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Main => General Discussion => Topic started by: bytemaster on February 04, 2015, 09:24:08 am

Title: Simple Binary Prediction Market Discussion
Post by: bytemaster on February 04, 2015, 09:24:08 am
Define a user created asset that can be issued 1:1 by anyone putting up collateral in a specific bitasset.
Define the prediction criteria in the description of the asset.
Allow collateral to be freed by burning the issued asset.
That is all.

There is no need for a judge to settle the bet.

Now how does the game theory operate?   The issued asset will trade based upon the markets belief that it someone will buy it back.  Market participants will buy it back because they have collateral at stake.    If it wasn't tied to a prediction criteria then the asset would sell at a price of 0.5 because that is the Nash Equilibrium price at which both parties break even. 

Once you tie a prediction to it the Nash Equilibrium changes because the parties have a sense of "justice".  If there are only two people and they are "honest bettors" then they would simply settle at the honest outcome.   

If one of the players is a "sore looser" then they may demand 0.1 for a "false" outcome or only offer 0.9 for a "true" outcome.    The ability of a "sore looser" to hold out depends upon the value the winner places on justice.  If the winner is "hard core" he will simply hold out until the looser caves and agrees to settle honestly.   If the winner is more practical he will offer the looser a financial incentive to settle at a reasonable price.   

There is financial incentive for the looser to settle at any price above 0 or just slightly below 1, but no incentive for them to settle for nothing.   

There is financial incentive for a winner to settle at less than full price so they can exit the market. 

If there were only two players and both place a bet with dishonest intentions then they are in an "all or nothing" choice.  If they settle then they break even, if they don't then they both lose.   

If the market never closes and people are allowed to enter the Nash Equilibrium at any time then you end up with a market where people are betting on the price of justice. 

Say an election ends and the winner is known.   The best settlement offered by any loser is 60/40 which isn't particularly appealing to someone who won and was expecting something closer to 95/5.   In this case the best settlement offered by any winner is 80/20.   At this point in time speculators can bet on how long the sore looser will hold out and what price he will ultimately settle for.    A speculator will take the 80/20 settlement and hold out for a 90/10 settlement. 

Over time the market will discover the long-term price at which losers would rather get nothing than something and winners would rather get something than nothing.    Once the market establishes this price then we can calibrate our prediction markets.   Say the "long-term" settlement is 90/10, then a prediction value of .9 == 100% true and a prediction value of .1 == 100% false and everything can be scaled accordingly.   

Because long-term settlement risk is being priced in from the start all markets will initially track in direction even if they don't track in magnitude until enough data is gathered to allow proper calibration.

 

Title: Re: Simple Binary Prediction Market Discussion
Post by: xeroc on February 04, 2015, 10:00:50 am
feels like an elegant solution .. +5%!
Title: Re: Simple Binary Prediction Market Discussion
Post by: arhag on February 04, 2015, 10:06:35 am
From bingo to virtual mining pools to prediction markets, you are always looking for a way to add demand for BitShares (which is great!). But of those three, prediction markets are one that I am actually interested in.

Now, as for this specific proposal, I am not so sure about the game theory (I guess I need to think through it more). But can you tell me what makes this different that you think it is a workable model when you argued against (what I think is) a similar game with NashX (https://bitsharestalk.org/index.php?topic=12177.msg161609#msg161609)?
Title: Re: Simple Binary Prediction Market Discussion
Post by: joele on February 04, 2015, 10:40:02 am
+5% It's a gambling with a style

https://www.youtube.com/watch?v=jOmh1SebCnY
Title: Re: Simple Binary Prediction Market Discussion
Post by: Empirical1.2 on February 04, 2015, 11:53:48 am
Could there be some people unable to find any settlement due to people who lose their wallets/forget about their trade/arrested/die/other?

If so, I forget how prediction markets work but maybe after 30 days the system can force settle at 1 or 0 depending on if the majority of trades were settled above 0.8 or below 0.2 in the 7 days after the event finished.

This should get everyone to settle at very close to 1 or 0 right after the event and it is very difficult to game as there's a three week period in which people could seek delegate intervention which will probably never be needed.

You could also charge a fee to losers who waited 30 days to encourage early settlement at very close to 1 or 0 too.
Title: Re: Simple Binary Prediction Market Discussion
Post by: Markus on February 04, 2015, 12:47:59 pm
I believe without any crutches (like the price feed for BitAssets) this might lead to very asymmetric average settlements.

Wins will settle much closer to 1 than losses to 0.

If I buy in at 0.05 after the prediction is already lost I can gain 100% waiting for somebody to buy at 0.1. This leverage is not possible for won predictions trading at 0.95, so I wouldn't bother with those.
Title: Re: Simple Binary Prediction Market Discussion
Post by: Bitcoinfan on February 04, 2015, 01:27:06 pm
This was also briefly discussed on the truth coin forums. 

http://forum.truthcoin.info/index.php/topic,149.0.html

Markets need to have a guarantee of resolve.  Otherwise if there was no guarantee, what economic incentives would that give to the "honest bettors"  to come in and align the markets so that it is justified.  Not to mention that both sides of the bet could never agree to a sum to end the pm, because the losing bettor will always has greater value if he holds out.  By playing the waiting game He has more to gain from disgruntling the other side into agreeing at any price.  So just from waiting he will stand to gain more than nothing.  This internal market conflict in this transaction  happens irregardless of what actually happened on the real world.   If your telling the loser they can holdout and be free of face economic consequences but you may actually gain, then they will do it every time, frustrating the honest bettors.  As a result honest bettors will never want to enter.  The cost of resolving would be too much.   There is no causal link between the real world and the prediction market because economic incentives were not guaranteed to correspond with actual outcomes,  therefore people have no trust to bet according to their actual beliefs. 


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Title: Re: Simple Binary Prediction Market Discussion
Post by: Bitcoinfan on February 04, 2015, 02:18:49 pm
You've embraced the notion that every should act like adults and be rational.  But markets can be irrational for a loooooooong time-- thus the requirement for a resolution.

See you, based on the behavioral finance field, the Nobel Prize winner Daniel Kahneman wrote in his book Thinking Fast and Slow, the pain of losing money is (-$100), called loss aversion, is always greater than is the joy that the winner has from gaining money (+$100). 

http://en.wikipedia.org/wiki/Loss_aversion

Therefore this creates a asymmetric scenario.  The losers will always have greater leverage than the winners, because they will do everything they can to avoid that loss because it hurts so much more.  Think of it like the kid who plays board games with the adults and whines at the very end when he loses. 

For the child, it hurts so much more.  The adults don't understand how much it hurts.  But it pains the kid to the core.  The kid is playing another game than the adults.  He's playing the I have more information game (regardless of the facts of the game) because only he knows who long he can stall the game.  It could be for 5 minutes or maybe he didnt have his breakfast and is unusually more irritated and is planning to stall for the whole day. He has greater power to manipulate the adults.  The adults have no idea how to value that because this is the neighbors child and they don't have any history of his behavior. 

The adults don't want to put up with the child because they don't have the time to, and the reward of the game doesn't justify for them the value of making the child lose.  So they let him win.  But in the end the game is never played again because the adults have other opportunity costs and wouldn't want to bargain with this game in the future because its already set a precedent and somebody else might turn like the kid (maybe another adult).  Why not? The precedent has already been set before. 

I'll end my example with a question.  What if liars come in and buy cheaply into a market with the expectation of stalling longer than the honest bettor?  What if the unfairness of stalling has turned away all honest people?

Title: Re: Simple Binary Prediction Market Discussion
Post by: Bitcoinfan on February 04, 2015, 02:57:23 pm
Bytemaster,
I'm very glad you brought up this topic.  As it shows that you are considering adding a prediction market functionality to UIA. 

I think you know where I am going with this.

I earnestly encourage you to take a serious second-look at Truthcoin.  I truly feel Truthcoin will be a win-win for Bitshares.   Putting aside your issues of it for now, from my perspective, Bitshares already has a white-listing function to freeze and retrieve funds from accounts.  I think this works in total concert with Truthcoin's SVD process, where resolving markets requires profit-based incentives to punish bad voters and withdrawing their Truthcoins.  I'm not a developer by any means, but from a conceptual standpoint, your already half-way there.  The SVD rules just need to be built in.  Paul (who wrote the whitepaper if you remember) points out that his idea way simpler to implement than all Bitcoin 2.0 projects out there.  And there is already some codebase from Augur.net and Truthcoin floating out there.  It would save your team time.

However, I understand you will probably not want to do this. This could delay the 1.0 for many many months.  I don't know if this could take 80 man-hours.  Unless your planning this prediction market for a 6 month 2.0 release.

I'll note again, as I have on other forums, that Ethereum and a Bitcoin fork all right now have developments in Decentralized Prediction Market that are seeing some sort of release by August (caveat could be later because of project mgmt).  But ultimately I think not making a decision here may result in Bitshares to once again fall behind the curve.  If we were to get on this first, alongside our marketing campaigns we stand to gain tremendously.   



Title: Re: Simple Binary Prediction Market Discussion
Post by: bytemaster on February 04, 2015, 03:01:22 pm
It comes down to time value of money.  If the winner has 95 at stake and the loser 5 then the cost to the loser is much less by waiting.   You can change the ratio by shifting the 0 point to .5, in this case the 50/50 odds would be .75.   

As much as liars are irrational, so are those who seek justice.   Let the two of them fight it out for a fee while rational individuals settle. 
Title: Re: Simple Binary Prediction Market Discussion
Post by: vegolino on February 04, 2015, 03:21:35 pm
Bytemaster,
I'm very glad you brought up this topic.  As it shows that you are considering adding a prediction market functionality to UIA. 

I think you know where I am going with this.

I earnestly encourage you to take a serious second-look at Truthcoin.  I truly feel Truthcoin will be a win-win for Bitshares.   Putting aside your issues of it for now, from my perspective, Bitshares already has a white-listing function to freeze and retrieve funds from accounts.  I think this works in total concert with Truthcoin's SVD process, where resolving markets requires profit-based incentives to punish bad voters and withdrawing their Truthcoins.  I'm not a developer by any means, but from a conceptual standpoint, your already half-way there.  The SVD rules just need to be built in.  Paul (who wrote the whitepaper if you remember) points out that his idea way simpler to implement than all Bitcoin 2.0 projects out there.  And there is already some codebase from Augur.net and Truthcoin floating out there.  It would save your team time.

However, I understand you will probably not want to do this. This could delay the 1.0 for many many months.  I don't know if this could take 80 man-hours.  Unless your planning this prediction market for a 6 month 2.0 release.

