Prediction markets (if they take off) could end up being a society-destroying development. 🧵
I'm basing this analysis on @goodalexander's excellent "vibes-based economy" framework.
1. Define "bullshit" as the irrelevance of whether something is true or not.
2. Define the vibes-based economy as one where the ability to capture the public with bullshit is centrally economically valuable.
Example: whether what Joe Rogan says is true doesn't matter. The more he says it, the more it "becomes true" in the sense of making him richer.
Obviously the current resident of 1600 Pennsylvania Ave knows this as well as anyone.
3. Now consider prediction markets. They're a way of disintermediating the vibes/bullshit generation process by giving participants a direct economic stake in those vibes.
4. One can say that prediction markets are truth-seeking in the sense that you're rewarded for accurate predictions. But this view completely ignores reflexivity. If the existence of a prediction market directly affects the outcome, then it's not truth-seeking anymore.
5. Once a prediction market becomes large enough, it transitions from being truth-seeking to being tautology-seeking.
Consider a concrete example: a prediction mkt on "Will Trump run for reelection in 2028?"
If the market is small, it's a true prediction market. It doesn't affect outcomes.
Now consider a prediction market with billions of dollars a day trading on the question. People are talking about it, thinking about it, figuring out ways it might be possible. It's now a *vibe*.
Large amounts of societal resources are being deployed to argue for or against it. This feedback cycle directly increases the probability of the rare, changeable events through this deployment of resources.
Similarly, very probably events are made less probable.
6. Now ask yourself: is this process good for society? I claim it's clearly not good. Because society is a tenuous fragile thing.
A. It's easier to screw something up than to make it better.
B. Salience, or vibes, of bad things have a much larger natural audience.
7. So prediction markets will naturally converge much more on "will there be a civil war by 2030" types of questions than on "will we discover anti-gravity by 2030" questions.
8. The market for vibes (and hence predictions) will be dominated by:
(a) irrelevant stuff that sucks economic resources (sports)
(b) societally negative outcomes.
I'm sure @mansourtarek_ would disgree vehemently. But I'd be really interested in hearing his view on, for example, the ethics of listing a "will Trump run in 2028" contract.
/END
@mansourtarek_ Addendum based on replies:
"Stock markets are prediction markets, are they ok?"
My guess: yes they're fine as long as they dont become too big a fraction of the economy.
@mansourtarek_ What's too big a fraction?
I don't know but the corners that seem most problematic (0DTE, meme stocks, etc) have pretty clearly gone over the line. Like, there's no reason for MSTR to trade at 2x its BTC value.
@mansourtarek_ The good news is that the economy is very very big. So it would take a LOT of financial markets trading for this feedback effect to cause actual problems. As long as the gamblization is confined to certain stocks and corners of the world, it's probably all still fine.
@mansourtarek_ But there's no guarantee that will continue to be the case.
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