The Demon King donned a mortal guise, bought shares in “The Demon King will attack the Frozen Fortress”, and then attacked the Frozen Fortress.
I'm curious: didn't the market work exactly as intended here? I mean, it helped them anticipate the Demon King’s next moves – it's not the market's fault that they couldn't convert foresight into operational superiority.
The King effectively sold good information on his battle plans; he voluntarily leaked military secrets against pay. The Citadel does not have to employ a spy network, because the King spies for them. This should be kind of a good deal, right?
it helped them anticipate the Demon King’s next moves – it's not the market's fault that they couldn't convert foresight into operational superiority
The demon king only made those moves to profit from the market, they wouldn't have been made otherwise
1If you think I missed the point, can you explain in more detail?
Here is my model: Demon king buys shares in “The Demon King will attack the Frozen Fortress”, then sends some small technically-an-attack to the fortress so the market resolves yes, and knowing this will be done is not worth the money lost to the Demon King on the market. No serious-battle plans or military secrets are leaked, and more generally the Demon King would only do this if the information revealed weren't worth the market cost. (i.e. it's a central kind of prediction market outcome manipulation, i.e. exploiting how this prediction market assumed a kind of metaphysical gap between predictors and the world / knowledge and action)
Do you disagree with this, or think it's true but misses the point, in which case what was the point?
The Demon King does not solely attack the Frozen Fortress to profit on prediction markets. The story tells us that the demons engage in regular large-scale attacks, large enough to serve as demon population control. There is no indication that these attacks decreased in size when they were accompanied with market manipulation (and if they did, that would be a win in and of itself).
So the prediction market's counterfactual is not that the Demon King's forces don't attack, but that they attack at an indeterminate time with the same approximate frequency and strength. By letting the Demon King buy and profit from "demon attack on day X" shares, the Circular Citadel learns with decently high probability when these attacks take place and can allocate its resources more effectively. Hire mercenaries on days the probability is above 90%, focus on training and recruitment on days of low-but-typical probability, etc.
This ability to allocate resources more efficiently has value, which is why the Heroine organized the prediction market in the first place. The only thing that doesn't go according to the Heroine's liking is that the Circular Citadel buys that information from the Demon King rather than from 'the invisible hand of the market'.
more generally the Demon King would only do this if the information revealed weren't worth the market cost
The Demon King would sell the information as soon as she thinks it is in her best interests, which is different from it being bad for the Circular Citadel. Especially considering the Circular Citadel doesn't even have to pay the full cost of the information - everyone who bets is also paying.
It is very possible that the Demon King and the Circular Citadel both profit from the prediction market existing, while the demon ground forces and naive prediction market bettors lose.
If you read the entire story, you'll find that the Demon King (who, by the way, is called "she" a whole bunch of times througout most of the story), never has any intention or expectation of taking the fortress. That's probably the only "military secret" that really matters. And she doesn't sell that secret.
That's probably the only "military secret" that really matters.
The soldiers guarding the outer wall and the Citadel treasurer that pays their overtime wages would beg to differ.
But the Summoned Heroine doesn't know that until the end, and it's stated that she specifically set up the market to "help them anticipate and counter the Demon King’s next moves".
Some belated Author's Notes:
.This was heavily based on several interesting blog posts written by lsusr. All errors are mine.
.I understand prediction markets just well enough to feel reasonably sure this story """makes""" """sense""" (modulo its absurd implicit and explicit premises), but not well enough to be confident I can explain anything in it any further without making a mistake or contradicting myself. Accordingly, I'm falling back on an "if you think you've found a plot hole, try to work it out on your own, and if you can't then I guess I actually did screw up lol" stance.
.The fact that
neither of the protagonists ever consider the possibility of the Demon King also deriving strategic benefit from consulting an accurate and undistorted conditional prediction market
was an intended part of the narrative and I'm suprised no-one's brought it up yet.
Who in her kingdom kept selling into demon king attack contracts anyway? That seems like a net lossy proposition.
