Item — HN Reader

> This is why we have problems with our current predictions markets, e.g. the stock market (insider trading, etc.)

A unit of stock represents a legal claim on a company's assets even in the absence of a market for that stock.

In many situations, we do want people to influence the value of their stock. Any company that grants stock is doing so because they expect employees to work harder. There are many cases in which employees with stock grants might make short-sighted decisions for quick profits, but on the whole stock grants make employees into better workers.

> A senior executive saw Prophit give a very low probability that the company would complete the hire of a new senior executive on time (filling the position had been a quarterly objective for the past six quarters). “The betting on this goal was extremely harsh. I am shocked and outraged by the lack of brown-nosing at this company,” the executive said to laughter in a company-wide meeting. But the market was the nudge the execs needed. They subsequently “made some hard decisions” to complete the hire on time.

In this case, the predictions market would've been useless had the executive team not used it in their decision-making.

A pure predictions market would be completely isolated from the event they're trying to predict. But I would say that's not an ideal predictions market.

2 comments

The anecdote of the Google executive is a lovely example of why the market failed to work as a predictions market. If you had a stake on Google executives continuing to drag their feet on filling that position based on their past performance, and then they saw that prediction and were so incensed that they stopped dragging their feet, then you lost your stake!! The existence of the market changed the outcome; that's the whole point of the objection here! If you believe the purpose of such a market is to affect the real world in such a way, then sure, that's a reasonable stance... but that's not a market for making predictions, that's a distributed market for bidding on contracts.

Your objection assumes that there is an inherent value to accurate predictions, independent of being able to use those predictions to make decisions.

The problem is that there is a misalignment of incentives. In this scenario, the execs wanted the hire done, so seeing the long odds on that happening motivated them to do the hire, and it got done and they were happy. But from the point of view of the bettors, they just lost their bet! The next time they make a bet, they will remember this and avoid betting on markets like this (ones where execs can read the market and change course) and so those markets will have fewer informed bettors.

The execs will then end up with lightly-traded, inaccurate markets on events they control, but probably still reasonably accurate predictions on events that they can't. That is maybe still useful, but it means you will have to think hard about the nature of each market before offering contracts on it, which may not really be easier than just doing the forecasting some other way.

It's like how there's an inherent value to adding numbers together on a calculator. It "just works". Once you have it, you can rely on it to do the math part while you do more complicated things.

A prediction market that is a dance between observer and market and agent doesn't "just work". You can't rely on its predictions because they are conditional on your choices, it's a complex feedback loop.

Yes, that's what a "prediction market" is.

How much money was in this prediction market? I can’t imagine it was that much. The problem here may have been with a market that’s too small to motivate thinking through the issue beyond a simple base rate, not that its large size made influential betters act to change the outcome in order to profit from the market.

> that's a distributed market for bidding on contracts.

Could $10,000 equivalent of the yearly prediction market awards have actually moved a Google executive-level job search if they were spent directly on that process? That's less than a month's salary for a sourcer, recruiter, and interviewer.

I think internal corporate prediction markets bake in the likelihood of this happening.

I think evidence would make this a stronger argument. Most of the people I've known with modest stock grants ignored them, or at least that's what they said -- kind of "maybe it will be worth something, but probably not". For really large grants, I'm sure it's different, but that is a far smaller number of employees.

stock grants don't solve the principal agent problem at a sufficiently large company. if I have an absolutely incredible year as an IC, I might increase my employers revenue by a few basis points.

I have plenty of internal metrics to demonstrate my contribution, but nothing I do measurably affects the stock price.