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Offline luckybit

Can issuers of decentralized bets charge fees?
« on: February 20, 2014, 12:05:02 PM »

Is there an incentive under Bitshares so that the person who creates the popular topic or bet can charge a fee and receive a percentage of all who bet one way or the other? Say if it's a binary option or a bet on some sporting event? What is the incentive for the creation of the bet in the first place?

I think a fee incentive would encourage more betting and higher quality betting. The bets which have more participants would generate more profit in fees to go to the issuer of the bet. This would give incentives for everyone to create attractive topics to bet on.

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  • Guest
Re: Can issuers of decentralized bets charge fees?
« Reply #1 on: February 20, 2014, 12:35:15 PM »
1) is the fact that individuals that first enter into the prediction market have to purchase the stock from this issuer not incentive enough? not to mention the issuer has the same incentive as any early investor - a more substantial return on his/her investment

2) fees theoretically reduce participation in the market as players have to calculate the fee into their cost-benefit analysis of entering the market.

People will issue prediction markets regardless of fees, as they still stand to gain a lot even without them. If there should be a fee at all it should be a fee on the issuer, so as to discourage the propagation of irrelevant markets for which there will be low participation.

Offline luckybit

Re: Can issuers of decentralized bets charge fees?
« Reply #2 on: February 20, 2014, 10:15:14 PM »
1) is the fact that individuals that first enter into the prediction market have to purchase the stock from this issuer not incentive enough? not to mention the issuer has the same incentive as any early investor - a more substantial return on his/her investment

2) fees theoretically reduce participation in the market as players have to calculate the fee into their cost-benefit analysis of entering the market.

People will issue prediction markets regardless of fees, as they still stand to gain a lot even without them. If there should be a fee at all it should be a fee on the issuer, so as to discourage the propagation of irrelevant markets for which there will be low participation.

So which is it? People will issue prediction markets regardless of fees? Why would you have quality without a profit incentive which rewards quality? How do you increase volume and attract people in if you don't reward the people who bring you the most volume?

For example if I issue a bet on the price of BTS after the first month being above or below a certain limit, and there is a fee for all who participates, then I'm rewarded as more people participate in my prediction market. This would probably be the rational sort of people so what if I create prediction markets which don't have anything to do with rational people and ask the question of what will happen in a TV series? Suppose more people are attracted for irrational reasons than rational, doesn't it still increase volume?

By rewarding me for increasing the volume it would give me incentive to both market Bitshares the protocol and the specific bet that I'm trying to make money from. People who think they could win big won't mind paying a percentage fee to make the bet if it's designed right. You want Bitshares to reach critical mass overnight and have good marketing? Reward the people who generate the prediction markets in the first place and you'll have high quality markets.

I think there should be no rules on fees and that the issuers should be able to set their own fees which should be whatever people are willing to pay to subscribe to their broadcast.

Maybe that issuer has a website with a subscribe button and is actively marketing. Why shouldn't that issuer be rewarded more for success in bringing people into Bitshares?

2) fees theoretically reduce participation in the market as players have to calculate the fee into their cost-benefit analysis of entering the market.

Robots think like this, humans do not. Gamblers don't think about the cost-benefit analysis else they wouldn't be gambling, playing the lottery, or doing most of the stuff which defies logic. So you're not dealing with the same breed as you deal with if you're talking about a stock investor. If it's not the same breed why tread it as if these two categories of users think the same?

People who gamble such as those who bet on sports do not do so for rational reasons. It would be a soccer game and they could be doing it for nationalist reasons. It could be the Olypmics and they could be doing it out of some sort of national pride. But if you want Bitshares to reach critical mass these are the sorts of users who will make up the majority in my opinion.

So if you give the issuer an incentive and the ability to profit as much as possible then you'll have the sort of magnetic hubs that attract new users. You could have betting sites which use Bitshares for example and gambling sites as well, none of which would be using cost/benefit analysis in these cases.

Now if you're talking about actual prediction markets for serious users and professional day traders then these people might want to do things differently. Institutional investors are a different category of user than what I was talking about which is why I said "betting" rather than investing.

