Idea Futures In Lumpaland
Continuing the parable …
Dragon markets were an exciting new fad in Lumpaland – any Oopma could bet valued cocoa beans on dragon locations, lifespans, and victim counts, and on how these might change with anti-dragon policies. At first, instituters and amateurs both tended to dismiss markets that disagreed with favored estimates. But as dragon markets accumulated an impressive track record, Oopmas slowly became more reluctant to disagree. Dragon policy became better informed, more dragons were dispatched, and eventually some funds were even diverted from the institute to subsidize dragon markets.
Yet while some instituters and amateurs came to specialize in dragon market trading, most continued with previous activities. Most amateurs found it too tedious to specialize on particular dragons to the degree required to win bets – witty widely-read amateurs were invited to more parties. And most instituters found that winning in the markets just did not impress to the same degree – most audiences preferred eloquence, gadgets, and math as signals of personal impressiveness.
Prediction markets have great potential to improve info in science and business, but they’ll only go as far as demand for such info. To the extent we really care more about affiliating with impressive folks, we’ll prefer activities and institutions that better achieve this end.
I was thinking of something like the Gene Sweepstakes where scientists bet on the number of genes in the human genome. The mean was 61,710; the minimum was 27,462. (See also the FX betting.) But the actual number turned out to be about 21,000, lower than the minimum. Here, it seemed that the betting market merely confirmed the same consensus which one might have acquired among scientists through other means, and was not particularly close to the eventual result. The question is whether Idea Futures markets will succeed in discovering cases where the "official" scientific (as opposed to media, as in my example) consensus misrepresents the actual views of working scientists.
Hopefully, news media and viewers like to pretend they care about accuracy, but if in fact they don't care very much relative to other ends, then prediction market popularity will depend on how well they acheive those other ends.
Hal, yes, there are many cases where markets appear to lead media consensus. Would be nice to get clearer data on this though.