I Championed Prediction Markets. Look What They've Become(newsletter.platypuseconomics.com) |
I Championed Prediction Markets. Look What They've Become(newsletter.platypuseconomics.com) |
Their track record is not great, and I don't think they fully realise that the issue is them: the principles and axioms they rely on don't lead to good results.
> I don’t claim to know the exact right policy answer for America.
Perhaps start by reversing your positions, and throwing support behind those trying to undo the damage you caused.
The author still thinks they were "freeing prediction markets from unnecessary restrictions", but clearly some restrictions are necessary, and totally free markets aren't actually an economic panacea. This is not really new information, so the flaw is in the thinker, not the data.
If your ideas are consistently proved harmful, acting against your instincts is a better play than continuing to trust them.
The current admin has bungled better ideas than prediction markets.
No one "bungled" anything. They just aren't being prosecuted..yet.
But it also reminds me that prediction markets are one of those things that are transparently a terrible idea because they create problematic incentives, and not just because people ruin their lives gambling. If you can make $1 million by triggering something that or getting somebody to trigger something that basically has no business happening, whether it's stripping on the Senate floor, causing a volcano to erupt, or crops yields to reduce by secret herbicide dusting, or any other bologna, somebody will do it if the balance makes it worthwhile. Likewise, they give people reasons to vote that are negative - "I have $100 on prop XYZ passing, of course I support it." (Though side note: the ubiquity of betting being super terrible for society because people can't handle gambling at all is one of those things that I've been super surprised by that seems to have good evidence now. I guess because gambling mostly just doesn't do it for me to the degree that I find it shocking just how addictive it is and just how much it exacerbates bad situations for many people.)
And I can't see how there's any benefit that's bigger than the problems. If prediction markets are better than Nate Silver, why is it worth all the problems to society for that extra accuracy margin? I can see why individual actors might find value, but I don't see how their value accrues to society in any way that makes it worth it.
> I don’t claim to know the exact right policy answer for America. But I know we never even had a grown-up debate.
If you've seen the destruction caused by something and can't figure it out, maybe you have a problem?
And let's be honest: the idea of "debating" things that are obvious is often one of the primary ways by which indefensible things are legitimized.
What neither I nor the author anticipated was that the easiest way to make the markets "efficient" was to rig them.
In hindsight it's obvious, but optimism is one of the most powerful blinders out there.
Your advice might work in a different world.
Wow, no you built an avenue for corruption, insider trading and problem-gambling, and you should have known this beforehand. Would have known it beforehand if you'd bothered to consult with non-economists.
Insurance was illegal at different times in history because it was considered gambling. Ditto for commodity trading.
Even you look at the structure of a futures contact, the basics look really similar to a bet that can be traded with someone else.
The main differences are the regulatory environment, and the intention the actors in the market have.
Commodities, options, and futures are all legitimately used to hedge against future outcomes. The "gamble" (placing money on a future outcome) is a mechanism for the main goal: protection against instability.
When you look at stocks and - in particular - derivatives, it starts to look a lot closer to how gambling is structured. I'm pro stock market, but that doesn't mean I won't admit that the line between it and gambling is pretty hard to draw. It's a lot more grey than people give credit for
And it was, in fact, gambling. You could take out a life insurance policy on anyone without any relationship with them.
Prediction markets are obviously, blatantly, gambling. There is no "greyness", we've skipped the slippery slope and gone straight to the bottom of the ravine.
Think about whether the spirit of the domestic/foreign emoluments clause would be okay with this. I'm sure some will argue there's enough layers of BS in this scheme that it's totally fine.
Ethics and judgement aside, I think startup founders can learn a lot from this administration as to how "successful" people twist things in their favor. The industry is full of it.
In retrospect their misuse as a loophole for sports gambling was an obvious outcome. Seems like every promising new technology inevitably is used for evil. Cryptocurrency is mostly used for criminals. Social media displaced more meaningful forms of connection. We're already starting to see this with AI (psychosis, slop, assisting bad actors) but I'm afraid it will get much worse.