I'll note again, as I have on other forums, that Ethereum and a Bitcoin fork all right now have developments in Decentralized Prediction Market that are seeing some sort of release by August (caveat could be later because of project mgmt).  But ultimately I think not making a decision here may result in Bitshares to once again fall behind the curve.  If we were to get on this first, alongside our marketing campaigns we stand to gain tremendously.
  +5%
Title: Re: Simple Binary Prediction Market Discussion
Post by: Bitcoinfan on February 04, 2015, 03:34:24 pm
It comes down to time value of money.  If the winner has 95 at stake and the loser 5 then the cost to the loser is much less by waiting.   You can change the ratio by shifting the 0 point to .5, in this case the 50/50 odds would be .75.   

As much as liars are irrational, so are those who seek justice.   Let the two of them fight it out for a fee while rational individuals settle.

You'll have to clarify your point.  So your saying your prediction markets should aggregate information based on individual's time preferences their money (i.e. what they want out of their investment) or actual information that corresponds to the event?

If your saying the first one, how useful would knowing how much a group of investments desire for their money be as a prediction market? 
Title: Re: Simple Binary Prediction Market Discussion
Post by: bytemaster on February 04, 2015, 03:49:01 pm
In any event, the trouble with prediction markets is not the judge, its the money.   

It would be trivial to allow the asset issuer to be the judge and to profit from all trades in their asset.  They would have financial incentive to be honest and reliable. 

You could even limit the role of the judge to confirming the market outcome.  Ie: the judge cannot "reverse the bet" only declare it closed. 
Title: Re: Simple Binary Prediction Market Discussion
Post by: Empirical1.2 on February 04, 2015, 03:50:13 pm
It comes down to time value of money.  If the winner has 95 at stake and the loser 5 then the cost to the loser is much less by waiting.   You can change the ratio by shifting the 0 point to .5, in this case the 50/50 odds would be .75.   

As much as liars are irrational, so are those who seek justice.   Let the two of them fight it out for a fee while rational individuals settle.

I don't understand prediction markets well but it seems...

People who want to settle in a timely manner after the event whether they won or lost would be very negative EV to people willing to wait wherever the avg. level moves too. 

So the way I'm understanding it, it doesn't seem to be a model for a prediction market, but a model for a waiting game.

If you want to bet on the prediction market don't play, only if you want to see how long you can hold out/deal after the event.



Title: Re: Simple Binary Prediction Market Discussion
Post by: bytemaster on February 04, 2015, 03:59:00 pm
It comes down to time value of money.  If the winner has 95 at stake and the loser 5 then the cost to the loser is much less by waiting.   You can change the ratio by shifting the 0 point to .5, in this case the 50/50 odds would be .75.   

As much as liars are irrational, so are those who seek justice.   Let the two of them fight it out for a fee while rational individuals settle.

I don't understand prediction markets well but it seems...

People who want to settle in a timely manner after the event whether they won or lost would be very negative EV to people willing to wait wherever the avg. level moves too. 

So the way I'm understanding it, it doesn't seem to be a model for a prediction market, but a model for a waiting game.

If you want to bet on the prediction market don't play but if you want to see how long you can hold out after the event in the dealing stage.

Right... it has "two" phases, the first phase is the prediction market, the second is a waiting game.   The market would be stuck with a wide spread and who ever caves first loses.   

You can buy into the waiting game and bet on which way the tug of war will go.   Are you an optimist and believe people will end up caving toward the truth or are you a pessimist and think honest people will end up caving toward a lie.   Because people always have an out, those who want to play the waiting game can provide liquidity to the prediction market winners. 

So if there are a ton of people willing to "wait it out" for a more-fair resolution then the dishonest people will cave.  It is 0 sum, profit to one is a loss to the other.   



Title: Re: Simple Binary Prediction Market Discussion
Post by: Empirical1.2 on February 04, 2015, 05:17:36 pm
It comes down to time value of money.  If the winner has 95 at stake and the loser 5 then the cost to the loser is much less by waiting.   You can change the ratio by shifting the 0 point to .5, in this case the 50/50 odds would be .75.   

As much as liars are irrational, so are those who seek justice.   Let the two of them fight it out for a fee while rational individuals settle.

I don't understand prediction markets well but it seems...

People who want to settle in a timely manner after the event whether they won or lost would be very negative EV to people willing to wait wherever the avg. level moves too. 

So the way I'm understanding it, it doesn't seem to be a model for a prediction market, but a model for a waiting game.

If you want to bet on the prediction market don't play but if you want to see how long you can hold out after the event in the dealing stage.

Right... it has "two" phases, the first phase is the prediction market, the second is a waiting game.   The market would be stuck with a wide spread and who ever caves first loses.   

You can buy into the waiting game and bet on which way the tug of war will go.   Are you an optimist and believe people will end up caving toward the truth or are you a pessimist and think honest people will end up caving toward a lie.   Because people always have an out, those who want to play the waiting game can provide liquidity to the prediction market winners. 

So if there are a ton of people willing to "wait it out" for a more-fair resolution then the dishonest people will cave.  It is 0 sum, profit to one is a loss to the other.   

Ok, I think I understand that part now.

My prediction is though that 'sense of justice' won't play a big role. I play a lot of poker and if I was the loser how I felt would be irrelevant. I would be holding a token the other player needs to cash out. We are now in an equal position, so fair value will become 0.5 though the average might settle a bit higher than there in favour of the direction of the actual outcome.

This TV show is quite telling.

https://m.youtube.com/watch?v=XXSuxYBt0cM
https://m.youtube.com/watch?v=8k8ETko16tQ

You'd think there would be sense of justice and fairness & that the weakest contestant should choose 'C' about 0.1 of the prize total and the strongest should choose 'A' about 0.7 especially as there's an additional time factor that the money runs down to nothing if they can't settle.

However the previous game becomes largely irrelevant  &  settling for 0.1 when everyone has equal power after the event is viewed as weak & a loss. Some people even feel more satisfied walking away with $0 than settling for a free $10 000.

I guess they do end up settling sometimes under pressure though. So maybe you will find a level the average settles at.

Title: Re: Simple Binary Prediction Market Discussion
Post by: lil_jay890 on February 04, 2015, 05:28:42 pm
Just by reading this thread it makes me never want to gamble on sports without a judge.  If I lost and then found out that I could either get 10% of my original bet back or screw over the guy who beat me... I might just screw him over because I'm pissed I lost and misery loves company.  I mean talk about a lot of risk in getting a payout... a lot more risk than trusting a judge to make the call.  Couldn't we have delegates providing feeds of certain events that end up dictating the winner and loser and dispersing the payout?
Title: Re: Simple Binary Prediction Market Discussion
Post by: theoretical on February 04, 2015, 05:43:04 pm
Experience with the peg in the early days (before price feeds) suggests that settlement will need to be enforced.

I was under the impression that we're under feature freeze until 1.0, so most of our development effort should be going toward testing existing features and moving toward release.

So I would suggest shelving this idea until after 1.0 launches.
Title: Re: Simple Binary Prediction Market Discussion
Post by: Bitcoinfan on February 04, 2015, 05:51:36 pm
Just by reading this thread it makes me never want to gamble on sports without a judge.  If I lost and then found out that I could either get 10% of my original bet back or screw over the guy who beat me... I might just screw him over because I'm pissed I lost and misery loves company.  I mean talk about a lot of risk in getting a payout... a lot more risk than trusting a judge to make the call.  Couldn't we have delegates providing feeds of certain events that end up dictating the winner and loser and dispersing the payout?

In any event, the trouble with prediction markets is not the judge, its the money.   

It would be trivial to allow the asset issuer to be the judge and to profit from all trades in their asset.  They would have financial incentive to be honest and reliable. 

You could even limit the role of the judge to confirming the market outcome.  Ie: the judge cannot "reverse the bet" only declare it closed.

Similarly, I have another fair question cause I may be missing something, or its my misunderstanding of how it works.  How will this produce any value to the network (eg. transaction fees) if people are just waiting on the sidelines for the next person to react.  From what I understand, since there is no time horizon or expiration date of the transaction, the two sides can wait out indefinitely.  There is no forced window of time to revolve the dispute. As a result, there will be very little transactions happening in the market because of the holdouts on both sides. This may even be a default for both sides because they can't get their money out. 
I'm of the opinion that delegates should have limited power.   

I think if you could allow asset issuers be the judge that would be valuable to the Bitshares network.  Would this be considered for 1.0 stabilized protocol Bytemaster?
Title: Re: Simple Binary Prediction Market Discussion
Post by: Ander on February 04, 2015, 06:05:44 pm
I dont believe this would work.  The loser could simply hold the winner's money hostage forever until they give in and settle, possibly having to give much more than 5%. 

This system alone doesnt do anything to increase trust.  You still have to trust the other bettor (or possibly tons of random anonymous bettors!), to sell back to you at 5% or whatever.   What we need to do is have the blockchain replace the position of a trusted centralized 3rd party who is resolving the bets.


The prediction market is going to need feeds from delegates in order to work.  For example, when 51 delegates publish a feed stating that the bet has been resolved in favor of one particular side, then the bet is over, and the blockchain releases all of the funds to the winner.


In this way, you have replaced the one centralized third party point of failure (who could run off with the money), with 101 reasonably decentralized sources who are elected based on trust, and who cannot run off with the money because the money is held by the blockchain. 

This is not an absolutely perfect solution, because it is still vulnerable to 51% attack, but other than that it solves all of the problems and is a big improvement over what exists today, where you must trust a 3rd party to both hold the funds and resolve the bet.
Title: Re: Simple Binary Prediction Market Discussion
Post by: Ander on February 04, 2015, 06:11:32 pm
My prediction is though that 'sense of justice' won't play a big role. I play a lot of poker and if I was the loser how I felt would be irrelevant. I would be holding a token the other player needs to cash out. We are now in an equal position, so fair value will become 0.5 though the average might settle a bit higher than there in favour of the direction of the actual outcome.

Yes this.   In terms of finding the Nash equilibrium, the fact that you won the bet doesnt matter, you still require me to go along with you in order to cash out, and I am demanding 50% of the money.  Or maybe 30-40%. 

Because I am an anonymous bettor on a blockchain, and you dont even know who I am, you cant really do anything about it, and I have no reputation on the line that I am sacrificing in order to demand this from you.

If the system was reputation based, then there would at least be some cost for me to not settle, in that I would lose reputation, so maybe I would settle for 5-10% regularly.  (Until I gamble it all on something and I lose, and then I start demanding 30% because otherwise I am ruined).


The blockchain MUST resolve the bet and enforce the result for this to work.
This means that it must receive inputs from the outside world, from the most trusted source - delegates.

Delegates have a reputation that they must maintain.  If they collude to change the result of the bet and cause it to be resolved in their own favor, they will lose all reputation, so there is a cost that they suffer to do mischief.