Hm. Maybe there were a few people who could set things up to profit from the attack...?
Still, it seems to me that market should have incentivized a well funded scout corps.
Stylistic feedback: this was well-written. I didn't notice any typos. However, there are a lot of ellipses (17 in 2k words), to the point that I found them somewhat distracting from the story. Also, these ellipses are all formatted as ". . .", i.e. as three periods and two spaces. So they take up extra room on the page due to the two extra spaces, and are rendered poorly at the end of a row. These latter issues don't occur when you instead use something like an ellipsis symbol ("…").
If you want to piss people off, you can also use periods and nonbreaking spaces. This way they linewrap nicely as well as demonstrating that you knew about typsetting but ignored it for some personal reason. . .
2They made it so the sociopath at the top of the pyramid was the kind that’s clever and myopic and numerate and invested in the status quo
The word "myopic" seems out of place in this list of positive descriptors, especially contrasted with crazed gloryhounds. Was this supposed to be "farsighted"?
No, and "invested in the status quo" wasn't meant as a positive descriptor, either. This is describing a sociopath who's optimizing for success within a system, not one who overthrows the system. Not someone farsighted.
The Summoned Heroine and the Demon King
The Summoned Heroine announced to the Circular Citadel that she would be creating a prediction market, to help them anticipate and counter the Demon King’s next moves. There was cheering, on general principles.
The Demon King donned a mortal guise, bought shares in “The Demon King will attack the Frozen Fortress”, and then attacked the Frozen Fortress.
The Summoned Heroine announced to the Circular Citadel that, due to recent events, strict limits would be imposed on how much any individual would be permitted to invest in the prediction markets. There was only slightly less cheering.
The Demon King donned a series of mortal guises, bought shares in “The Demon King will attack the Frozen Fortress”, and then attacked the Frozen Fortress.
The Summoned Heroine announced to the Circular Citadel that, due to certain unforeseen difficulties, their taxes would now only be seeding trades which wouldn’t subsidize the Demon King’s attacks. There was some cheering.
The Mercentile Monarchs didn’t share a border with any Demonic territories, and didn’t care who won the Summoned Heroine’s war, but did want accurate predictions so they could accurately plan trade routes. They noticed that the Heroine had generously funded half of a fair and fully-liquid prediction market, and sensibly seeded the remaining outcomes.
The Demon King donned a mortal guise, bought shares in “The Demon King will attack the Frozen Fortress”, and then attacked the Frozen Fortress.
The Summoned Heroine announced to the Circular Citadel that, as a result of stringent regulation and intense diplomatic efforts[1], it was now completely impossible for the Demon King to make any money predicting anything other than failures by Demonic forces, and that furthermore, the payouts for such failures could not exceed the monetary value of the relevant losses to the Demonic Kingdom. There was a little cheering, mostly motivated by concern about what might happen if someone using that many italics expected cheering and didn’t get it.
The Fair Prince gently reminded her that the status quo she’d been summoned to improve upon was that the Circular Citadel paid the Demonic Kingdom an exorbitant annual tribute to not attack them. He politely inquired as to how paying them to launch failed attacks was an improvement, since (to his admittedly untrained eye) the main change was an increase in the amount of horrific violence involving Citadel citizens.
There was an awkward silence. It was broken by the arrival of two messengers. The first bore a missive from the Demon King, which read “Thanks for the insurance policy! :P”. The second informed the Heroine that Demonic forces were once again attacking the Frozen Fortress.
The Demon King and the Trusted Lieutenant
“My liege, a moment of your time?”
The Demon King looked down from her[2] throne, favoring her Trusted Lieutenant with an impish smile. “Oh hey, it’s you! What’s the news on Operation Stuffed Pig?”
“It was . . . a partial success, my liege. The early stages worked exactly as you said: conditional prediction markets are cheap to manipulate, especially when the conditions being conditioned upon are considered unlikely. We managed to distort P(successful invasion | # of Citadel battalions present) markets for the Fertile Farmlands with minimal expenditure, and without alerting the enemy: the Citadel redeployed away from our targets, just as we hoped.”
