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NunoSempere  17d ago (forecasting.substack.com)   739 thread views

The State of Forecasting: Dynamics, Challenges, Hopes

forecasting.substack.com

In short…

  • Forecasting platforms and prediction markets are partially making the pie bigger together, and partially undercutting each other.
  • The forecasting ecosystem adjusted after the loss of plentiful FTX money.
  • Dustin Moskovitz’s foundation (Open Philanthropy) is increasing their presence in the forecasting space, but my sense is that chasing its funding can sometimes be a bad move.
  • As AI systems improve, they become more relevant for judgmental forecasting practice.
  • Betting with real money is still frowned upon by the US powers that be–but the US isn’t willing to institute the oversight regime that would keep people from making bets over the internet in practice.
  • Forecasting hasn’t taken over the world yet, but I’m hoping that as people try out different iterations, someone will find a formula to produce lots of value in a way that scales.
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Good writeup I read your article.

The biggest gap I see in prediction markets is a lack of actual large stakes betting without a house spread. It is either play money, or amounts too small to matter, or it is rigged against you by spreads in Vegas.

I would say the biggest betting markets you've missed are the actual financial, governmental and business markets. That is where the rubber hits the road and huge fortunes are gambled on directional bets. If every country that can is investing in nukes then nukes are probably important on the world stage; if every company that can invest in AI is doing so, the AI is probably key to business going forward.

There is another problem with forecasting that I'm sure people have written doctorial dissertations on. If it gets really good and really common then how would one extract any value from it? It would lack the informational asymmetry that might bring you value today if you had the only good predictive model for something important.

The final issue is that if it is common and good then it will alter the very things it is trying to predict. Does predicting it make it true when we trust predictions at a 99.9% confidence ratio? Is there then a rebound effect where they become worthless and you need a meta meta meta meta meta prediction market to determine the accuracy of the prediction market you're trusting to verify the accuracy of prediction market that you're using to make the initial prediction?

Postscriptum for my deterministic peeps out there-

Eventually everyone will have to accept total hard determinism, because after all, what are scientific physical laws but predictions that are right 100% of the time. But until then, there are hurdles to jump over in finding value in this space.

The final issue is that if it is common and good then it will alter the very things it is trying to predict. Does predicting it make it true when we trust predictions at a 99.9% confidence ratio? Is there then a rebound effect where they become worthless and you need a meta meta meta meta meta prediction market to determine the accuracy of the prediction market you're trusting to verify the accuracy of prediction market that you're using to make the initial prediction?

Nah, I think the issue that precedes and largely supercedes this is the oracle question. Do people trust that whatever entity is reporting the final results is doing so accurately and isn't fudging numbers to give an edge to its allies or to cover up some other outcome that TBTB are trying to disguise?

Do we trust that ambiguous results will be resolved in good faith and correctly more often than not?

Who do we actually rely on to be the final arbiter of 'truth' such that these markets can continue to settle reliably where there's incentive to capture such institutions to divert them from the purpose of accurate reporting.

In other words I personally doubt we'll ever reach 99.9% confidence in prediction markets if only because we can't reach that confidence in the platforming hosting the markets or the entities producing the results which are deemed as 'truth,' and I don't believe these are easily tractable issues.

Do people trust that whatever entity is reporting the final results is doing so accurately

  1. Scoring rules exist
  2. Deceivers outcompete nondeceivers
  3. But yeah, you can't use a prediction marketplace to decide on something that's more valuable than the value of the whole prediction marketplace. That's one of the issues with Robin Hanson's futarchy.

doubt we'll ever reach 99.9% confidence in prediction markets

I mean, in practice you don't need 99.9, you need better than alternatives in at least some cases.

in practice you don't need 99.9, you need better than alternatives in at least some cases.

Agreed. And thus I strongly support prediction markets as a concept for making personal decisions, hedging risks, and predicting important events.

Just noticing that centralized prediction markets are yet another sort of institution that can be captured and/or sabotaged if they become important to guiding/controlling society.

Would really hope we have robust competition between them to ensure no player ever becomes fully dominant in the space.

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