My previous post surveyed this powerful critique of prediction markets made by Nick Whitaker and J. Zachary Mazlish. Among other things, Whitaker and Mazlish identify three types of investors — savers, gamblers, and sharps — and explain why existing information markets do not appeal to these investors. To recap, three problems with information markets stand out: (1) they are zero-sum (“every winner … necessitates an equal and opposite loser”), which scares away savers; (2) their time horizons are often way too long, for it can take months or even years for some prediction markets to resolve, which repels gamblers who like fast action, i.e. bets that resolve quickly; and (3) they lack liquidity and thus do not attract sharps. (Or to put this third problem another way, without a critical mass of savers and gamblers, it is not worthwhile for most sharps to trade.)

So, what is to be done?

Allow me to introduce you to my secret weapon, my colleague and friend Steve Kuhn. Building on my previous work on “retrodiction markets” (see here, for example), Kuhn has developed an elegant and ingenious solution to the problems identified by Whitaker and Mazlish, an idea he first shared with me on May 16 of this year: a “World Truth League” modelled after professional sports associations, such as the Bundesliga in Germany or the Serie A league in Italy or the Premier League in England. (See, for example, the European football league logos pictured above.) But instead of competing to score the most goals, teams in Kuhn’s truth league would compete over the accuracy of their predictions and retrodictions.

In summary, the World Truth League would feature a roster of top-notch forecasting and hindcasting teams. These teams could consist of well-known pundits or talking heads like Elon Musk and Bill Gates, individual bloggers like Tyler Cowen and Alex Taborrok (their influential Marginal Revolution blog has many followers), and other highly-respected public intellectuals like New York Times opinion columnists David Brooks, Ross Douthat, and Paul Krugman. (Lesser-known bloggers, commentators, and public intellectuals like Steve and me could play in the relegation league!) Or better yet, the teams in the World Truth League could consist of actual “teams”, i.e. groups of individuals who share the same institutional affiliation. Imagine how cool it would be if, say, Microsoft Research, the Mercatus Center, or the editorial board of the New York Times were to field their own teams!

Whether the teams consist of individual players or groups, my main point for now is that a league format in which well-known and highly-regarded individuals and institutions compete against each other in real time would attract a lot of public interest and free publicity. By their very nature, sports — and games more generally — combine excitement, competition, and camaraderie. (See, for example, this 2014 essay in the Columbia Journalism Review. See also Johan Huizinga’s classic study Homo Ludens: A Study of the Play-Element in Culture.) Their zero-sum nature is thus a feature, not a bug, or as Whitaker and Mazlish themselves observe, sports betting is popular because of the communal nature of sporting events and their inherent unpredictability:

Beyond their exciting unpredictability and quick conclusions, sports matches are communal events of general interest. People are already fans of sports teams, even before the betting starts, and the predictable pace of seasons creates an ongoing community.

But these observations raise a new series of nuts-and-bolts questions. How many rounds would the teams play during the regular season, and how would we score each round? Would there be “playoffs” and a championship series? And, most importantly, how would the accuracy of each team’s forecasts and predictions — not to mention their “hindcasts” or “retrodictions” — be measured? Steve and I and a few others have been working on these logistical questions for many weeks, and I will report our preliminary results in my next post.