Quote
Vigorish percentage can be defined in a way independent of the outcome of the event and of bettors' behaviors by defining it as the percentage raked in a risk-free wager. This definition is the rake of the bookie as a percentage of total bets received if the bookie has balanced the wagers so that he makes equal profit regardless of the outcome of the event.
https://en.wikipedia.org/wiki/Vigorish
« Last Edit: February 20, 2014, 10:33:04 PM by luckybit »
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Re: Can issuers of decentralized bets charge fees?
« Reply #3 on: February 21, 2014, 02:12:17 AM »
Sry I misunderstood how these assets were issued. I think that a fee is unnecessary and would lead to a fork that did not include the fee. I'd bet/invest on a platform with lower or no fees every time


Offline luckybit

Re: Can issuers of decentralized bets charge fees?
« Reply #4 on: February 21, 2014, 03:07:34 AM »
Sry I misunderstood how these assets were issued. I think that a fee is unnecessary and would lead to a fork that did not include the fee. I'd bet/invest on a platform with lower or no fees every time

But that's because you're a robot investor. What would the gambler do? Do they care about fees? I'd bet that gamblers are a lot more tolerant of fees than investors.

Also if you're an issuer you can just always issue without collecting a fee, but why prevent someone else from charging one and why would you need a fork? If you don't want fees then you'll not pay the fee. The only way there would be a fork is if the majority of users complained about fees which were really high.

I'm willing to bet that users will tolerate fees for gambling. I think for serious investment you're right, no one wants a fee on their life savings but for betting on the sporting event I don't think people care and also the fact that the issuer gets a fee would mean the issuer is impartial.

For example if I were to be an athlete, lets say I set up a wager which is a bet on whether or not I will win, it's all anonymous, I could bet on myself to lose and win 100% of the time because I'd know what I'd do in advance. This isn't a prediction market so you cannot treat it like it's a machine. You have human beings who need an incentive to be honest or they'll manipulate the betting system.

So what incentive does the issuer of the bet have to be honest? He could be anyone with any kind of inside information. Since he wants to make money how would you stop collusion without letting issuers collect a fee so that they win no matter if the bet is up or down, yes or no, etc?

If the issuer can only win by joining in on the bet then they will and then the star athlete could be the same person betting on his team to lose. Only if the issuer can profit regardless of the result of the bet does it work, unless you know another way of doing it.
« Last Edit: February 21, 2014, 03:12:53 AM by luckybit »
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Re: Can issuers of decentralized bets charge fees?
« Reply #5 on: February 21, 2014, 03:26:52 AM »
Its not like typical betting. Its more informed betting, as the markets are fluid and you can change your bet/position at anytime. Look at the analogy provided here:

It is like betting on a horse race, which I think most people understand, but just in case, I will first explain briefly how a standard peri-mutuel betting system operates at most horse tracks. 

In a normal horse race scenario, you bet on which horse you think will win.  The winnings that you receive are based on the "odds" which are calculated constantly, determined by how much money has been bet on each horse, from all of the bettors placing bets on that race.  So, for example, say there is a 3-horse race, and all the winnings will be paid out to bettors (in real life, there would be more horses, and the event organizer would take a cut).  $100 have been bet on Horse A to win, $20 have been bet on Horse B to win, $10 have been bet on Horse C to win.  So $130 has been wagered in total.  Most people think that Horse A will win, so there must be some reason for this, and it is probably likely that Horse A will win.  So the payout if Horse A wins, is $130/100 = $1.3 per $1 wagered.  So if you bet $1 on Horse A, and Horse A wins, you will receive $1.30 in winnings.  If you bet on Horse B, and Horse B wins, you will receive $130/20 = $6.50 if you wagered $1.  So you win much more money, but Horse B winning was much less likely.  So the reward is always proportional to the risk, and the risk is determined by the knowledge of the market as a whole -- all of the people betting on that race.

Now, let's change things a bit.  In a real horse race, all betting is closed when the race starts.  So you can't watch half of the race, and go up and bet on the horse who's in the lead at that time.  However, in this race, you can make bets during the race, and you can even change your bets during the race.  So you're watching the race, and you see Horse B now has the lead, so you can change your bet from Horse A to Horse B.  However, EVERYBODY will do this!  The entire market will gradually change their bets to Horse B as the race progresses, and as Horse B is seen to be in the lead.  By the time the race is over, everybody will have changed their bets to Horse B.  Therefore everybody's payout will be the same, $130/130 = $1.00 exactly. 

Now, you may say: What is the point of this?  The whole fun of betting is to win something!  Just getting your money back is boring!  But if you were at a horse race, and you were given the option to change your bet in the middle of the race, wouldn't you take advantage of it?  Wouldn't you at least NOT LOSE your money, even if it means it's not possible to win?

Ok, now what does this mean for BitUSD?  It is a perpetual horse race, where you can change your bets at any given moment.  The market converges on everybody "betting" that 1 BitUSD = 1 USD.