Title: Re: Simple Binary Prediction Market Discussion
Post by: bytemaster on February 04, 2015, 06:25:39 pm
My prediction is though that 'sense of justice' won't play a big role. I play a lot of poker and if I was the loser how I felt would be irrelevant. I would be holding a token the other player needs to cash out. We are now in an equal position, so fair value will become 0.5 though the average might settle a bit higher than there in favour of the direction of the actual outcome.

Yes this.   In terms of finding the Nash equilibrium, the fact that you won the bet doesnt matter, you still require me to go along with you in order to cash out, and I am demanding 50% of the money.  Or maybe 30-40%. 

Because I am an anonymous bettor on a blockchain, and you dont even know who I am, you cant really do anything about it, and I have no reputation on the line that I am sacrificing in order to demand this from you.

If the system was reputation based, then there would at least be some cost for me to not settle, in that I would lose reputation, so maybe I would settle for 5-10% regularly.  (Until I gamble it all on something and I lose, and then I start demanding 30% because otherwise I am ruined).


The blockchain MUST resolve the bet and enforce the result for this to work.
This means that it must receive inputs from the outside world, from the most trusted source - delegates.

Delegates have a reputation that they must maintain.  If they collude to change the result of the bet and cause it to be resolved in their own favor, they will lose all reputation, so there is a cost that they suffer to do mischief.

Delegates are not necessary as long as people know who the judge is at the start.
Title: Re: Simple Binary Prediction Market Discussion
Post by: toast on February 04, 2015, 06:25:52 pm
Why not just make a normal PM with normal scoring rules that resolve from m-of-n feeds?

Since this whole discussion is for hypothetical post-1.0 features, I don't see what we gain from a partial solution which will give worse results
Title: Re: Simple Binary Prediction Market Discussion
Post by: Empirical1.2 on February 04, 2015, 06:28:24 pm
My prediction is though that 'sense of justice' won't play a big role. I play a lot of poker and if I was the loser how I felt would be irrelevant. I would be holding a token the other player needs to cash out. We are now in an equal position, so fair value will become 0.5 though the average might settle a bit higher than there in favour of the direction of the actual outcome.

Yes this.   In terms of finding the Nash equilibrium, the fact that you won the bet doesnt matter, you still require me to go along with you in order to cash out, and I am demanding 50% of the money.  Or maybe 30-40%. 

Because I am an anonymous bettor on a blockchain, and you dont even know who I am, you cant really do anything about it, and I have no reputation on the line that I am sacrificing in order to demand this from you.

If the system was reputation based, then there would at least be some cost for me to not settle, in that I would lose reputation, so maybe I would settle for 5-10% regularly.  (Until I gamble it all on something and I lose, and then I start demanding 30% because otherwise I am ruined).


The blockchain MUST resolve the bet and enforce the result for this to work.
This means that it must receive inputs from the outside world, from the most trusted source - delegates.

Delegates have a reputation that they must maintain.  If they collude to change the result of the bet and cause it to be resolved in their own favor, they will lose all reputation, so there is a cost that they suffer to do mischief.

What about this solution.

After 30 days the system decides who won based on where the average trade settled in the first 7 days after the event.  You could also charge a fee to losers who waited 30 days to encourage early settlement.

So now you only sell for less than 100% if you want payment within 30 days.
The losers pay a bigger fee the longer they wait, so it's in their interest to release just after the outcome.

Only if the 7 day measuring system somehow gave an incorrect result would X delegates or a judge need to be called to decide the outcome.
Title: Re: Simple Binary Prediction Market Discussion
Post by: arhag on February 04, 2015, 06:28:51 pm
Just by reading this thread it makes me never want to gamble on sports without a judge.  If I lost and then found out that I could either get 10% of my original bet back or screw over the guy who beat me... I might just screw him over because I'm pissed I lost and misery loves company.  I mean talk about a lot of risk in getting a payout... a lot more risk than trusting a judge to make the call.  Couldn't we have delegates providing feeds of certain events that end up dictating the winner and loser and dispersing the payout?

I agree. I think of it like BitAssets before the feed. We hoped the system would work without any price feed information put into the blockchain, but ultimately we had a plan to add it if necessary. I think we need a plan to add a judging mechanism for the prediction market to settle the bets. If it turns out we don't actually need it for the winners to nearly always get the vast majority (say >99%) of their winnings in a reasonable time, then great. Otherwise we have the judging mechanism to fall back on.

But I don't want to add this task to the already over-burdened delegates (plus it may have legal consequences). Let's just do it in a way similar to how Truthcoin does it. We would have special UIAs for each "Branch of VoteCoins" (to use Truthcoin terminology). When a user is setting up this prediction market BitAsset, they not only need to set the description, but also choose the Vote-UIA that gets to decide on the outcome, as well as the percentage fee (perhaps with min/max limits per trade) to charge on each trade in the market in order to collect a sizeable pool of BitUSD to incentivize the Vote-UIA holders. For the BitAsset market to become active, some percentage of that Vote-UIA need to agree to judge the outcome of that prediction market (which then becomes a liability for those Vote-UIA holders). The Vote-UIA holders than include their decision on that PM (which by default would be unknown) in future voting periods until the outcome has been resolved and forced liquidation of BitAssets with collateral (if the longs are the winner) or unlocking of collateral for free (if the shorts are the winner) occurs. If a majority of Vote-UIA do not vote unknown on the decision of a PM, that column will be included in the vote matrix for the voting period. The blockchain does the SVD of the vote matrix in each voting period and the reputation based coin redistribution of the Vote-UIA. The BitUSD fees collected in the pool can be used as automated buy pressure in the BitUSD/Vote-UIA market, providing the incentive for Vote-UIA holders to do these tasks.

Also, I have ideas on how to do the SVD in a smart way. There could be some time between voting periods for allowing the SVD result to be computed. The delegates would do the computation in parallel (it shouldn't take much time if we make the number of rows in the vote matrix reasonable by having a moderate transaction fee for each ballot submission by the Vote-UIA holders), then once they have the result they would submit it to the blockchain (and the majority of the delegates would have to sign off on the result, likely by just adding their blocks on to the blockchain). The outcome (RBCR) would not immediately occur after submission of the result. There would be a small delay (anywhere from 30 minutes to 24 hours) which would allow the Vote-UIA holders to submit a claim that the SVD result is false. As the percentage of Vote-UIA claiming false results increases the delay increases from 30 minutes up to 24 hours. If within that 24 hour delay at least 75% of the Vote-UIA has claimed the result is false, then future voting periods for that Vote-UIA are put on hold until this issue is resolved. When a SVD result is called into dispute by a quorum of at least 75% of the Vote-UIA, a fraction of everyone's Vote-UIA is temporarily frozen. If the PM BitAsset longs and shorts for PMs that use that Vote-UIA as the judge are able to reach some consensus (details of the requirements for consensus TBD) that either the SVD result was true or was false, then something happens. If they reach a consensus that it was false, the Vote-UIA are unfrozen and furthermore some amount of BTS is printed (or alternatively taken from the delegates registration fee if we are operating under a model in which retired delegates could withdraw their registration fee after two weeks, which really makes the registration fee more of a security deposit) and used to pay out dividends to the Vote-UIA holders to reward them for catching the delegates. If they reach a consensus that it was true, then the Vote-UIA holders are punished for crying wolf by seizing their frozen Vote-UIA and gradually (to give time for arbitrage with other Vote-UIA markets and for interested parties to place their Vote-UIA buy bids) dumping it on the Vote-UIA/BTS market and destroying the received BTS as the dividend to BTS stakeholders. Actually, there is no need for any of that. If the delegates produce incorrect changes in the database because of a false SVD result than they are on an incorrect fork which the full clients can detect (just like with any other blockchain action). I guess if they submit a hash of the result into the blockchain after the delay it could allow the full clients to immediately know whether the delegates lied / are on a wrong fork. The delay is still important in my opinion because it gives the delegates and full clients a reasonable amount of time to do the SVD calculation in parallel without slowing down block production.

Haven't thought through all of the details of above carefully, but I think that should more or less do it. Each trader can judge whether they want to use the PM based on the credibility of the Vote-UIA set to judge it. Regardless of the initial distribution (assuming it is not too centralized) over time the RBCR should evolve the distribution into one that should be more trusted to make honest decisions. And PM participants can also judge the history of that group's decisions.

Edit: And of course since this is a lot of work, all of this is concerning possible post-1.0 features. We obviously shouldn't consider this stuff pre-1.0 when we have so many more important things to get done.
Title: Re: Simple Binary Prediction Market Discussion
Post by: Ander on February 04, 2015, 06:52:25 pm

Delegates are not necessary as long as people know who the judge is at the start.

A judge is more centralized than delegates, but if having delegates provide feeds for outcomes is too much work, then you could use a judge.


Perhaps the system could work where the judge would announce the result, and it would be 24 hours or 48 hours or something until the bet was resolved.  That way, if the judge announced the incorrect result, the community would have time to vote them out before it resolved.
Title: Re: Simple Binary Prediction Market Discussion
Post by: bytemaster on February 04, 2015, 07:26:16 pm
I think a super majority of a slate of judges would do the trick.
Title: Re: Simple Binary Prediction Market Discussion
Post by: Ander on February 04, 2015, 07:35:59 pm
I think a super majority of a slate of judges would do the trick.
I agree.  How many judges would we need?

Would they be delegates, or something new?
Title: Re: Simple Binary Prediction Market Discussion
Post by: bytemaster on February 04, 2015, 07:40:39 pm
I think a super majority of a slate of judges would do the trick.
I agree.  How many judges would we need?

Would they be delegates, or something new?

Any set of accounts defined in advance.  Any number up to 110.
Title: Re: Simple Binary Prediction Market Discussion
Post by: arhag on February 04, 2015, 07:52:03 pm
Any set of accounts defined in advance.  Any number up to 110.

This simpler judging mechanism is nicer for getting a working implementation out sooner rather than later. But please make sure that the PM has trading fees defined (similar to the custom defined percent trading fees that UIA issuers will be able to set), and use that collected pool of BitAssets to reward the judges. This provides the incentive for the judges to bother submitting an outcome ballot for a PM.

The PM should not become active for trading until a quorum Q1 of the defined slate agree to be judges for that PM by signing a transaction stating that fact and providing a security deposit. Anytime before the PM becomes active they can take back their agreement and their security deposit, but after the quorum is reached, the security deposits become locked, the PM becomes open for trading, and the judges who submitted a security deposit become active judges for that PM. The remaining judges in the defined slate have 24 hours (or until the active judges reach a quorum that the outcome of the PM is known, whichever happens sooner) to add their security deposit (perhaps at a premium to make it fair to the existing judges since the new judges will have an information advantage: they might have gotten a glimpse at the trading volume of the PM over the first 24 hours which helps them estimate potential returns) to also be included as an active judge.

