kinda trends towards the middle because people feel uncomfortable making those sorts of risky bets when it already seems so unlikely.
If more than 50% of the money is currently in sports betting, that means there's a lot of gambling addicts here. As I understood it, one of the accepted results of prediction markets is that superforcasters will just keep making money off of gamblers and other irrational parties, without actually making the markets any more accurate. Which would still be good in a sense, making sure rational people have a free source of money simply by betting "No" on a bunch of random markets. At least until too many people catch on and the free money is in betting "Yes" instead.
Maybe the problem is that probabilities don’t matter? Maybe there’s some State Department official who would change plans slightly over a 20% vs. 40% chance of Khameini departure, or an Iranian official for whom that would mean the difference between loyalty and defection, and these people are benefiting slightly, but not enough that society feels revolutionized.
I expect those guys already had a pretty good idea of what was likely to happen, even if they didn't express it in terms of explicit probabilities. And where their opinions differ from the market I'd expect theirs to be more accurate.
So the market odds are useful information mainly for the relatively small set of people who have an interest in the result but aren't otherwise able to become informed.
I think it would be good for The Discourse if expert prediction market traders were more prominent. Since expert forecasters tend to be more sane and levelheaded than the average person.
One way to achieve this would be for a platform like X to implement a prediction market which trades using a virtual currency, which can then be spent to e.g. promote posts and replies you like (by yourself or others). Advertisers could also buy said virtual currency to spend on ads. It could be a great way to normalize the idea of paying to promote one's posts on the platform. Same way lots of free-to-play games are engineered to get players buying in-game currency. X as a platform could become significantly more profitable if it was gamified, using prediction markets, for the good of The Discourse.
Another idea is to solve the "resolution problem" by electing trusted traders to serve as resolvers. Imagine a setup like this:
Prediction markets run an election using approval voting. Top 11 most-approved candidates join the "resolutions committee", which makes decisions based on majority vote.
Working as a resolver pays $20K/month for a relatively easy job.
Therefore there's an incentive to gain a reputation as a trusted trader so that you can get paid $20K/month to warm a chair, being trustworthy.
To gain said reputation, you are forced to post a lot in a way that (a) gains attention to boost your candidacy, but also (b) gains you trust as a resolver. Cancel out viral ragebait with your trustworthy tweets.
Approval voting might not be the best selection method here. Maybe you could have a conditional prediction market on various resolver candidates, which itself resolves based on the overall $ volume traded on the prediction market platform in question. Traders are incentivized to bet on resolver candidates who will be good for the overall health of the platform and boost the volume of bets placed (itself an indicator of trust in resolutions).
A major benefit of having elections for resolvers is that prediction market founders no longer need to feel as much heat for bad resolutions. Same way a democracy ejects bad politicians, the election mechanism should ideally eject bad resolvers. So the prediction market founders can move on to dealing with other issues, safe in the knowledge that market resolution errors should self-correct.
I'm opening my DMs to social media and prediction market employees if they want more ideas.
If your wondering why this doesn't feel "revolutionary"... we have had lots of prediction type things before. We had polls, and forecasts, and whatnot. And sure, these new markets are apparently more accurate.
But consider weather forecasting. Far, far more accurate than it was 20 years ago! If the forecast says "20% of the day will be rainy", it will be rainy for 20% of the day. Does that really change your actions on that day, vs the older prediction where a 20% would really mean somewhere between 0% and 50%? You grab your raincoat and off you go. The increase in accuracy didn't do much for you.
Scott has a bunch of interesting forecasts in there. But for all of these... are you going to take an action based on them? What action will you do if, say, Orban is out of power? If Machado is the leader of Venezuela? Was Covid leaked from a lab? For most of us, it will be a "Huh, neat. The prediction market was/wasn't right." Its less impactful that the weather forecast!