Now say that someone had a lot of BitUSD that they want to get rid of quickly.  So maybe they put in an order for 1 BitUSD = 0.99 USD.  There will be long a line of people waiting to buy the BitUSD's for the price of only 0.99 USD, because that will mean instant profit!  And it also works the other way around.  If someone has a lot of USD that they want to use to buy BitUSD, and they're in a hurry to do it, they'll come up and say "All right, gimme a bunch of BitUSD, and I'll pay 1.01 USD for each of them!"  And again, there will be a long line of people happy to sell them BitUSD at 1.01 each, because hey, profit of 1 cent each! 

As long as the market "agrees" that the price of 1 BitUSD = 1 USD, all of this will happen automatically.  It is just like the market "agreeing" that Horse B is going to win the race, right before Horse B crosses the finish line.

https://bitsharestalk.org/index.php?topic=2368.0

Every bet is tantamount to an investment in this case.

Also I don't know why you think that a betting market or whatever type of market you want to call it would need an issuer. If i want to place a bet in a market that doesn't exist I will create that market, regardless of whether I charge a fee.

I may not fully understand what type of platform you want this betting operation to occur under. If its not a prediction market I don't see how it fits into bitshares at all.


Offline luckybit

Re: Can issuers of decentralized bets charge fees?
« Reply #6 on: February 21, 2014, 03:51:25 AM »
Its not like typical betting. Its more informed betting, as the markets are fluid and you can change your bet/position at anytime. Look at the analogy provided here:

It is like betting on a horse race, which I think most people understand, but just in case, I will first explain briefly how a standard peri-mutuel betting system operates at most horse tracks. 

In a normal horse race scenario, you bet on which horse you think will win.  The winnings that you receive are based on the "odds" which are calculated constantly, determined by how much money has been bet on each horse, from all of the bettors placing bets on that race.  So, for example, say there is a 3-horse race, and all the winnings will be paid out to bettors (in real life, there would be more horses, and the event organizer would take a cut).  $100 have been bet on Horse A to win, $20 have been bet on Horse B to win, $10 have been bet on Horse C to win.  So $130 has been wagered in total.  Most people think that Horse A will win, so there must be some reason for this, and it is probably likely that Horse A will win.  So the payout if Horse A wins, is $130/100 = $1.3 per $1 wagered.  So if you bet $1 on Horse A, and Horse A wins, you will receive $1.30 in winnings.  If you bet on Horse B, and Horse B wins, you will receive $130/20 = $6.50 if you wagered $1.  So you win much more money, but Horse B winning was much less likely.  So the reward is always proportional to the risk, and the risk is determined by the knowledge of the market as a whole -- all of the people betting on that race.

Now, let's change things a bit.  In a real horse race, all betting is closed when the race starts.  So you can't watch half of the race, and go up and bet on the horse who's in the lead at that time.  However, in this race, you can make bets during the race, and you can even change your bets during the race.  So you're watching the race, and you see Horse B now has the lead, so you can change your bet from Horse A to Horse B.  However, EVERYBODY will do this!  The entire market will gradually change their bets to Horse B as the race progresses, and as Horse B is seen to be in the lead.  By the time the race is over, everybody will have changed their bets to Horse B.  Therefore everybody's payout will be the same, $130/130 = $1.00 exactly. 

Now, you may say: What is the point of this?  The whole fun of betting is to win something!  Just getting your money back is boring!  But if you were at a horse race, and you were given the option to change your bet in the middle of the race, wouldn't you take advantage of it?  Wouldn't you at least NOT LOSE your money, even if it means it's not possible to win?

Ok, now what does this mean for BitUSD?  It is a perpetual horse race, where you can change your bets at any given moment.  The market converges on everybody "betting" that 1 BitUSD = 1 USD.

Now say that someone had a lot of BitUSD that they want to get rid of quickly.  So maybe they put in an order for 1 BitUSD = 0.99 USD.  There will be long a line of people waiting to buy the BitUSD's for the price of only 0.99 USD, because that will mean instant profit!  And it also works the other way around.  If someone has a lot of USD that they want to use to buy BitUSD, and they're in a hurry to do it, they'll come up and say "All right, gimme a bunch of BitUSD, and I'll pay 1.01 USD for each of them!"  And again, there will be a long line of people happy to sell them BitUSD at 1.01 each, because hey, profit of 1 cent each! 

As long as the market "agrees" that the price of 1 BitUSD = 1 USD, all of this will happen automatically.  It is just like the market "agreeing" that Horse B is going to win the race, right before Horse B crosses the finish line.

https://bitsharestalk.org/index.php?topic=2368.0

Every bet is tantamount to an investment in this case.

Also I don't know why you think that a betting market or whatever type of market you want to call it would need an issuer. If i want to place a bet in a market that doesn't exist I will create that market, regardless of whether I charge a fee.