Later, when a quorum Q2 of the active judges (the ones with security deposits) of the PM decide that the outcome of the PM is known (and make this known to the blockchain through a vote transaction), it would initiate a 24 hour period for the judges to submit a concealed commitment for their ballot. After the 24 hour period they would have another 24 hour period to reveal their ballot. If a quorum Q3 (<= Q2) of the active judges reaches a particular decision (yes or no), they get their security deposit back and also share the BitAssets collected in the pool for that PM as well as the security deposits of the judges who voted the other way and the judges who did not submit a ballot at all (either by not submitting the commitment in the first 24 hour period or the reveal in the second 24 hour period). I think Q1, Q2, and Q3 should be chosen so that they are all super majorities of some degree.

Also, the PM creator can optionally specify a date before which the active judges cannot claim the outcome of the PM is known even if they all unanimously agree that it is. This is to prevent the active judges from coordinating to all vote either yes/no to just get back their security deposit and the BitAsset rewards in the pool rather than having to wait (and incur opportunity cost) until the outcome of the PM is known.
Title: Re: Simple Binary Prediction Market Discussion
Post by: gamey on February 04, 2015, 08:19:57 pm
People would never touch this if there is this weird settling fee/waiting game.

I don't even think there is a Nash equilibrium.  It really is just a waiting game.. there are no underlying rules, it is all subjective opinions on your expectation of how your opponent will settle.

Actually I guess the nash equilibrium would be .5, it is just that it isn't tied to the objective of what the game should be? 
Title: Re: Simple Binary Prediction Market Discussion
Post by: Ander on February 04, 2015, 08:31:47 pm
People would never touch this if there is this weird settling fee/waiting game.

I don't even think there is a Nash equilibrium.  It really is just a waiting game.. there are no underlying rules, it is all subjective opinions on your expectation of how your opponent will settle.

Actually I guess the nash equilibrium would be .5, it is just that it isn't tied to the objective of what the game should be?

Yeah I think with that system either:
* The nash equilibrium is .5
or
* The only winning move is not to play. :)
Title: Re: Simple Binary Prediction Market Discussion
Post by: theoretical on February 04, 2015, 09:36:47 pm
Why limit yourself to binary prediction markets?

All you'd need is a UIA pair (asset.X, asset.Y) that can be created / redeemed in equal numbers by anyone at parity, e.g. anyone can freely turn $Z into Z shares of asset.X and asset.Y, or turn Z shares of asset.X and asset.Y into $Z.

Then a multisig settlement authority, once a quorum of the settlement authority has specified the settlement price p where 0 <= p <= 1, every X becomes redeemable for $p and every Y becomes redeemable for $1-p.

The free market will do the rest.
Title: Re: Simple Binary Prediction Market Discussion
Post by: bytemaster on February 04, 2015, 10:07:55 pm
Why limit yourself to binary prediction markets?

All you'd need is a UIA pair (asset.X, asset.Y) that can be created / redeemed in equal numbers by anyone at parity, e.g. anyone can freely turn $Z into Z shares of asset.X and asset.Y, or turn Z shares of asset.X and asset.Y into $Z.

Then a multisig settlement authority, once a quorum of the settlement authority has specified the settlement price p where 0 <= p <= 1, every X becomes redeemable for $p and every Y becomes redeemable for $1-p.

The free market will do the rest.

That requires 2 assets and 2 markets and will split liquidity and be far more complex and is ultimately still binary. 
Title: Simple Binary Prediction Market Discussion
Post by: Bitcoinfan on February 05, 2015, 12:01:47 am
I think a super majority of a slate of judges would do the trick.
I agree.  How many judges would we need?

Would they be delegates, or something new?

Any set of accounts defined in advance.  Any number up to 110.


Going with a judge slate, I imagine your looking for something that is just good enough for now.  Would you be against implementing this pm using lmsr?  It was originally proposed by Robert hanson and eliminates the need for a bid ask table (the beauty is a trader won't have to wait for another person to take the other side of the trade), thus a simplifying and reducing the amount of work you have to do.  Additionally it will allow you to do non-binomial pm's of any degree.  Instead of having a yes or no question of will republicans win greater than 65 seats in the house, it instead could be phrased how many seats will republicans win in the next election. 

Take a look at the excel.

https://github.com/psztorc/Truthcoin/blob/master/docs/LogMSR_Demo.xlsx






Sent from my iPhone using Tapatalk
Title: Simple Binary Prediction Market Discussion
Post by: Bitcoinfan on February 05, 2015, 12:20:38 am
I think it is a very big deal if you are considering pm's using only bitusd and bitcny. 


Sent from my iPhone using Tapatalk
Title: Re: Simple Binary Prediction Market Discussion
Post by: toast on February 05, 2015, 12:21:56 am
I think a super majority of a slate of judges would do the trick.
I agree.  How many judges would we need?

Would they be delegates, or something new?

Any set of accounts defined in advance.  Any number up to 110.


Going with a judge slate, I imagine your looking for something that is just good enough for now.  Would you be against implementing this pm using lmsr?  It was originally proposed by Robert hanson and eliminates the need for a bid ask table (the beauty is a trader won't have to wait for another person to take the other side of the trade), thus a simplifying and reducing the amount of work you have to do.  Additionally it will allow you to do non-binomial pm's of any degree.  Instead of having a yes or no question of will republicans win greater than 65 seats in the house, it instead could be phrased how many seats will republicans win in the next election. 

Take a look at the excel.

https://github.com/psztorc/Truthcoin/blob/master/docs/LogMSR_Demo.xlsx






Sent from my iPhone using Tapatalk

I keep trying to push this but BM is against this because it's "too complicated". If I can't change his mind I will make a fork to include it. I think it is much simpler because it is a well-defined state machine with a single transition function.


(start of lsmr in current develop: https://github.com/BitShares/bitshares/blob/6d42fcab803983ec16f9ec094a71fa2078febad3/libraries/blockchain/include/bts/blockchain/lsmr_record.hpp

we can also copy the working lsmr impelmentation from TC's repo)
Title: Re: Simple Binary Prediction Market Discussion
Post by: theoretical on February 05, 2015, 03:31:13 am

Paper on LMSR at http://hanson.gmu.edu/mktscore.pdf

Wow, this is good stuff.
Title: Re: Simple Binary Prediction Market Discussion
Post by: fluxer555 on February 05, 2015, 03:39:14 am
If I can't change his mind I will make a fork to include it.

Isn't this a prime use-case for DevShares?
Title: Re: Simple Binary Prediction Market Discussion
Post by: arhag on February 05, 2015, 05:31:09 am

Paper on LMSR at http://hanson.gmu.edu/mktscore.pdf

Wow, this is good stuff.

Wow.. trying to wrap my head around all of this.

I also found these two resources which were quite interesting to read:
http://blog.oddhead.com/2006/10/30/implementing-hansons-market-maker/
http://blog.oddhead.com/2008/12/22/what-is-and-what-good-is-a-combinatorial-prediction-market/

One thing I worry about regarding using a market maker is market manipulation. If everyone knows exactly how the market maker works, and they should because it is open source and deterministic, then if there are periods where there is a lone trader in a PM can't they exploit the market maker to make guaranteed free money?

Now apparently, the way LMSR works, the potential losses are bounded by some fixed amount set ahead of time. That brings up other questions. How do we decide how much to set this bound to, which would of course affect market making operations (meaning affect liquidity)? Where is that fixed amount of starting money going to come from if we want to implement it on the blockchain (meaning who is going to carry that risk of loss)? How does Truthcoin deal with this?

Anyway, this stuff has gotten me excited. Forget Bingo, imagine the demand we can generate by letting people make bets on various outcomes of March Madness! (For 2016 of course :P, there is no way something of that complexity, combinatorial prediction markets, is going to be built for BitShares in less than a year.) LMSR with two-outcome prediction markets seems achievable in this year however.
Title: Re: Simple Binary Prediction Market Discussion
Post by: jsidhu on February 05, 2015, 06:44:57 am
Hard part will be deciding how to integrate pms with the core of bitshares.. Not just another tab next to market
Title: Re: Simple Binary Prediction Market Discussion
Post by: xeroc on February 05, 2015, 07:50:23 am
Hard part will be deciding how to integrate pms with the core of bitshares.. Not just another tab next to market
UI != core
you could do it in a completely different app, too ..
Title: Re: Simple Binary Prediction Market Discussion
Post by: xeroc on February 05, 2015, 07:50:40 am

Paper on LMSR at http://hanson.gmu.edu/mktscore.pdf

Wow, this is good stuff.
thanks for sharing  +5% +5%
Title: Re: Simple Binary Prediction Market Discussion
Post by: jsidhu on February 05, 2015, 08:11:34 am
Hard part will be deciding how to integrate pms with the core of bitshares.. Not just another tab next to market
UI != core
you could do it in a completely different app, too ..
It would just use an asset?
Title: Re: Simple Binary Prediction Market Discussion
Post by: xeroc on February 05, 2015, 08:58:01 am
UI != core
you could do it in a completely different app, too ..
It would just use an asset?
There is no need to interpret every single transaction in the blockchain .. also with light-weight clients you can start interpreting only what you are interesting in.
So basically the blockchain/tech allows you to only use Decentralized exchange, only bitUSD, VOTE, or only DNS, or maybe only the PM. No need to also check the whole thing because that is what the delegates are good for.
Title: Re: Simple Binary Prediction Market Discussion
Post by: theoretical on February 07, 2015, 03:06:43 am
Spreadsheet is way clearer than the paper.  Basically the DAC runs a bookie who always goes by more or less the current odds, except early on when there's not much action, he prices everything equally.  So if the bookie initially has $100 and you can bet on A = Democratic President, B = Republican President, C = Somebody else, he'll sell you a ticket that pays $1 if A for $0.34, $1 if B for $0.34, and $1 if C for $0.34.

Of course we know things about elections that the bookie doesn't, namely that his price for C is way out of line with the odds.

But the bookie knows he's dumb, so he's set it up so you can only buy $1 at a time, and then you have to let him incorporate the information "somebody bought a ticket on A for $1" into his price setting algorithm before anyone can buy another ticket.  So if you get a ticket for A, then the price of A might rise to $0.36, while B and C drop -- if you want a second ticket on A, you'll have to pay more.  So eventually the big run of people buying A+B to make a Dutch book on the bookie will end up pushing the odds of C where it belongs (and an impoverished bookie).

If someone tries to buy a million tickets on A (or A+B or any combination) when there's not much other action, he'll end up paying $0.99 each (or more!) and end up merely getting his own money back.

