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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Notes -
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.
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.
This is a big problem on Manifold Markets and on Polymarket. On Manifold, there are a lot of market creators who write ambiguous resolution criteria or they even change the resolution criteria after people have placed bets. The resolution criteria often describe something quite different than what the question is literally asking. For example, there was a question that straightforwardly asked whether Israel blew up a certain hospital in Gaza, and then when it turned out the hospital hadn't been blown up at all and that the bomb had exploded in the parking lot, the question was changed to whether Israel was responsible for the explosion.
It has become common to resolve in favour of some nebulous, undefined "spirit" of the question, rather than the actual meaning of the question that was asked. A lot of markets become mainly bets on how the creator will decide to resolve it rather than on what the question is purportedly about.
On Polymarket, the resolution mechanism for disputed questions relies on a Keynesian beauty contest that has settled on an equilibrium where everyone assumes the simplest and stupidest possible interpretation, and now people are even contesting uncontroversial resolutions in order to take advantage of this broken system. There will be a question that resolves and everyone agrees that it was resolved correctly, but then the resolution will be contested and everyone knows the vote will go in favour of some hypothetical interpretation that would only work if everyone was retarded, so they vote that way. No one agrees with the interpretation, but everyone is incentivized to vote how they think everyone else will vote. And everyone knows the winning vote is expected to be the one that doesn't involve reading the full resolution description and doesn't involve using any sort of complex thought.
Yes. I've seen problems arise even with fairly 'objective' markets because even if you can measure a given phenomenon with precision, people might still mistrust the sensor doing the measuring. The market asks "what will be the high temperature in Miami on [date]" and we have to consider whose thermometer? Is it calibrated correctly? Are there any conditions that might throw it into an unexpected/error state?
So now the question is somewhat less about climate conditions and more about the quirks of the measurement system.
In theory you could solve this by attaching a reputation market to the system, so that a given resolution source can have their 'trustworthiness' rating impacted if enough people suspect they're fudging numbers or intentionally writing ambiguous questions/resolution criteria.
But that's just yet another system that is susceptible to gaming.
Augur had a seemingly solid system for avoiding this, but probably couldn't handle the volume, being dependent on Ethereum.
I am literally a practicing attorney and I have had my mind blown at some of the rules-lawyering/munchkin behavior that has come out of the space.
Ironically this perhaps goes to show why sports betting is so popular, because sports rules are uniformly understood, well-defined, and the bets are set on easily determinable outcomes like "Who won" and "what was the score", outcomes which are rarely ever walked back after the fact.
I speculate that we'll see some kind of AI-based solution arise and different markets will become popular with different segments of the population based on the quirks of how, say, Kalshi's AI resolves questions vs. Polymarket's vs. Manifold's.
In this case prediction markets might not actually 'solve' the issue of people having different reality bubbles, but at least there'll be some competition.
This is not what I recall. Invalid markets resolved to 50/50, so you had users, chiefly someone who went by the moniker of Poyo, create markets that appeared to be legit but e.g., had the wrong date, so that people would bet & he'd win money when they resolved 50/50
Yes, and the Augur 2.0 solution was to add in an option for people to bet on whether a market was invalid in the market itself.
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