Even what I see as the strongest statement, that "Prediction markets are a security risk", wasn't because of the accuracy. The linked article said it was because people would accidentally leak info making bets! Its not risky due to the extra info, its risky because some idiot decided to leak info through this insider trading to make a buck, and wasn't smart enough to know they were leaking the info.
So it doesn't feel revolutionary, because its mostly just betting for funsies. More gambling. How amazingly revolutionary. Whee.
Weather forecasting accuracy has had a lot of benefits that I notice. For example now predictions 3 days out are quite accurate, whereas when I was a kid it was mostly pointless. This makes it useful for shorter trips when you know you should/shouldn't pack an umbrella, jacket, shorts, etc.
Obviously it's not revolutionary but I would still say it is noticeable. Most progress isn't revolutionary after all, but all those small things do add up.
Back in 2005, this is what the forcast cone for Hurricane Katrina looked like 3 days out.
That's exactly my point: Small things adding up. Its like cars, year over year. Sure, my 2026 Chevy Trax is super cool compared to the 2015 Ford Escape. But compared to the 2023? 2020? There really isn't a breakpoint where I can point and say "THAT is the revolution in cars!"
All the new bits and bobs, and its still... a car. It goes the same speed, on the same roads. Better gas economy, comfier, safer... but its a car. Weather predictions are far more accurate, but it used to be "Rain in the afternoon", now its "Rain starting about 3pm"... which is kind of exactly the same for most purposes. Polling would get you "Bob wins the election by 2 points, +/- 1 point. Now we have "Bob wins by 1.8 points, +/- 0.5 points." Which feels like the same thing.
And well over half is just betting. Which is honestly ruining a lot of things. Really ruins the vibe when I see outright gambling stuck next to serious predictions.
Maybe revolutionary is the wrong approach. But there are definitely benefits to futures generally. Knowing what the Fed will set interest rates at is genuinely helpful in tons of personal finance situations, like knowing when to purchase CDs or when to get a mortgage or refinance. Having direct NGDP markets like Scott Sumner has advocated for, would be a genuine boon to macroeconomic stability policy. While it would pretty esoteric for most people, having good central bank policy is a big deal, and even a small improvement on that front would be billions of dollars in economic benefits.
I also agree with Scott that conditional markets on actual policy changes impacting economic indicators would be a big deal! Would this ever be "revolutionary"? Maybe not, but even small improvements to policymaking can have large impacts.
The bond market already prices in Fed decisions. They’ve been using that to say “the market is predicting a 25 bp decrease” or whatever for many years.
I don't think that's correct? You can definitely get an idea for imminent interest rate decisions by looking at changes in bond yields. But there's also a much more straightforward way to get both next and future months' rate estimates via the CME Fed Futures contracts which is a direct prediction market. https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
These could be great things for the small amount of people who have the ability and knowledge to take advantage of them. Then there is what I would estimate at 90%+ of the population, who don't know what NGDP is, don't have the time or inclination to try and fuss out mortgage refinancing, etc.
I'm not saying these things are bad! Far from it. Just... its a minor improvement to the system. Gets you an extra 0.5% gain at year end or whatever. Worth billions for the big money players, in 10 years life will (hopefully) be measurably better, but day to day completely unnoticeable.
And unfortunately, it comes with the great social cost of stuffing gambling into everything. I've seen enough families ruined over gambling, I just have a negative gut reaction when I see it. And on Polymarket et al, its scattered around next to all the good stuff. My look on the weekend had enough sports betting going on that it was like being on Facebook with adblock off. Just wait until they hire some retired big athlete to come on at halftime and tell everybody to go on Polymarket, the best way to get your sports bet on...
and
... This is "Bike Shed Goes to the Casino" -
- https://en.wikipedia.org/wiki/Law_of_triviality
People are wagering large amounts of money (often more than they can afford) on trivial items,
because they don't feel that they understand the more complex or important items.
.
What is the positive existing benefit of the prediction markets? They just seem like more of the phone betting scourge to me.