With the math in the paper, the tickets are infinitesimally small, but that's the idea.
Title: Re: Simple Binary Prediction Market Discussion
Post by: bytemaster on February 07, 2015, 03:18:29 am
I spent some time looking into it.  Bookie stands to lose in some cases, but how much does he stand to gain?
Title: Re: Simple Binary Prediction Market Discussion
Post by: theoretical on February 07, 2015, 03:31:21 am
I spent some time looking into it.  Bookie stands to lose in some cases, but how much does he stand to gain?

If asset X wins, the bookie's leftover funds are the difference between his cash reserves and the float of asset X.  So the biggest win for the bookie is if the least popular option ends up winning.  In other words, the bookie's betting against the market; the bookie will make a profit when the market is wrong!

In the paper he talks about the bookie being altruistically funded by someone who derives value from knowing the prediction.  E.g. a newspaper wanting a poll result to sell papers, a business wanting a prediction to help place investments, etc.

I think a better way is to have the bookie funded by orders themselves.  I.e. have a preorder period, let the market open happen some time after the asset's been defined.  In the preorder period, orders can be placed but don't execute (in fact they can't execute because the bookie is initially the only seller of all the assets, so the market has to be closed until he's funded).  Then at some defined point in time, the market opens -- 5% is taken from every order and used to fund the bookie operations.  I think the 5% should not be a fee, the users should get an equity position in the bookie, which will make bank if the decision has a float much lower than the bookie's cash reserves.  So all funds used to buy A, B, and C, except for normal transaction fees (and maybe some functionality-specific fees), will be returned to holders of A, B and C.
Title: Re: Simple Binary Prediction Market Discussion
Post by: theoretical on February 07, 2015, 03:35:49 am
Also, I know that now that we understand it, some of us (me at least) are feeling all fired up to implement this.  But I want to do some refactoring of the market engine this weekend, and we might want to hold off because what I'm doing will make writing the bookie easier (at least the market part).
Title: Re: Simple Binary Prediction Market Discussion
Post by: arhag on February 07, 2015, 04:56:56 am
I spent some time looking into it.  Bookie stands to lose in some cases, but how much does he stand to gain?

If asset X wins, the bookie's leftover funds are the difference between his cash reserves and the float of asset X.  So the biggest win for the bookie is if the least popular option ends up winning.  In other words, the bookie's betting against the market; the bookie will make a profit when the market is wrong!

In the paper he talks about the bookie being altruistically funded by someone who derives value from knowing the prediction.  E.g. a newspaper wanting a poll result to sell papers, a business wanting a prediction to help place investments, etc.

I think a better way is to have the bookie funded by orders themselves.  I.e. have a preorder period, let the market open happen some time after the asset's been defined.  In the preorder period, orders can be placed but don't execute (in fact they can't execute because the bookie is initially the only seller of all the assets, so the market has to be closed until he's funded).  Then at some defined point in time, the market opens -- 5% is taken from every order and used to fund the bookie operations.  I think the 5% should not be a fee, the users should get an equity position in the bookie, which will make bank if the decision has a float much lower than the bookie's cash reserves.  So all funds used to buy A, B, and C, except for normal transaction fees (and maybe some functionality-specific fees), will be returned to holders of A, B and C.

I don't know if understand your preorder idea. If the orders are placed but don't execute how will the market maker adjust the price? If it doesn't adjust the price doesn't that mean all preorder buyers will be forced to buy at a price of 0.33 BitUSD/{A,B,C} for all three assets? But what if the market's prior expectation of the probabilities for the three outcomes is not uniform? That means people only buy the assets corresponding to outcomes with better than uniform probabilities at a nice discount price (granted at the cost that 5% of their orders will instead be forced into a speculative asset which gets its value from the outcome being contrary to the market's expectation of the outcome immediately prior to the outcome being known to the blockchain). That brings up another question. Won't the market always adjust to make the true outcome most favorable faster than a super majority of the judges can put the outcome into the blockchain? The only way I can see to prevent that is if the prediction market was frozen before the outcome was known, but then we can't use that for things where we don't know exactly when the outcome will be known. So isn't the market maker pretty much always going to lose?

Personally, I think the market maker needs to recover its costs through charging a small spread on everyone's orders. Someone or a group of people could put up the initial funds to provide liquidity to the market maker in the hope that there will be enough volume so that they can make a profit from the spread. In fact, I envision that the prediction market creator would define the initial pool of capital, C BitUSD, meant for the LMSR market maker that is needed for the prediction market to open, define the fixed percentage spread, and also define an expiration date for when the prediction market is considered to be a dud. Anyone could browse through these inactive prediction markets and decide if they see one they want to invest in. If the prediction market has not opened up yet, someone can deposit X BitUSD and get back X/C fraction of the total shares in that prediction market's market maker equity. If C BitUSD is not raised by the expiration date then all funds are returned back to those shareholders. Otherwise if the amount is reached, the prediction market opens up. The market maker takes the spread and puts it in their profit pool. At the end when the outcome has been decided, the prediction market pays out the winners and any remaining funds are split proportionally to the shareholders.

Furthermore, the prediction market could be defined to increase the amount of shares by a certain amount to give to each of the judges who voted for an outcome that turned out to be the consensus outcome decided by the super majority of selected judges. This pays the judges for their work of actually determining the outcomes and voting for it on the blockchain, without having to worry about whether the prediction market creator or some other third party will pay them (instead the blockchain enforces it).
Title: Re: Simple Binary Prediction Market Discussion
Post by: theoretical on February 07, 2015, 03:55:58 pm
I don't know if understand your preorder idea. If the orders are placed but don't execute how will the market maker adjust the price?

The market maker won't adjust the price until it opens its doors.

If it doesn't adjust the price doesn't that mean all preorder buyers will be forced to buy at a price of 0.33 BitUSD/{A,B,C} for all three assets?

Yes, but only the first $1 (actually, the math effectively uses infinitesimal fractions, so it's more like 1 satoshi) will execute at that price.  If people only buy A and B at that price, then A and B will start to rise and C will start to fall.  Then eventually either A or B will be pushed to a price that exceeds what people are willing to pay (or buy orders for them will run out of money).  Likewise C may fall cheap enough that buy orders for C become active (there may be takers for C willing to pay $0.05 or $0.03 or $0.001).

But what if the market's prior expectation of the probabilities for the three outcomes is not uniform?

What I mean by the market maker being "dumb" is that his prior expectation for the probabilities is always uniform.  Then he updates those prices based on the total of what he's bought and sold and how much money he has left to help pay out winners (if someone buys a million tickets when the market maker only has $1000, the tickets might cost $0.9997 each and most of the payout will be the buyer getting his own money back, but the market maker does "help" by adding $1,000,000 - $999,700 = $300 to the pool).

That means people only buy the assets corresponding to outcomes with better than uniform probabilities at a nice discount price (granted at the cost that 5% of their orders will instead be forced into a speculative asset which gets its value from the outcome being contrary to the market's expectation of the outcome immediately prior to the outcome being known to the blockchain).

Yes, this is true -- but the discount quickly vanishes after only a small fraction of the orders are filled, because the market maker's funds dwindle.

That brings up another question. Won't the market always adjust to make the true outcome most favorable faster than a super majority of the judges can put the outcome into the blockchain?

Yes.  If everyone saw on TV that Ron Paul won, but it'll be a few days before the official result comes in and the judges input it into the blockchain, then everybody'll be buying C at $0.99 and trying to unload A or B at $0.001.  The $0.01 discount on C would be basically because some people with C might want the convenience of cashing out now instead of in a few days, and they want it so bad they're offering to give 1% of their payout to somebody else if that's what it takes to make it happen.  The A and B assets would probably be completely illiquid -- whoever ended up with them is stuck with the assets and their $0 payout, because the supply of fools willing to buy assets known to be worthless is usually quite limited, and all the people willing to sell to them at any price will quickly part them from their money.

In other words, while we're watching who various states went for on TV, people will be trying to buy the winner before he's all the way in the $0.90 range and sell the loser before he's totally worthless.  They'll be trading to contrarians, people trying to sell an overvalued lead horse and trying to pick up shares in the underdog on the cheap.  In the course of those madly gyrating market conditions, somebody will end up with all those A and B shares and be unable to unload them, their orders will go unfilled and they'll end up with worthless assets.  Traders who prefer a calmer style could simply pick their horse at more stable prices earlier in the week, then simply hold the shares until it's all over.

So isn't the market maker pretty much always going to lose?

Yes.  Which is why in the paper he suggests it be funded by someone who derives value from having the prediction, because they can expect a loss from funding the market maker.

I say the market maker should be funded by equity investors, and everyone who places a pre-order becomes an equity investor in the amount of 5% of their order.  Everyone who places a pre-order gets a piece of the action when the market maker has their dumb initial position with A, B, C all at $0.34.  The +EV of that piece cancels out the -EV of investing in someone who only makes money when a free market doesn't work.  It has to cancel because there's nowhere else for the money to go!
Title: Re: Simple Binary Prediction Market Discussion
Post by: theoretical on February 07, 2015, 08:11:14 pm
I thought some more and I'm thinking we'll have to worry a bit about additional interesting things that happen if, instead of having a bunch of agents doing one-shot deals with the market maker, we have a bunch of standing orders that will execute whenever the price (tries to) move past a given value.

Suppose there's a buy order for A at $0.40.  The market maker's current price for A is $0.41 and current price for B is $0.45.  Someone places a buy order for a large quantity of B at $0.50.  Buying B will push up the price of B and push down the price of A, but once the price of A hits $0.40, the order for A starts to execute, putting a downward pressure on B which will fight the upward pressure from the buy order.

In other words, the buy order for A creates a floor at $0.40 below which the value of A cannot fall until the order is totally filled.  Once the price hits this floor, it becomes harder for the guy buying B to raise the price (less price movement per quantity bought).

We can classify the assets as reactive, active or inactive based on the price of the top-of-book order relative to the market maker's price.  Inactive order isn't matched by the market maker (buying more cheaply than the market maker's offering).  Active order is matched by the market maker with nonzero quantity (i.e. buying strictly greater than the market maker's current price).  Reactive order is exactly matched by market maker's price, it "executes at zero quantity" which means in practice it doesn't execute.  But when an active order executes, every reactive order will execute and oppose the price forces exerted by the active order on themselves and the active order (but will push in the same direction as the active order on inactive prices!)

