Decision markets, or, putting your money where your mouth is.

I am not a gambling man. On my eighteenth birthday I was taken to a casino, where I spent a grand total of five dollars on penny slots, because the only way to make money at a casino is from other players, and the blackjack ante was greater than I was willing to lose.

Betting may be able to give better returns, given enough research; one could probably win from sports betting pools, conditional on knowledge about sports, which I lack.

The stock market, on the other hand, is already saturated with economists, insider trading and trading bots, making it difficult to get ahead. And besides, the stock market only deals with companies, and by a small extension, commodities and world economics.

However, I've found a site called Hypermind, which allows you to trade in a decision market in a competition setting. (You don't invest actual money, but the do provide prizes to the top scorers).

So what are decision markets? Decision markets are prediction tools that leverage the powers of markets to determine the likelihood of future events.

Each event has stocks representing different outcomes, ranging in price from 0 to 100, which usually represent the percentage likelihood of the event occurring. Buying a stock at 95 means you believe that the event has a 95% chance of occurring, and the number of stocks you buy at that price indicate your confidence (as you are betting more money). You buy stocks if you believe that the probability is undervalued, as stock prices fluctuate as people place buy and sell orders based on their beliefs.

If you believe that a stock price will go down, you can either sell stocks that you own, or you can short stocks, just like in real financial markets.

When the question expires, and the real world provides a real answer for the question, stock prices jump to either 100 or 0 if the outcome has occurred or not.

(Events looking for a continuous answer (such as the American GDP) instead translate stock prices to percentage points, and once the final number is revealed (say, 4.4%), then the stock price is set to the corresponding price (in this case 44, because nobody's going to predict a > 10% GDP growth rate, and because prices are integers we need greater specificity).)

Decision markets are beautiful instruments, as the prices fluctuate based off peoples' predictions of the outcome of the events. They differ from regular betting in which you don't have to bet on binary outcomes, rather you bet in the direction that the market will swing, and, like in regular betting, your returns are greater if you bet against the market (but only if you win).

The markets also aid in predicting the actual outcome of events, as the prices depend on both belief and confidence. You are, in effect, putting money where your mouth is, so only those who are confident in their predictions would buy in, and those who are the most confident (and willing to risk it) tend to be those with information.

Hypermind deals with mainly politics and economics, with questions ranging from international elections to GDP and box office performance. More interesting than sports, and more general than individual company performance. And it's free. (Although you have to apply for an invitation, which I got a day after applying. They kick out the bottom 15% of performers, to keep their predictions accurate)

Other decision markets exist, of course; Hypermind isn't the only one. Decision markets are a tool to aid in predictions of the future, and I believe (68%) that decision markets will grow.

Tagged with futurology, logic, politics
Posted on 2015-08-09 06:22:35

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