I may not fully understand what type of platform you want this betting operation to occur under. If its not a prediction market I don't see how it fits into bitshares at all.

Why would you take a bet if not to try and win a profit? Why would you create a market if not to earn a profit?

You're saying what you would do, but you're not telling me what incentive the average profit seeking person would have to do what you'd do. Why would Joe Sixpack care about any of this stuff? They barely know what Bitcoin is but you expect them to care about the intricacies of the market?

For economics professors or people studying prediction markets it will be great, but then when I go to the sports forums I see a completely different breed. These people actually care about who wins or loses, they don't seek to change their bet in the middle of the event because it defeats the purpose of the game.

And that is the core difference. To 99% of people who make bets it's a profit making game. To the 1% who are professional investors, who know what a prediction market is, these are the Wall Street investor class and they are not the same people as the people who bet on horse races, sporting events, or who go to the casino.

It's questionable as to whether or not Bitshares will be able to attract the serious investor right away. I don't think Wall Street or day traders will be taking Bitshares seriously. I do think there are hundreds of millions of sports fans who would make small bets. It would generate a lot more volume a lot sooner so that is why I bring it up.

It's debatable whether or not you want that volume if you're thinking about it from an academic or serious perspective but if you're thinking about it from a perspective of generating the maximum volume, fees, and profit for Bitshares holders then it should be obvious what I'm saying.

The purpose of BitUSD is specific. I completely agree that for something like BitUSD it's not a sporting event and the goal is price discovery and a bunch of other factors. So I was not talking about fees for something like that, but fees for the not so important fun stuff which people like to bet on but which does not matter much to investors.
« Last Edit: February 21, 2014, 03:53:33 AM by luckybit »
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Offline luckybit

Re: Can issuers of decentralized bets charge fees?
« Reply #7 on: February 21, 2014, 04:02:45 AM »
I suppose what could happen is BitShares LKS (Luckyshares) could be adapted to support these sorts of functions but I don't know enough about it. I do know either Bitshares or a chain of Bitshares should focus on gambling.
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Re: Can issuers of decentralized bets charge fees?
« Reply #8 on: February 21, 2014, 04:12:00 AM »
Firstly, scalability limits the volume that you can hold on the network without perturbing the speed of the network. That is why there are transaction fees for bitshares x. Secondly, how is someone that puts there money in the stock market as opposed to someone that bets on a sport event not just as concerned about profit. A prediction market is a perfect platform for the sort of betting you describe, as every market constitutes a platform for betting. A prediction market provides flexibility for those betting on the event. If during the course of the sporting event the odds of one's team coming out on top becomes less likely, he who lacks the wherewithal to continue with the initial bet will sell off his position to mitigate losses. The individuals that, as you claim are of a different breed, wont be phased by the odds stacking up against them or the value of their position diminishing. In fact if they are really gutsy and really wish to profit they can profit more buy the cheaper shares that people sell off, thereby doubling down not upon the next event but during the course of the current event. When it comes down to a prediction market is better because of the flexibility and immediacy of the market. A prediction market doesnt make things more complicated, it makes them simpler.

Offline luckybit

Re: Can issuers of decentralized bets charge fees?
« Reply #9 on: February 21, 2014, 10:11:29 AM »
Firstly, scalability limits the volume that you can hold on the network without perturbing the speed of the network. That is why there are transaction fees for bitshares x. Secondly, how is someone that puts there money in the stock market as opposed to someone that bets on a sport event not just as concerned about profit. A prediction market is a perfect platform for the sort of betting you describe, as every market constitutes a platform for betting. A prediction market provides flexibility for those betting on the event. If during the course of the sporting event the odds of one's team coming out on top becomes less likely, he who lacks the wherewithal to continue with the initial bet will sell off his position to mitigate losses. The individuals that, as you claim are of a different breed, wont be phased by the odds stacking up against them or the value of their position diminishing. In fact if they are really gutsy and really wish to profit they can profit more buy the cheaper shares that people sell off, thereby doubling down not upon the next event but during the course of the current event. When it comes down to a prediction market is better because of the flexibility and immediacy of the market. A prediction market doesnt make things more complicated, it makes them simpler.


The difference between investing and gambling is acceptance of risk. When you gamble you accept risk as part of the game. When you invest you seek to minimize all risk and for the most part you can accomplish that if you're smart about it.

So while a prediction market is about information and there isn't really much risk involved in it, gambling is entirely about risk and odds. No one knows in advance who is supposed to win and no one can change their positions at the last moment. It's literally up or down.
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