Retrodiction markets?

You may have heard of “prediction markets” such as Intrade, the Iowa Electronic Market (IEM) or the Hollywood Stock Exchange (HSX), but what about a “retrodiction market”, where you can bet on the truth values of past events. Here is an excerpt from my paper “Betting on Conspiracies” (footnotes omitted):

“Why frame conspiracy theories as wagers or bets? Instead of pointless debates with ‘true believers’, instead of talking past each other, as my colleague and friend Paras Chopra has noted in this excellent Twitter thread, allowing people to place bets on their beliefs has the following advantages:

(a) Betting markets provide people a financial and reputational incentive to place winning bets. Generally speaking, the act of placing a bet encourages the voicing of informed contrarian opinions; at the same time, the possibility of financial loss — i.e. the fact that market participants have ‘skin in the game’ — discourages and penalizes the voicing of non-informed opinions.

(b) Betting markets scale well with the number of people and opinions.

(c) Most importantly, betting markets are able to efficiently aggregate disparate sources of information.

Simply put, a betting market allows all points of views to be included and aggregated. Call this advantage ‘cognitive diversity’, or in the words of one source, ‘when dealing with complex issues involving many variables or moving parts, no one can claim to have a complete model or theory from which to make fail-safe predictions. More likely everyone has a partial understanding of the situation, further clouded by his own biases. But when all these partial, biased models are put together, a wonderful thing happens: knowledge accumulates, gaps get filled, while the various biases cancel each other.’ In other words, a group’s collective model is generally more accurate than any individual model. A retrodiction market would harness this cognitive diversity, because anyone who disagrees with the current consensus has a profit motive to participate in the market.”

About F. E. Guerra-Pujol

When I’m not blogging, I am a business law professor at the University of Central Florida.
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2 Responses to Retrodiction markets?

  1. Neal Rogachefsky says:

    How does one win or lose their money in a retrodiction market? Do they have to wait until the conspiracy is proven true or false?

    • Excellent question! This is where Professor Steven Brams comes into play. He recommended that the retrodiction market on each conspiracy theory remain open indefinitely. You can then cash out when new information causes the price of a given conspiracy theory to change.

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