I'm trying to figure out how we end up implementing this without needing numerical integration.  It might be possible; I'll have to think about it some more.  OTOH maybe numerical integration is fine, especially if we smooth out the discontinuities a little (e.g. instead of having the boundaries be vertical cliffs, make them instead very steep slopes 0.1% wide with smooth curve-in and curve-out, which are less "confusing" to the integrator).
Title: Re: Simple Binary Prediction Market Discussion
Post by: Bitcoinfan on February 07, 2015, 09:45:00 pm

(start of lsmr in current develop: https://github.com/BitShares/bitshares/blob/6d42fcab803983ec16f9ec094a71fa2078febad3/libraries/blockchain/include/bts/blockchain/lsmr_record.hpp

we can also copy the working lsmr impelmentation from TC's repo)

Right on.  Glad you have an eye on this.  We may see a test version in march to play around with that can be applied to Bitshares.   

I thought some more and I'm thinking we'll have to worry a bit about additional interesting things that happen if, instead of having a bunch of agents doing one-shot deals with the market maker, we have a bunch of standing orders that will execute whenever the price (tries to) move past a given value.

Suppose there's a buy order for A at $0.40.  The market maker's current price for A is $0.41 and current price for B is $0.45.  Someone places a buy order for a large quantity of B at $0.50.  Buying B will push up the price of B and push down the price of A, but once the price of A hits $0.40, the order for A starts to execute, putting a downward pressure on B which will fight the upward pressure from the buy order.

In other words, the buy order for A creates a floor at $0.40 below which the value of A cannot fall until the order is totally filled.  Once the price hits this floor, it becomes harder for the guy buying B to raise the price (less price movement per quantity bought).

We can classify the assets as reactive, active or inactive based on the price of the top-of-book order relative to the market maker's price.  Inactive order isn't matched by the market maker (buying more cheaply than the market maker's offering).  Active order is matched by the market maker with nonzero quantity (i.e. buying strictly greater than the market maker's current price).  Reactive order is exactly matched by market maker's price, it "executes at zero quantity" which means in practice it doesn't execute.  But when an active order executes, every reactive order will execute and oppose the price forces exerted by the active order on themselves and the active order (but will push in the same direction as the active order on inactive prices!)

I'm trying to figure out how we end up implementing this without needing numerical integration.  It might be possible; I'll have to think about it some more.  OTOH maybe numerical integration is fine, especially if we smooth out the discontinuities a little (e.g. instead of having the boundaries be vertical cliffs, make them instead very steep slopes 0.1% wide with smooth curve-in and curve-out, which are less "confusing" to the integrator).

Since I'm not as close to the implementation as you are I won't share the same appreciation that you just mentioned.  I tend to think this is natural function of price discovery, in this case information discovery. The random walk could be noise (which is greatest the shorter the time interval your looking at), or it could be that this rightfully prices the degrees of belief within the market. 

However, this may help. Please do look at a this modified market maker that truthcoin and augur are going to use called Practical Liquidity Sensitive Market Maker.  From what I've gathered since I started reading it today, there is a fee charged (say 3%), which is then applied to the liquidity pool.  This alpha helps to limit the swings in the markets.  The impact of loss is reduced and a bookie won't think hard about what the appropriate seed capital should be when authoring the contract.

http://forum.truthcoin.info/index.php/topic,130.msg886.html#msg886

http://www.eecs.harvard.edu/cs286r/courses/fall12/papers/OPRS10.pdf

http://www.bayesianinvestor.com/blog/index.php/2010/06/21/an-improved-automated-market-maker/


btw since your pivoting to prediction mrkets don't be afraid to start jumping into the truthcoin forums and start picking everyone's brains there. Paul is always helpful when answering questions. 
Title: Re: Simple Binary Prediction Market Discussion
Post by: arhag on February 08, 2015, 02:49:00 am
However, this may help. Please do look at a this modified market maker that truthcoin and augur are going to use called Practical Liquidity Sensitive Market Maker.  From what I've gathered since I started reading it today, there is a fee charged (say 3%), which is then applied to the liquidity pool.  This alpha helps to limit the swings in the markets.  The impact of loss is reduced and a bookie won't think hard about what the appropriate seed capital should be when authoring the contract.

http://forum.truthcoin.info/index.php/topic,130.msg886.html#msg886

http://www.eecs.harvard.edu/cs286r/courses/fall12/papers/OPRS10.pdf

+5% Yes, now we're talking. We need the market maker to be liquidity sensitive and profitable. Let the PM creator set a trading fee that goes to enhancing liquidity (which sets alpha) and a trading fee that goes to a profit pool; the combined trading fee is the percentage fee on all trades made in the PM that traders need to pay (hopefully not too large). Let them also set the slate of judges that are allowed to determine the outcome and a fixed fee they are willing to pay them if they do provide the consensus outcome. Before the PM opens up for trading, people can invest money into the PM in return for equity at a 1:1 rate (which they can trade back at any time before the PM opens up for trading) so that the money can be used to provide the fees to pay the minimum number of judges needed to reach consensus on the outcome and the rest can go towards the market maker to provide initial liquidity. Judges in the specified judge slate for that PM can submit a message to the blockchain claiming that they will judge the outcome of that PM (they can take back this claim anytime before the PM opens up for trading). Once a specified minimum number of judges agree to judge the outcome of this PM (and the money raised is larger than the amount needed to pay them), the prediction market opens up for trading. At the end once the consensus outcome is known, the collected pool of money is used to first pay the winners, then pay the judges who voted for the consensus results (up to the per-judge fee that was specified in the definition of the PM), and then any money left over is divided proportionally to the equity holders.
Title: Re: Simple Binary Prediction Market Discussion
Post by: jsidhu on February 08, 2015, 03:34:11 am
Why dont we offer paul a delegate to be our pm consultant?
Title: Re: Simple Binary Prediction Market Discussion
Post by: arhag on February 08, 2015, 03:48:15 am
Why dont we offer paul a delegate to be our pm consultant?

Like he would take it. Haven't you read this (http://www.truthcoin.info/blog/bitusd/)? He dislikes us for some reason. Plus he is a Proof-of-Waste believer (http://www.truthcoin.info/blog/pow-and-mining/). Sigh.

Anyway, the information for this stuff is out there. These papers are all great:
http://mason.gmu.edu/~rhanson/mktscore.pdf
http://mason.gmu.edu/~rhanson/combobet.pdf
http://www.eecs.harvard.edu/cs286r/courses/fall12/papers/OPRS10.pdf

If you want to study the Truthcoin design you can get it from their whitepaper (http://www.truthcoin.info/papers/truthcoin-whitepaper.pdf). Plus, the source code is open and available (https://github.com/psztorc/Truthcoin).

We don't need Paul. Though it would be terrific if he were to change his views about BitShares, DPOS, and BitAssets and decide he wanted to make prediction markets a reality for BitShares. In that case I would be happy to support him, but it isn't going to happen.
Title: Re: Simple Binary Prediction Market Discussion
Post by: starspirit on February 11, 2015, 02:48:36 am
I understand the market opportunity for prediction markets, but are they really a common good or service that the SuperDAC should be producing? Shouldn't this sort of thing be developed by entrepreneurs building within the BitShares environment, rather than clogging the BitShares block-chain with data that will never be useful for most businesses?

Confused on the purpose of the SuperDAC....
Title: Re: Simple Binary Prediction Market Discussion
Post by: Stan on February 11, 2015, 04:25:28 am
I understand the market opportunity for prediction markets, but are they really a common good or service that the SuperDAC should be producing? Shouldn't this sort of thing be developed by entrepreneurs building within the BitShares environment, rather than clogging the BitShares block-chain with data that will never be useful for most businesses?

Confused on the purpose of the SuperDAC....

SuperDAC provides common services (like BitAssets) that support many business models.

We build support for implementing model types and sometimes add demo applications to stimulate the thinking of others. 

Ideally, we want others to be able to build business store fronts based on those features without needing to be DAC devs themselves.

But we are also open to DAC devs adding directly to the toolkit.

Right now we are looking to add features that will attract new demographics and give them a reason to learn about our BitAssets.

Bottom line.  Whatever it takes.  We are selling transactions.  More demand for those transactions means more demand for BTS.

:)


Title: Re: Simple Binary Prediction Market Discussion
Post by: Rune on February 11, 2015, 11:16:29 am
There needs to be a vote of some kind before core development on this stuff begins. Shareholders need a say in whether it is appropriate to begin development of new features before 1.0 is even done.
Title: Re: Simple Binary Prediction Market Discussion
Post by: speedy on February 11, 2015, 03:01:00 pm
I agree with Rune, plus:

If we're going to discuss adding more core features before/after 1.0, then margin trading is a much bigger market than prediction markets. If you want to find out how little Bitcoiners care about prediction markets, head over to predictious.com - its volume is tiny.
Title: Re: Simple Binary Prediction Market Discussion
Post by: bytemaster on February 11, 2015, 03:14:07 pm
I agree with Rune, plus:

If we're going to discuss adding more core features before/after 1.0, then margin trading is a much bigger market than prediction markets. If you want to find out how little Bitcoiners care about prediction markets, head over to predictious.com - its volume is tiny.

That is because your prediction is exposed to BTC price volatility.
Title: Re: Simple Binary Prediction Market Discussion
Post by: sschechter on February 11, 2015, 03:17:33 pm
I agree with Rune, plus:

If we're going to discuss adding more core features before/after 1.0, then margin trading is a much bigger market than prediction markets. If you want to find out how little Bitcoiners care about prediction markets, head over to predictious.com - its volume is tiny.

 +5% Multi tabbed markets will bring much greater trading volume than a prediction market
Title: Re: Simple Binary Prediction Market Discussion
Post by: Bitcoinfan on February 11, 2015, 03:22:27 pm
I agree with Rune, plus:

If we're going to discuss adding more core features before/after 1.0, then margin trading is a much bigger market than prediction markets. If you want to find out how little Bitcoiners care about prediction markets, head over to predictious.com - its volume is tiny.

Centralized Exchange?  Come on.  Not a fair comparison at all.  Predictious is subject to major counterparty and theft risk.  After experiences with Bitstamp and Empty Goxx, no one is trusting them with their money. 

Additional I'm not sure why we would be chasing old mature markets like margin trading, which is already highly standardized and doesn't beg for change.  Prediction markets fields are currently underdeveloped, easier to implement ("I think"), and has tons more upside.  Thus there are tremendous early mover advantages. 

I've written here why Bitshares delegated selection is optimal for a prediction market.  My basis is that it empowers coordination within a crowd/community in order to make effective decisions .  Please critique if you think this is not of value proposition to Bitshares.

https://bitsharestalk.org/index.php?topic=13865.msg180595#msg180595

Title: Re: Simple Binary Prediction Market Discussion
Post by: Empirical1.2 on February 11, 2015, 03:31:31 pm
There needs to be a vote of some kind before core development on this stuff begins. Shareholders need a say in whether it is appropriate to begin development of new features before 1.0 is even done.