This isn't a 'benefit of hindsight' thing; a lot of people called this out in advance, just like all the other tech you listed.
We need to stop listening to the people who are wrong about everything, rather than pretending the maximalist seeking of profit with no regulation is a reasonable position. We know it doesn't work.
I understand that "Things would be great if they'd done it right!" is in some sense unfalsifiable. But also I think it's pretty clear that the current regime is geared solely towards maximizing the profits of prediction market companies and Trump Jr.
He is already so beyond the pale this doesnt even move the needle.
It would be dishonest to ban prediction markets without banning stock markets.
The best which can be done, under the current system, is to punish unfair information asymmetries, which is practically impossible to do reliably... And even if we could find a way to punish it reliably; what would happen is that most rich people would end up in jail. Information asymmetry is almost never fair and it's how people make big money these days.
I think the best solution is to create conditions to allow people to earn big money in other ways; ways which create value. If there were other ways to make big money besides unfair information asymmetry, then skilled people would find it easier to do that instead...
Unfortunately, skill/talent does not allow you to gain an information advantage; only social connections do. So the current system is really bad in terms of wasting specialized skills/talents... Current system takes talented people and re-orients them towards adversarial games of deception where they're just a number in a sea of increasingly desperate untalented people who are better at playing the deception game... And the talented folks eventually lose their talents through lack of practice; they're so focused on learning ways to trick people and algorithms, that their actual talents atrophy; by the time they become well known, if they ever do (most don't), they've become mediocre; corrupted by their participation in the process of trying to become relevant; their main talent always takes the back seat.
Anyone who is not an insider is a loser.
This was never, ever going to end well. There is no good use of "prediction markets".
If you were playing in the World Cup in the lesser teams, very often betting+sabotage/plausible negligence would have been a more profitable enterprise for you than to actually do your best to win.
Stock markets have this problem too, but they are much more regulated, and even if manipulated by insiders, the blast radius is smaller and often auditable.
Prediction markets are meant to be the stock market but for events besides the value of a certain corporation. They were co-opted as a thin veneer of legitimacy over deregulated sports gambling. The concept itself theoretically has some value, however insignificant compared to the damage caused by the current policy.
Edit: and with prediction markets you don't own anything. Even with commodity futures you can end up having to take possession of cows or something.
How to ban trading? You could heavily addon tax profits from short term trading under 3 months at 90% say, tapering to zero as time increases maybe 2 years. With zero ability to offset any losses with other tax forms.
Shorts, options et. included unless it can be proven as part of a bigger trade or insurance but then apply to bigger trade.
This could also apply to market makers making that closer to a public service.
As far as I can tell, prediction markets went from totally illegal to basically unregulated. Presumably the author was arguing for a middle ground.
I would expect that if they didn't think they were unnecessary anymore, they would have said something like "I helped build the case for freeing prediction markets from restrictions that I thought were unnecessary". Their description of the predictions being unnecessary is still stated as a present tense fact (and the entire clause is in bold-face, making it clear that it's something they want to draw attention to).
Now I don‘t consider day trading to be gambling (even though it is packaged and marketed to appeal to and sell to gambling addicts). For it to be gambling, it would need to be a game.
It is something far more sinister and far worse then gambling. I consider it exploitation, or more accurately capitalist exploitation. This also applies other aspects of the stock market, even the ones which are not marketed to exploit gambling addicts, including investment backed retirement funds [401(k) in the USA], index funds, and publicly traded companies. To me, all these things are equally bad (well actually the retirement funds may be the most sinister of the bunch) even though day trading might have the ugliest manifestation. These are all exploitation of the working class.
An anti-capitalist here: Yes... Oh heavens, yes. There are few things I desire more then to see all the stock markets in the world burn and never to be rebuilt. For me, people who make money at the stock market are participating in a systematic exploitation of the working classes. The siphoning of profits away from the workers who created them and earned them, and into the hands of the rich who contribute nothing, yet get everything.