How Will My Evil Market Experiment End?
Find out with me... at your risk.
Hello from Morningside! Today, I want to tell you about a devious little scheme I’ve concocted.
Lately I’ve been spending time on a play-money prediction market platform called Manifold Markets. Among more serious things, it lets you bet on questions like “Will there be a trillionaire by the end of 2028?” “Will we have a terrestrial space elevator by 2150?” or “Will two heads of state meet in virtual reality before 2025?” (that last one mine).
A few weeks ago, a market on the site went viral: a play-money Ponzi scheme. I was instantly drawn to the silliness of it, and the glee with which people were yeeting their play-money savings into a doomed scheme. It was all the fun of meme stocks without the sad real world consequences.
I daresay I felt a little envy for the game’s creator, CodeandSolder, since I’d been on the hunt for a get-rich-quick scheme of my own.
For a while after, I couldn’t stop rotating his idea in my head like a Rubik’s cube. On walks I pondered ways to improve on it, and swore to create an even more viral game. Until one day, CodeandSolder added a prize to the game: 250 coins to whoever managed to be the last player. Damn his ingenuity! Here was a trick that would surely make so many more join his game.
But then it hit me: I could try something similar for my own scheme, a concept I’m now calling the All-Pay Ponzi Lottery. Having worked it out on paper a little, I predict it’s gonna blow up even more than the original (cue maniacal laughter)
Ah, you must be wondering why I am enacting such a dastardly plan. Well it’s for a good cause, I promise.
Really it’s because I believe prediction markets are great and deserve more attention. Here are some of their finest aspects:
True Beliefs: Prediction markets make people put their money — or in the case of Manifold, measurable prestige — where their mouth is. This forces participants to think harder before expressing potentially harmful opinions, and creates yardsticks by which to gauge their prescience later.
Crowd Wisdom: Thanks to collective brainpower and the efficient market hypothesis, prediction markets outperform traditional opinion polling at predicting things like political races (for the most accurate view of what 2024 holds, check this site out)
Information Made Fun: Even with the Internet at their fingertips, society remains woefully under-informed. So, I’m in favor of mechanisms that gamify the process of staying informed, especially if it’s about topics that directly empower people to make smarter decisions about the future. To be fair, I am perhaps wrongly assuming that people will find sites like these as intriguing as I do.
Prediction markets first attracted popular attention for reasons outlined by Scott Alexander here:
The current interest in forecasting grew out of Iraq-War-era exasperation with the pundit class. Pundits were constantly saying stuff, like "Saddam definitely has WMDs, trust me, I'm an expert", then getting proven wrong, then continuing to get treated as authorities and thought leaders. Occasionally they would apologize, but they'd be back to telling us what we Had To Believe the next week.
You don't want a rule that if a pundit ever gets anything wrong, we stop trusting them forever. Warren Buffett gets some things wrong, Zeynep Tufecki gets some things wrong, even Nostradamus would have gotten some things wrong if he'd said anything clearly enough to pin down what he meant. The best we can hope for is people with a good win-loss record. But how do you measure win-loss record? Lots of people worked on this (especially Philip Tetlock) and we ended up with the kind of probabilistic predictions a lot of people use now.
The popularity of forecasting has since only grown, lifted by bloggers like Scott Alexander, his audience, and the broader effective altruism community. Part of why prediction markets are such a natural fit for these folks is their oft-proclaimed belief in longtermism: a controversial philosophy that places equal value on future lives as it does on present ones. A choice today that carries a 65% certainty of improving a life in the future should be weighed equally against one that has a similar chance of improving one today. Had we abided by such logic in the past, we may not be facing the dire consequences of awful things like climate change today.
Prediction markets offer a natural way to gauge the relative uncertainty and potential benefit of short-term and long-term actions. By supporting longtermist strategies, prediction markets could in theory help us effectively alleviate suffering for trillions of humans in the future.
It was these lofty goals that first drew me to prediction markets. For all the perceived flaws of longtermism, and all the biases inherent to market-based forecasting, their shared potential for good seemed exciting to me.
And so I’ve dived in. I should note that I don’t view becoming a skillful forecaster as where my efforts are best spent. Instead, I hope to be more of an orchestrator: bringing attention to important markets, contributing questions to forecast on, and setting up hopefully enlightening experiments.
Which brings us back to my evil scheme, whose mischievous underpinnings I will now explain. The core dynamics can actually be traced back to my childhood. My parents, both economists, often discussed its most relevant aspects at the dinner table.
It’s there that I first heard of Bernie Madoff from my mother, who once participated in a roundtable discussion with him. I remember how his investment scam fascinated me to no end.
It’s also where I first heard about a trick played by a colleague of my parents, Avinash Dixit. During the final lecture of his course, he offered a bottle of wine to the last one clapping for him.
“A classic all-pay auction,” my parents told me at the time. Sure enough, it was not until several hours after Professor Dixit finished his lecture, and after two of his students had diligently followed him to his office in rapturous applause, that the matter was finally settled. One inevitably faltered and the other was handed the prize. For many hours’ effort, the first was left with nothing but sore hands.
If I’m telling you all this, it’s because I hope that a similar dynamic will manifest at the end of my little game (cue gleeful cackling). It operates with three simple rules:
🦅 The Early Bird Bonus: For the valiant pioneers, each new entrant bears gifts. When new players join, half of their stake is divided evenly among all who came before them. The sooner you enter, the greater your potential haul from future entrants.
🏴☠️ The Latecomers' Loot: Fashionably late? Fear not! A bounty has been amassed just for you by those early adventurers. The remaining half of each stake contributes to a chest that will be split evenly among those who join after them.
⏳ The September Surprise: Here’s the twist: the game ends on a mystery date in the last week of September (some time before September 30, 11:59:59 AM PT, and after Manifest begins, on September 22 at 10:00 AM PT). Only at that point will the Latecomers' Loot be paid out.1
I hope you can see why this might just explode!
In any case, by my calculations, the best time to jump in is now. Buy your stakes and join the fun!
The random end date is to avoid people waiting until the very last minute to pitch in, so that more people will be inclined to fight for the top of the pyramid!