I'm keen for 1.0 too. It depends who's doing a lot of the background work. Bytemaster for example is not an employee who works for the shareholders so I don't think shareholders/marketing get to (or should) lead what he works on but they can certainly strongly influence it.

I haven't looked into prediction markets enough to be able to discern their immediate value personally.
Title: Re: Simple Binary Prediction Market Discussion
Post by: kokojie on February 11, 2015, 03:38:18 pm
gambling is great!
Title: Re: Simple Binary Prediction Market Discussion
Post by: speedy on February 11, 2015, 03:39:04 pm
That is because your prediction is exposed to BTC price volatility.

Really? Bitcoiners are used to dealing with the volatility. Whether their cost frame of reference is BitUSD or BTC, it doesnt change the fact that the only thing Bitcoiners really want to speculate on is the price, they dont care about the elections or whatever (much).

Centralized Exchange?  Come on.  Not a fair comparison at all.  Predictious is subject to major counterparty and theft risk.  After experiences with Bitstamp and Empty Goxx, no one is trusting them with their money. 

The same thing can be said about Bitfinex - they even say on their frontpage that they are in Beta, yet they hold millions of $ in deposits. But they have a killer feature that everyone wants which is to trade BTC with leverage. This is what we should be going after next.
Title: Re: Simple Binary Prediction Market Discussion
Post by: toast on February 11, 2015, 04:13:26 pm
Prediction markets are extremely important and we will regret not being the first
Title: Re: Simple Binary Prediction Market Discussion
Post by: hpenvy2 on February 11, 2015, 05:13:06 pm
Prediction markets are extremely important and we will regret not being the first

 +5%  +5%

With BitUSD, we are in a great position lead this market.  Toast, can you please comment on the magic 1.0 designation.  I know you've talked about it before.
Title: Re: Simple Binary Prediction Market Discussion
Post by: zerosum on February 11, 2015, 05:13:24 pm
Prediction markets are cool, margin trading  is great.

But not finishing what one have started is truly stupid and regrettable. 90% of the killer BTC apps is already developed by Bitshares. What is left to do is make this the killer app... pun intended as it will  sucking 1/3 of the BTC market cap, while solving the 2 of the biggest weaknesses of bitcoin - it being traded with counterparty risk and its volatility.

What we need first is BTC wallet :
-with built in truly decentralized exchange.
-with truly no counterparty risk conversion of everybody's bitcoin to stable non volatile , blockchain-based asset of her choice - gold, euro, dollar. The true savings account as Stan used to say, that people keep their money up to seconds before they need to spend those funds.

Price of the project 250-300 man-hours.
and yes we will truly regret if we do not do it and jump on other pet projects that someone finds cooler or more interesting to their always seeking the next challenge minds...
Title: Re: Simple Binary Prediction Market Discussion
Post by: dna_gym on February 11, 2015, 05:18:38 pm
I agree to toast. Prediction markets are a WHOLE NEW THING after Bitcoin's decentralized currency.
PMs will actually give utility to society, this is a big difference.

p.s. but please make the original product first as we don't know the uncertainties of PMs.
Title: Re: Simple Binary Prediction Market Discussion
Post by: Empirical1.2 on February 11, 2015, 05:40:27 pm
Prediction markets are cool, margin trading  is great.

But not finishing what one have started is truly stupid and regrettable. 90% of the killer BTC apps is already developed by Bitshares. What is left to do is make this the killer app... pun intended as it will  sucking 1/3 of the BTC market cap, while solving the 2 of the biggest weaknesses of bitcoin - it being traded with counterparty risk and its volatility.

What we need first is BTC wallet :
-with built in truly decentralized exchange.
-with truly no counterparty risk conversion of everybody's bitcoin to stable non volatile , blockchain-based asset of her choice - gold, euro, dollar. The true savings account as Stan used to say, that people keep their money up to seconds before they need to spend those funds.

Price of the project 250-300 man-hours.
and yes we will truly regret if we do not do it and jump on other pet projects that someone finds cooler or more interesting to their always seeking the next challenge minds...

I think the BTC wallet is one of the most popular projects atm on NullStreet and they seem to be really co-ordinating well around it. I think they will be able to find and get a developer/s elected to work on that.

I agree with Rune, plus:

If we're going to discuss adding more core features before/after 1.0, then margin trading is a much bigger market than prediction markets. If you want to find out how little Bitcoiners care about prediction markets, head over to predictious.com - its volume is tiny.

Centralized Exchange?  Come on.  Not a fair comparison at all.  Predictious is subject to major counterparty and theft risk.  After experiences with Bitstamp and Empty Goxx, no one is trusting them with their money. 

Additional I'm not sure why we would be chasing old mature markets like margin trading, which is already highly standardized and doesn't beg for change.  Prediction markets fields are currently underdeveloped, easier to implement ("I think"), and has tons more upside.  Thus there are tremendous early mover advantages. 

I've written here why Bitshares delegated selection is optimal for a prediction market.  My basis is that it empowers coordination within a crowd/community in order to make effective decisions .  Please critique if you think this is not of value proposition to Bitshares.

https://bitsharestalk.org/index.php?topic=13865.msg180595#msg180595

I've briefly just looked at prediction markets and Predictious.com & fairlay.com seem to be the two main Bitcoin ones.

Both have been around for over a year but both have very little volume or Bitcointalk interest
Fairlay - Bitcointalk https://bitcointalk.org/index.php?topic=433086.0
Predictious - https://bitcointalk.org/index.php?topic=264443.0

This in contrast to Bitcoin based gambling games which are massive (Up to 50% of all BTC transactions and $Billions in turnover on some sites.)  despite BTC volatility and being based on risky centralised sites. (I know we can't offer that on BTS though.)

In the real world Betfair seems to be the largest. About a $2 Billion CAP, $4 Billion turnover and 7 million transactions a day. They charge a 2-5% commission. I assume BitShares could undercut that. However they also offer fixed odds sports betting and I don't know what % that contributes.

Intrade was also popular before it shut down & I think charged a monthly fee.

Hollywood Stock Exchange has about 2 million registered users despite being only for play money. (I would maybe consider approaching HSX they don't have a real money option atm, so this might be appealing to them and their user base.)

So it looks like there's ultimately a lucrative market and there's also value in being the first blockchain to offer prediction markets for sure. However it doesn't seem like they would be immediately popular.




Title: Re: Simple Binary Prediction Market Discussion
Post by: zerosum on February 11, 2015, 06:04:58 pm
Prediction markets are cool, margin trading  is great.

But not finishing what one have started is truly stupid and regrettable. 90% of the killer BTC apps is already developed by Bitshares. What is left to do is make this the killer app... pun intended as it will  sucking 1/3 of the BTC market cap, while solving the 2 of the biggest weaknesses of bitcoin - it being traded with counterparty risk and its volatility.

What we need first is BTC wallet :
-with built in truly decentralized exchange.
-with truly no counterparty risk conversion of everybody's bitcoin to stable non volatile , blockchain-based asset of her choice - gold, euro, dollar. The true savings account as Stan used to say, that people keep their money up to seconds before they need to spend those funds.

Price of the project 250-300 man-hours.
and yes we will truly regret if we do not do it and jump on other pet projects that someone finds cooler or more interesting to their always seeking the next challenge minds...

I think the BTC wallet is one of the most popular projects atm on NullStreet and they seem to be really co-ordinating well around it. I think they will be able to find and get a developer elected to work on that.


I am aware that a lot of people have similar ideas/dreams in their heads. And I am happy that I am not the only daydreamer considering such a product extremely valuable. Unfortunately most are happy with attaching shapeshift like centralized bridge to achieve that.
I on the other hand envision -truly no counterparty risk conversion BTC <-> bitWhatever.

The foundation for my approach are already in the BTS code and an elegant solution is achievable with mere modification to it, but... And it is a big 'but', those modification need to be done by the core dev. team and are not something you just attach to the existing BTS core.
(I have written a couple of pages explanation if any core dev is remotely interested and no I am not posting it here as the spelling and grammar of said writing are unbelievably bad)
Title: Re: Simple Binary Prediction Market Discussion
Post by: vegolino on February 11, 2015, 06:23:08 pm
Prediction markets are extremely important and we will regret not being the first
  +5%
Title: Re: Simple Binary Prediction Market Discussion
Post by: arhag on February 11, 2015, 06:23:46 pm
Unfortunately most are happy with attaching shapeshift like centralized bridge to achieve that.
I on the other hand envision -truly no counterparty risk conversion BTC <-> bitWhatever.

No counterparty risk conversion between BTC and BitAssets? How would you manage that? The closest I've been able to get to that is GATEBTC managed by the delegates (BitShares Standard Gateway), and even that isn't counterparty risk free but simply decentralizes the counterparty slightly. And is it really worth the effort considering that the counterparty risk only exists for the short amount of time (and small amount of money being converted) that it takes to actually do the conversion?

Edit: I suppose it is possible through atomic cross chain trading between BitBTC and BTC, but users don't want to deal with that hassle.
Title: Re: Simple Binary Prediction Market Discussion
Post by: nomoreheroes7 on February 11, 2015, 06:46:49 pm
Prediction markets are extremely important and we will regret not being the first

We will regret it, or would regret it? Any chance BTS can still move into prediction markets timely?
Title: Re: Simple Binary Prediction Market Discussion
Post by: zerosum on February 11, 2015, 06:51:28 pm
Unfortunately most are happy with attaching shapeshift like centralized bridge to achieve that.
I on the other hand envision -truly no counterparty risk conversion BTC <-> bitWhatever.

No counterparty risk conversion between BTC and BitAssets? How would you manage that? The closest I've been able to get to that is GATEBTC managed by the delegates (BitShares Standard Gateway), and even that isn't counterparty risk free but simply decentralizes the counterparty slightly. And is it really worth the effort considering that the counterparty risk only exists for the short amount of time (and small amount of money being converted) that it takes to actually do the conversion?

Edit: I suppose it is possible through atomic cross chain trading between BitBTC and BTC, but users don't want to deal with that hassle.

In short, using the existing, but modified to serve this function, [open] cover orders as a fall off (aka guarantee) in case the counter party responsible for the BTC transfer does not follow through with its obligation to transfer the BTC.
Title: Re: Simple Binary Prediction Market Discussion
Post by: Rune on February 11, 2015, 08:11:08 pm
Prediction markets are extremely important and we will regret not being the first

We will regret it, or would regret it? Any chance BTS can still move into prediction markets timely?