The positive benefit is free knowledge of the aggregated opinion of all market participants on an event happening. The benefit correlates with the importance of the event. To the extent that you spend some of your time thinking about what will happen in the future, prediction markets are a free positive externality to you about what the future will look like. I wrote some about this last year, especially the second half of this post. https://www.calibrations.blog/p/should-we-let-ourselves-see-the-future
The question nobody seems to be asking, and perhaps that's just because it obviously needs a whole new post, is whether or not prediction markets are actually all that accurate right now. In general, Scott seems to assume that any fair and accurate prediction market will naturally end up rational, but never forget that the market can remain irrational longer than any investor can remain solvent.
The majority of markets linked in this post, and that I have seen in general, tend to hover around the 20%-50% mark. Things people don't think are super likely but there's still active debate over. But has anyone actually done statistical analysis on the results? On the markets which closed at 20% Yes, did approximately 1/5 of them pay out Yes? Or does everyone kinda-sorta think they're accurate because they usually end up No? It seems, on first glance, that everything kinda trends towards the middle because people feel uncomfortable making those sorts of risky bets when it already seems so unlikely.
If more than 50% of the money is currently in sports betting, that means there's a lot of gambling addicts here. As I understood it, one of the accepted results of prediction markets is that superforcasters will just keep making money off of gamblers and other irrational parties, without actually making the markets any more accurate. Which would still be good in a sense, making sure rational people have a free source of money simply by betting "No" on a bunch of random markets. At least until too many people catch on and the free money is in betting "Yes" instead.
I expect those guys already had a pretty good idea of what was likely to happen, even if they didn't express it in terms of explicit probabilities. And where their opinions differ from the market I'd expect theirs to be more accurate.
So the market odds are useful information mainly for the relatively small set of people who have an interest in the result but aren't otherwise able to become informed.
I'm imagining a future where conditional markets exist and are accurate but have no impact on which policies are adopted.
wishing can be tricky like a bad haircut
I think it would be good for The Discourse if expert prediction market traders were more prominent. Since expert forecasters tend to be more sane and levelheaded than the average person.
One way to achieve this would be for a platform like X to implement a prediction market which trades using a virtual currency, which can then be spent to e.g. promote posts and replies you like (by yourself or others). Advertisers could also buy said virtual currency to spend on ads. It could be a great way to normalize the idea of paying to promote one's posts on the platform. Same way lots of free-to-play games are engineered to get players buying in-game currency. X as a platform could become significantly more profitable if it was gamified, using prediction markets, for the good of The Discourse.
Another idea is to solve the "resolution problem" by electing trusted traders to serve as resolvers. Imagine a setup like this:
Prediction markets run an election using approval voting. Top 11 most-approved candidates join the "resolutions committee", which makes decisions based on majority vote.
Working as a resolver pays $20K/month for a relatively easy job.
Therefore there's an incentive to gain a reputation as a trusted trader so that you can get paid $20K/month to warm a chair, being trustworthy.
To gain said reputation, you are forced to post a lot in a way that (a) gains attention to boost your candidacy, but also (b) gains you trust as a resolver. Cancel out viral ragebait with your trustworthy tweets.
Approval voting might not be the best selection method here. Maybe you could have a conditional prediction market on various resolver candidates, which itself resolves based on the overall $ volume traded on the prediction market platform in question. Traders are incentivized to bet on resolver candidates who will be good for the overall health of the platform and boost the volume of bets placed (itself an indicator of trust in resolutions).
A major benefit of having elections for resolvers is that prediction market founders no longer need to feel as much heat for bad resolutions. Same way a democracy ejects bad politicians, the election mechanism should ideally eject bad resolvers. So the prediction market founders can move on to dealing with other issues, safe in the knowledge that market resolution errors should self-correct.
I'm opening my DMs to social media and prediction market employees if they want more ideas.