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new_throwaway comments on Bets on an Extreme Future - Less Wrong
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I always worry about the legality of these types of bets. Does anyone else worry about that? Its not a big deal right now since they are rare and typically small, but the people who advocate for them seem to want them to be much more common.
It seems like there would also inevitably be ugly second-order effects if we had large betting markets on events with huge consequences for large numbers of people.
I mean, we know that gamblers will bribe or even injure sports competitors to win their bets. This is not a hypothetical. This happens, and for fairly small amounts of money. We know that business investors will try to move the markets, that they will pay for inside information, and that they will influence political campaigns and even destabilize governments.
Do we really want to give lots of people financial incentives for, say, a new flu outbreak?
We have them now. They are called financial markets.
Right, and for all the massive good they do in terms of capital allocation, they often do have ugly second order effects, even though they're only indirectly betting on whether the BCG vaccine can rebuild beta cells in Type 1 Diabetics, or Guinea's new government can be bribed into selling mineral rights cheaply at tremendous cost to their impoverished people.
Can you provide examples of social or economic systems which have "huge consequences for large numbers of people" and do NOT have ugly second order effects?
Nope. Everything does. So the questions are always how many and how ugly?
If financial markets are the most comparable system then you've got a promising data point. Nearly everybody will concede they've historically done a reasonable job of asset allocation even though they're haunted by bad actors and probably less functional now than ever. But if financial markets are already betting on the same sorts of things a betting market would, the betting market is redundant. It's not clear to me why you need a system of direct bets between individuals when you've already got hedge funds and GS spending collective billions on very smart people and special access to figure out which drug/weapon/nanotechnology/country is about to blow up, and then placing bets worth trillions. Obviously, the hedgies may not get it right, but they're less likely to be out of their depth than random gamblers with strong opinions.
If sports betting is the closest comparable system, then you've got a less promising data point. Sports betting always tends to corrupt the things it bets on because unlike asset allocation it's zero-sum or even negative-sum, and it's very hard to maintain a winning percentage without cheating, and cheating turns out to be remarkably easy. And even in the cleanest sorts of systems (the US is very clean from a global perspective) cabals with special access and tools conceal the actual flow of "smart money," which makes it very difficult to see what the market actually predicts.
Yep. Now let's reformulate that a bit. In the context of financial markets "betting" is called pricing. The price of an asset is the committed-capital-weighted average of the opinions of market participants.
So the question becomes, are the things we are interested in being priced in the financial markets.
Great, we're on the same track.
I submit that yes, many of the events LW/transhumanists/techno-futurists are interested in are being priced in financial markets right now. The financial markets are making guesses about robotics, nano- and materials tech, the prospect of nuclear exchanges, food insecurity, plagues, gene therapies, and other fancy ideas.
I'd also submit that many of the things not being priced in today's markets are extremely difficult to gain any info about, much less predict. They look much less like shares of companies or even CDOs, and much more like betting on soccer games.
I'd further submit--and I'd be willing to bet on this--that within a short period of creating a large incentive for catastrophe, wicked people will do something horrible to win a bet.
This is trivial to do now: buy oil futures and short oil companies, and blow up a pipeline. Oil-related contracts are notoriously volatile (amplifying gains) and such an attack would make a real difference. Yet despite John Robb's predictions that 'terrorist entrepreneurs' would fund their organizations this way, we have yet to see this.
But we do see behavior like this--not via spectacular attacks in the developed world, which would be extremely high risk, but via much more sophisticated, lower risk methods. Moving paper is much easier (and higher-reward) than violent crime. Spectacular attacks on oil facilities and assassinations of regulatory officials do occur, but they're usually in the developing world, much farther from cameras, and they're usually conducted by people who don't have slicker methods at hand.
And those are in capital markets, where people can make a profit without ever beating the average. Betting markets don't work that way. We always see behavior like this in betting markets. Competitors threatened or hurt or drugged, refs paid off or intimidated, bad information leaked to the public. Why would a betting market concerned with the political future look different than a betting market concerned with jai-alai?
I am not sure. How are financial markets pricing, say, the prospect of nuclear exchanges? Or plagues?
Well, that's just usually called crime -- unless a government does it in which case it's called policy. Wars have been started for financial gain, millions of people have been killed for political power, etc. etc. Are you suggesting there will be something new in this respect?
I'm suggesting that there's very little upside to the project compared to the downside.
Best case scenario, you get some very interested people with minimal information and strongly held beliefs betting on very long timelines with slow and irregular feedback to adjust their bets. It looks much more like the line on the World Cup than it does the price of Exxon, except that there's less historical data and less ability to adjust positions than you have in sports gambling. How much insight does this kind of betting market give you?
Worst case scenario, you get massive incentives for people to wish for disaster. Maybe you disagree that this leads to somebody dropping prions into cattle feed. Fair enough. But people do respond to incentives.
Edit to answer your first question regarding nuclear exchanges: Israel's stock market, and India's, move in response to investors' perceptions of Iran and Pakistan. Ditto everybody within the vicinity of the DPRK. Pharmaceutical companies' prices reflect investors' predictions about the likelihood of massive demand.