Hi guys, until recently I was a doubter of prediction markets as it seemed they were just betting operators trying to disguise themselves as financial products. Hearing Paul Sztorc, Robin Hanson and the Augur guys I have realized prediction markets can be very powerful and I want to learn more and share it with others.
I am James Canning, Webmaster of http://www.bitedge.co/
a leading source of information about bitcoin gambling and I am going to write one or two blog posts about bitcoin prediction markets. I hope you can answer a few questions to clarify things for me. 1.
About predictions with scalar outcomes like how many Electoral College votes will Hillary win is it the case that there would/could be a prediction that pays 1/538 of $1.00c per vote won? So if she wins 0 votes its worth $0.00, if she wins 269 votes it pays out $0.50c if she wins 538 votes it pays out $1.00c and so on for every amount in between?
If that is how it would work and the market price for that prediction is $0.50c how would a new trader come along and bet that Hillary will win less than 269 votes? This trader does not hold the prediction to be able to sell it so is there a shorting mechanism or could/would there be an equal and opposite prediction available for shorters that pays out $0.00 if Hillary wins 538 votes, pays out $0.50c if Hillary wins 269 and pays out $1.00c if Hillary wins 0 votes and so on for every amount in between? 2.
Do you imagine predictions being tradable outside Augar? I guess by the keys for those predictions being traded privately potentially at a different price than the price on Augar? If predictions could be traded in the dark, off market does that degrade the price signaling that is required for wisdom of the crowd accuracy?
Although someone who trades a prediction at a different to market price has an incentive to arbitrage that trade on the market he might have real life knowledge that the prediction will soon go to $1.00c or $0.00c and real life incentive to not let the market know that. In such a case he might trade the predictions off market in a way that would change the price if it were happening on market. In this case the market and the prediction does not gain from his knowledge right? 3.
How do the predictions get their initial price? Does the creator set the initial price by setting a loss limit per outcome? Like if he sets a $6.00c loss limit if Hillary wins and a $4.00c loss if Hillary losses does that mean the prediction that Hillary will win’s initial price will be $0.60c? 4.
Are betting exchanges prediction markets? I do understand the difference in trading mechanism, the concept of a prediction being trading between parties as different to parties matching each other’s bets and that the logarithmic market scoring rule will give Augur the effect of liquidity.
But isn’t the valuable part of a prediction market, the fact that the price implies a wisdom of the crowd probability, exactly replicated by a betting exchange?
If I go to Betfair and check the odds on Man U Vs Arsenal those odds are just as much a wisdom of the crowd probability with all the same incentives at play that would be for a prediction market right (except Betfair is centralized and non-anonymous)?
I get that Augur is decentralized and anonymous but that is just as much a case in favor of a decentralized anonymous betting exchange is it is in favor of Augur.
So what would be the advantages or disadvantages of a decentralized anonymous betting exchange compared to Augur? Particularly if there are any advantages or disadvantages to the accuracy of its price signal as a forecast. 5.
I assume a lot of markets will be created automatically by bots and I assumed they would be voted on by bots as well. But then I gather what each voter has to vote on is random which would make bot voting more difficult so do you think people will do voting manually by looking stuff up on google? 6.
If the current Augur design has major problems because etherium how easy or possible would it be to move it onto a bitcoin sidechain? Or what would be plan B? 7.
The whitepaper talks about Augur run on bitcoin, is that out of date?
Thanks for any info you can give, I have had a few ahha moments with this and I think I will get a lot more involved.
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