Prediction markets won't be all good

There's a lot of excitement about prediction markets.

I don't know if they all count as crypto, as from what I can tell the platforms people are excited about are just traditional centralized internet casinos. ( Let me know when you can bet on the date of someone's assassination - that's a true prediction market as envisioned by the cypherpunks 30 year ago.) I've used Augur, many years ago and the UX was not great - I tried to create markets and ended up spending hundreds of dollars for markets nobody used. It makes sense that for large scale use you would just centralize the whole thing.

Early assassination market enthusiasts imagined that assassination markets would be used by the good guys against the baddies who violate the non-aggression principle. Technologists of all ages seem to have this same lack of imagination: Certainly this tool that allows me to do this neat thing at scale will only be used for prosocial use cases, right? (cue Anakin-Padme meme)

But this is the world we live in some folks are always excited for the good use cases and don't always think what will come 4,7, or 13 years later.

Positives

#1 favorite thing about futures markets: If the market has finite expiry (most do) it solves the Keynes "Market Can Stay Irrational" problem

This is far and away the thing I'm looking forward if prediction markets start to take off. While hopium huffing TSLA permabulls can deep doubling down on long after Elon's nonsense promises don't materialize, they can't outlast a contract with finite expiry.

So if Elon promises 10 million robotaxis by 2028, and you say "he's full of shit" and people say "WHY don't you SHORT the STOCK?" now you can say "no thanks, I will participate a futures market that expires in 2028" and slowly drain liquidity out of hopium addicts. You won't get squeezed in such a market products (unless you're taking loans to cover "yes" future you sell) . Just buy the no futures and sell what "yes" futures you can cover and wait for the payout.

#2 favorite thing about futures markets: 60% of the time (probably more actually) they work 100% of the time (meaning they work in real time)

There's a few caveats I will definitely hit below, but I think that overall these are actually going to aggregate information quickly and efficiently to give you the best possible information, at least if you're just looking for a number. On election night, as the precincts trickle in, I'm confident that the prediction markets will be as good as anything possible - you don't have to wait for NYT to check off the 13 boxes necessary to "call it."

Concerns

Some of these are social/normative concerns and economic/technical/game theory concerns, some are a mix of both.

1) Goodhart's Law. Any metric becomes a target. This is a metric that is buyable on the open market at a price.

Obviously, some targets are valuable. Trump sued a pollster who underestimated his performance. Why would he do that? Obviously there is some economic value in the polls.

2) Market themselves have become subject to secondary markets. So the number you're seeing might not be "true"; it might reflect a skewed landscape were Jane Streets of the world are doing who-knows-what.

3)If the expiry is far enough out, you may or may not be able to avoid memecoin economics.

4)Hedge funds may try to flip stupid ideas. Why not seek out unpopular ideas that you think you can sell at a higher price - even if you're not going to hold the futures asset until expiry? The nihilism starts to become clear - if someone is convincing you of some idea, you have no idea if they're just suddenly really interested in some species of fish going extinct or if they're trying to pump bags.

5)Because these are instant gratification, clickable, refreshable, 24-7, they will be preferred by consumers, they will replace more wholesome sources. Every click online is counted. If a newspaper sees these are getting the clicks, they're going to lessen investment in traditional analysis and information gathering. Journalism will lay of pollsters and analysts and contract with Kalshi.

Our brains in search of novel information will become dull, less able to process analysis. Smart people who do analysis and research, instead of operating in the public square, will be employed by hedge funds.

6) Billionaires or moneyed interests will be able to buy the field of candidates for almost any election. (Back to Goodhart's law) Markets for any election will form early (aren't you curious who's going to run in your district in 2028?). The early front-runner will get the coverage and the notoriety, sometimes for no good reason other than they have deep-pocketed backers.

At this point Poker dynamics kick in, and bets become self-fulfilling

7)People can become personally invested in bad ideas, creating some icky conflict of interests. We've already seen markets on whether a nuke will go off or if America will go into a civil war. There's a lot of other bad things that can happen that contrarians can start arguing are inevitable and maybe these are good, actually. We know incentives can cook people's brains. Inching something once unheard of into the Overton window could happen.

8)Massive culture wars all over again about moderation/who decides. The framing, where on the page it's listed, to whom the market is shown (shadowbanning!!) these are all decisions that are going to really set the usual suspects off. Consider Wikipedia, which is 99.99% true facts, and some people want to destroy it. These folks will not go away.

9) Smaller markets with less information will be leveraged against larger markets. Again this is Goodhart's law. There could be a smaller market betting on quantum computing. A sudden spike in one of these markets could cause Bitcoin to sell off. If you can short $100 million in Bitcoin and cause a spike in the quantum market for $20k, you might have a good payoff.

10)Arson/assassination/infection markets. Many bad outcomes are causable by humans. On centralized platforms, these might be avoided. If these are true crypto markets, there's nothing we can do.

11) Questions are wrappers for conspiracy theories or defamation. I can accuse someone of a crime or a cover up, by simply asking the question if it happened, and bet money on it. As the number goes up this thing they did starts to seem feasible. If my goal is to tarnish someone's reputation or give some credibility or pretense to a conspiracy theory, mission accomplished.

(Note that whistleblowing is a pro-social use case, if it's based on truth - but how do you know the difference between a whistleblower and a defamationist)