“But?”
“Several of our assaults failed outright, even when facing vastly inferior forces; and of those which succeeded, most experienced an unexpectedly high level of casualties. Our best hypothesis is that enemy soldiers took the markets’ predictions of their invincibility as gospel, and this caused them to fight with unprecedented fierceness and tenacity.” A pause. “If it’s any consolation, our proxies did net a profit from their investments.”
The Demon King sighed. “Ehh. You pay to win some, you get paid to lose some. How’s prep for the next Fortress attack going?”
“All troops suspected of sedition have been allocated to the front lines, along with all troops suspected of loyalty intense enough to make them unpredictable. All siege equipment capable of breaching the secondary walls has been dismantled, sabotaged or sold to third parties. Our battle plan has been successfully ‘leaked’ to the enemy, and ‘their’ spies have been able to claim significant ‘operating expenses’."
“Any chance we might win anyway?”
“None whatsoever.”
“Sweet! Alright, dismissed.”
The Trusted Lieutenant bowed stiffly and made to depart the Demon King’s throne room.
“Wait, un-dismissed. You came here to say a thing. What’s the thing?”
“Ah, that. My liege . . . you will, of course, recall the markets the Heroine set up for predicting which nobles and royals would be kidnapped?”
“Uh huh.”
“And you will recall that your stated policy on this was ‘buy all the zero-kidnappings bonds, I hate taking hostages, those clowns in the dungeons keep forgetting human prisoners can’t drink lava’.”
“Yeah?”
“Well, the bonds count all kidnappings, not just the ones we perpetrate. And recent intelligence indicates that the Cunning Count is planning to abduct the Fair Prince.”
“The Heroine put him up to it? Cheated her precious markets just to screw with me?”
“Not that we know of, my liege. As far as we can tell, his motivations are personal.”
“Oh,” said the Demon King, trying her best not to seem disappointed and almost succeeding. “So why haven’t you . . . ?”
“Our agents are in position. I just thought it prudent to confirm with you before actively helping our mortal enemies nullify a distraction, avoid a scandal and maintain internal cohesion.”
“Okay, props for checking, but like half our treasury is tied up in those bonds. Go ahead and foil his plot.”
“It shall be so, my liege.”
The Summoned Heroine and the Stalwart Sidekick
“I mean it’s just obscene!” said the Summoned Heroine as she paced. “People don’t do this!”
Her Stalwart Sidekick nodded sympathetically, and attempted to console her. “For what it’s worth, your markets are workin’ pretty well, now we know how to use ‘em. We buy we’ll-win-this-battle bonds, morale goes up, win chances go up, and then because win chances went up we also usually make money on ‘em. Profit and propaganda in one! Even the Prince is startin’ to come around!”
“Markets aren’t for that! I just wanted to make good decisions! And meanwhile, she . . .” The Heroine trailed off, and then trailed back on. “. . . it’s like she’s got some kind of vendetta against market solutions to epistemology! Like it’s her purpose in life to make prediction markets look stupid, even when it doesn’t make sense or benefit her! And she just keeps attacking that Fortress!”
“Well, demons are known for messin’ with people. And I hear their politics get freakin’ weird, even by politics standards.”
The Heroine ignored this. “This world . . . you had gambling dens already, you had insurance policies already, you had loans and mortgages already. It’s not like I was adding anything qualitatively new!”
“Changin’ quantities changes qualities. And people know to look with fresh eyes when a Summoned Hero sets their heart on somethin’.”
The Heroine ignored this too. “Earth even had stock markets! They’re almost exactly equivalent to prediction markets!! And this didn’t happen there!!! You can’t even say they weren’t subsidized, not exactly, it’s not like there weren’t bailouts! But people didn’t short a company and secretly poison the CEO! Dictators didn’t threaten to invade their neighbors, surreptitiously buy stock in their neighbors’ companies at a depressed evaluation, and then fake a change of heart! Banks di-”
“You sure ’bout that?”
