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Comment by michaelt | Hacker News Reader

If people with more information profit at the expense of people with less information, isn't that exactly how things are supposed to work?

If you're approaching a market with hard facts, detailed comparisons and solid evidence; while I'm trading in the same market based on vibes and intuition, surely it's expected that your returns would be better, and mine worse?

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Short answer, no. If you're betting on an outcome that can be controlled by an individual or small group, the incentive is for them to game the system by doing the OPPOSITE of what the prediction is so as to make the most money.

"When a measure becomes a target, it ceases to be a good measure"

https://en.wikipedia.org/wiki/Goodhart%27s_law

Goodhart's law does not cleanly apply here, because the group cares about more than making money, and would bear all the costs of not doing (what observers regard as) being in their interest -- both in that case, and whether potential counterparties regard it as being predictable enough to make reliable long-term agreements with.

To illustrate with an example, your point is like saying that if we had a prediction market for "Will the United States cede Texas to Mexico in 2026?", then the US government would give up Texas just to get that sweet sweet prediction market payoff.

I would agree with a smaller point, that an org would accept minor tweaks it doesn't care about in order to game a market, but this just means it can tolerate being unpredictable about lower-order bits of its decisions. You see that in cases like Trevor Noah making a minor change to a speech to influence a particular bet.

You're confusing collusion with being informed. The concept of market rationality is based on the premise that all participants in said market more or less have access to the same information. Fools can choose to not be informed before making a trade, but passing along sensitive information that contradicts market rational behavior causes people to lose trust in the market.

Perfect example from today. Allbirds just announced that they're going all in on AI infra, skyrocketing the stock. Had I bought a million dollars worth of Allbirds yesterday, everyone would think I'm an idiot. But now, they would think I have insider information and would no longer want to participate because it would make no sense to buy Allbirds yesterday unless I knew the announcement was coming.

If you’re betting with a friend that they won’t have chicken for dinner, what’s to stop them from having chicken for dinner? What if you bet with a complete stranger who also took the reverse of that bet from your friend?

Nothing, that is why you quickly learn to not make stupid bets like that. If you don’t learn, then I guess survival of the fittest and all that.

A fact is a statement about past. A bet is contingent on the future.

Insiders can change the facts.

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