The Heroine did not ignore this. “What are you getting at?”
“I mean, y’did say secretly and surreptitiously. How d’you know that stuff wasn’t happening, and the Demon Kings in your world weren’t just better at hidin’?”
The Heroine paused for a few seconds. Then, she picked up a pillow, buried her face in it and screamed her lungs empty.
The Demon King and the Summoned Heroine
“I give up.”
The Demon King regarded her guest. “You’re surrendering? Like, on behalf of the Citadel? Or is this just you switching sides?”
“What?” replied the Summoned Heroine. “No. I mean . . . I’m giving up on decorum, on markets, on . . . things making sense, I guess.”
“I mean, I’m always happy to learn I’ve driven a rival to madness, but is there a reason you’re telling me this?”
The Heroine looked her archenemy in the eye. “I’d like to offer you an insurance policy. I don’t know why you keep attacking the Frozen Fortress, but it’s shredding your army even as it’s draining our treasury and making me look insane. So I’ll pay you, directly, to keep failing. Cut out the middleman, zero the transaction costs.”
The Demon King gave her an incredulous look. “Wait, back up. You don’t know?”
“Enlighten me.”
The Demon King adopted a tone the Heroine distantly remembered using to explain fractions to her little brother. “Hell . . . is warm. Like, proverbially uncomfortably warm. And the Frozen Fortress . . . is cold. And controlling it gives you control over a lot of land which is also cold. So – even though I don’t have a snowball’s chance of taking it or a snowflake’s chance of holding it – if I don’t keep attacking it, I get deposed for not giving my subjects excuses to hope. And if I don’t get money for doing that, I get deposed for failing definitively at something important, for not being sneaky enough, and for running out of money. Also it’s basically a trashcan for my internal opposition.”
“Oh. So you’re not doing this because you’re obsessed with me or my ideas,” said the Summoned Heroine, trying her best not to seem disappointed and almost succeeding. “Wait, so if we just leased you the Fortress, then . . .”
“We’d use it as a forward base to wreak untold horror and destruction on the rest of the continent until all the humans got together to push us out,” replied the Demon King promptly. “And if you leased us the land around it we’d use that plus dark magic to subvert the Fortress. And the Citadel know that, so they wouldn’t let you. And none of that matters to me because my throne room has air conditioning.”
“Okay.” The Heroine paused to digest this. “Okay. So . . . should we start talking terms for the insurance policy?”
The Demon King thought for a moment. “If you make it that easy, I’ll stop seeming irreplaceably conniving, and I might get edged out by someone who cares about winning, which isn’t something either of us want. But what you can do is keep doing new things which make sense on paper, and I’ll keep finding ways to use them as reasons to attack the Fortress.”
The Heroine stared off into space. “You know, it’s funny. When I was first summoned, I talked to all the Citadel’s neighbors, trying to build alliances. None of them offered me anything but obvious advice and empty flattery. I needed to threaten some of them so they wouldn’t actively support literal embodiments of evil for profit. And now . . . the one ruler willing to work with me against the Demonic Kingdom is the Demon King.”
Another incredulous look. “You think anyone’s more invested in fighting a country than the one running it?”
The Heroine ignored this. “The markets . . . did something markets are supposed to. They kept you in power. They made it so the sociopath at the top of the pyramid was the kind that’s clever and myopic and numerate and invested in the status quo. Not some crazed, bloodthirsty gloryhound; not someone who’d burn the world for a doomed ambition; not someone who destroys by mistake, or just for the sake of it. And I’ve faced a lot of your potential replacements in battle, so I know they’d have been worse.”
“. . . you’re not wrong about that. Thanks for saving me, Heroine.”
She didn’t notice her hand drifting to her Magic Sword’s sheath as she said this, though onlookers did.
Demonic culture considers ‘Demon King’ a gender-neutral title.