We've already gone all in on bitassets. Doing prediction markets wouldn't just be a matter of developing it, more importantly it would require strong marketing to get a large enough userbase to make the markets active. There's no chance we will gain anything from rushing into prediction markets at this point. It's better to focus on our core product and make it useable through web and light wallets. Once we have a network effect from the advantages that bitassets give then we can begin exploring other fancy features (though I think it would be better to work on integrating the Ethereum Virtual Machine and then build the prediction markets through scripting rather than hardcoding them into the blockchain).
Title: Re: Simple Binary Prediction Market Discussion
Post by: bytemaster on February 11, 2015, 09:16:33 pm
Agreed... we are not going to rush this in.  Focusing on BitAsset adoption and light wallets.
Title: Re: Simple Binary Prediction Market Discussion
Post by: Ander on February 11, 2015, 09:28:02 pm
Agreed... we are not going to rush this in.  Focusing on BitAsset adoption and light wallets.

Yes.

After those, I think proposal voting and prediction markets are the top 2 priorities.  Not sure what order.
Title: Re: Simple Binary Prediction Market Discussion
Post by: arhag on February 11, 2015, 09:29:49 pm
Agreed... we are not going to rush this in.  Focusing on BitAsset adoption and light wallets.

Yes.

After those, I think proposal voting and prediction markets are the top 2 priorities.  Not sure what order.

Proposal voting, so that stakeholders can then vote on what they think is important to work on next  :).
Title: Re: Simple Binary Prediction Market Discussion
Post by: clayop on February 11, 2015, 11:11:35 pm
Agreed... we are not going to rush this in.  Focusing on BitAsset adoption and light wallets.

Good +5%

EDIT: plus mobile wallet
Title: Re: Simple Binary Prediction Market Discussion
Post by: bytemaster on February 11, 2015, 11:32:11 pm
Agreed... we are not going to rush this in.  Focusing on BitAsset adoption and light wallets.

Good +5%

EDIT: plus mobile wallet

Mobile wallet should be a simple recompile ;)
Title: Re: Simple Binary Prediction Market Discussion
Post by: speedy on February 11, 2015, 11:50:58 pm
Mobile wallet should be a simple recompile ;)

... and then fighting the iTunes gatekeepers to get your app approved.
Title: Re: Simple Binary Prediction Market Discussion
Post by: bytemaster on February 12, 2015, 12:13:38 am
It is really simple to vote on it.  Create a delegate that will pay for it.  If they get elected then work begins.
Title: Re: Simple Binary Prediction Market Discussion
Post by: Akado on February 12, 2015, 02:38:43 am
Prediction markets are cool, margin trading  is great.

But not finishing what one have started is truly stupid and regrettable. 90% of the killer BTC apps is already developed by Bitshares. What is left to do is make this the killer app... pun intended as it will  sucking 1/3 of the BTC market cap, while solving the 2 of the biggest weaknesses of bitcoin - it being traded with counterparty risk and its volatility.

What we need first is BTC wallet :
-with built in truly decentralized exchange.
-with truly no counterparty risk conversion of everybody's bitcoin to stable non volatile , blockchain-based asset of her choice - gold, euro, dollar. The true savings account as Stan used to say, that people keep their money up to seconds before they need to spend those funds.

Price of the project 250-300 man-hours.
and yes we will truly regret if we do not do it and jump on other pet projects that someone finds cooler or more interesting to their always seeking the next challenge minds...
+5%
Title: Re: Simple Binary Prediction Market Discussion
Post by: klosure on February 12, 2015, 03:53:46 am
If both parties have equal amount of collateral tied up you could force them to settle quicker by applying demurrage to the collateral. The longer they wait the less they will get back at the time where they close the bet position. Demurrage rate could be applied in different proportion based on the VWAP of the last price on the market. Since all the honest betters will have settled earlier the VWAP will be difficult to manipulate. For instance, if demurrage rate is 2% per day and the vwap is 0.9, the loser will bear 0.9*2=1.8% demurrage whereas the winner will bear only 0.1*2=0.2% demurrage. In this condition, the loser is better off settling quickly.

Whatever the specific way this is inplemented, the counter-incentive of waiting should always be higher than the incentive of waiting so that the equilibrium will form on (tell the truth,settle early).
Title: Re: Simple Binary Prediction Market Discussion
Post by: dna_gym on February 12, 2015, 05:07:23 am
If both parties have equal amount of collateral tied up you could force them to settle quicker by applying demurrage to the collateral. The longer they wait the less they will get back at the time where they close the bet position. Demurrage rate could be applied in different proportion based on the VWAP of the last price on the market. Since all the honest betters will have settled earlier the VWAP will be difficult to manipulate. For instance, if demurrage rate is 2% per day and the vwap is 0.9, the loser will bear 0.9*2=1.8% demurrage whereas the winner will bear only 0.1*2=0.2% demurrage. In this condition, the loser is better off settling quickly.

Whatever the specific way this is inplemented, the counter-incentive of waiting should always be higher than the incentive of waiting so that the equilibrium will form on (tell the truth,settle early).
+5% .
This is clever. I'm scary participating this though.
Title: Re: Simple Binary Prediction Market Discussion
Post by: Empirical1.2 on February 12, 2015, 11:12:51 am
If both parties have equal amount of collateral tied up you could force them to settle quicker by applying demurrage to the collateral. The longer they wait the less they will get back at the time where they close the bet position. Demurrage rate could be applied in different proportion based on the VWAP of the last price on the market. Since all the honest betters will have settled earlier the VWAP will be difficult to manipulate. For instance, if demurrage rate is 2% per day and the vwap is 0.9, the loser will bear 0.9*2=1.8% demurrage whereas the winner will bear only 0.1*2=0.2% demurrage. In this condition, the loser is better off settling quickly.

Whatever the specific way this is inplemented, the counter-incentive of waiting should always be higher than the incentive of waiting so that the equilibrium will form on (tell the truth,settle early).
+5% .
This is clever. I'm scary participating this though.

If you were willing to make decisions based on the VWAP then couldn't the blockchain hold the collateral &
settle at 1 or 0 based on that? (With a short interim period where you could look to delegates for intervention if VWAP produced the wrong result.)
Title: Re: Simple Binary Prediction Market Discussion
Post by: donkeypong on February 12, 2015, 04:01:12 pm
Prediction markets are cool, margin trading  is great.

But not finishing what one have started is truly stupid and regrettable. 90% of the killer BTC apps is already developed by Bitshares. What is left to do is make this the killer app... pun intended as it will  sucking 1/3 of the BTC market cap, while solving the 2 of the biggest weaknesses of bitcoin - it being traded with counterparty risk and its volatility.

What we need first is BTC wallet :
-with built in truly decentralized exchange.
-with truly no counterparty risk conversion of everybody's bitcoin to stable non volatile , blockchain-based asset of her choice - gold, euro, dollar. The true savings account as Stan used to say, that people keep their money up to seconds before they need to spend those funds.

Price of the project 250-300 man-hours.
and yes we will truly regret if we do not do it and jump on other pet projects that someone finds cooler or more interesting to their always seeking the next challenge minds...

I think the BTC wallet is one of the most popular projects atm on NullStreet and they seem to be really co-ordinating well around it. I think they will be able to find and get a developer elected to work on that.


I am aware that a lot of people have similar ideas/dreams in their heads. And I am happy that I am not the only daydreamer considering such a product extremely valuable. Unfortunately most are happy with attaching shapeshift like centralized bridge to achieve that.
I on the other hand envision -truly no counterparty risk conversion BTC <-> bitWhatever.

The foundation for my approach are already in the BTS code and an elegant solution is achievable with mere modification to it, but... And it is a big 'but', those modification need to be done by the core dev. team and are not something you just attach to the existing BTS core.
(I have written a couple of pages explanation if any core dev is remotely interested and no I am not posting it here as the spelling and grammar of said writing are unbelievably bad)

I'd like to bump this and add my agreement. Tony's suggestion (which is a slight modification from some ideas we've seen) would be worth the extra time. Tony is right: this would suck up much of the BTC action and we'd have our killer app. It must not cut corners.
Title: Re: Simple Binary Prediction Market Discussion
Post by: bitmeat on February 12, 2015, 04:46:55 pm
Why not allow delegates to publish results of an outcome?
Title: Re: Simple Binary Prediction Market Discussion
Post by: alt on December 07, 2015, 11:21:44 pm
great discuss
how about prediction market in BTS2.0 now?
can I get more valuable discuss about prediction at the forum?
thanks
Title: Re: Simple Binary Prediction Market Discussion
Post by: bytemaster on December 08, 2015, 12:32:59 am
Why not allow delegates to publish results of an outcome?

They can publish the result if the committee decides to create a prediction market asset.

It can all be done right now.
Title: Re: Simple Binary Prediction Market Discussion
Post by: alt on December 08, 2015, 01:37:34 am
People would never touch this if there is this weird settling fee/waiting game.

I don't even think there is a Nash equilibrium.  It really is just a waiting game.. there are no underlying rules, it is all subjective opinions on your expectation of how your opponent will settle.

Actually I guess the nash equilibrium would be .5, it is just that it isn't tied to the objective of what the game should be?
have you  resolve this issue for have to waiting?
If not, maybe I can share my ideas about how to  resolve this problem based current BTS2.0 feature
Title: Re: Simple Binary Prediction Market Discussion
Post by: bytemaster on December 08, 2015, 06:56:46 pm
I am not sure what issue you are referring to.  I fear some communication issues are due to translation issues.
Title: Re: Simple Binary Prediction Market Discussion
Post by: Empirical1.2 on December 08, 2015, 08:42:17 pm
Why not allow delegates to publish results of an outcome?

They can publish the result if the committee decides to create a prediction market asset.

It can all be done right now.

If this can be done right now, fairly easily maybe we should ask just one high profile/interest generating question on an upcoming event, simply for the sake of showing it can be done on BTS.

We may get some positive attention as a result, if not it would still be good to test it out & also to gauge interest.
Title: Re: Simple Binary Prediction Market Discussion
Post by: mint chocolate chip on December 08, 2015, 08:43:38 pm
Why not allow delegates to publish results of an outcome?

They can publish the result if the committee decides to create a prediction market asset.

It can all be done right now.

If this can be done right now, fairly easily maybe we should ask just one high profile/interest generating question on an upcoming event, simply for the sake of showing it can be done on BTS.

We may get some positive attention as a result, if not it would still be good to test it out & also to gauge interest.
Winner of the Suberbowl?
Title: Re: Simple Binary Prediction Market Discussion
Post by: Empirical1.2 on December 08, 2015, 08:51:58 pm
Why not allow delegates to publish results of an outcome?

They can publish the result if the committee decides to create a prediction market asset.

It can all be done right now.

If this can be done right now, fairly easily maybe we should ask just one high profile/interest generating question on an upcoming event, simply for the sake of showing it can be done on BTS.

We may get some positive attention as a result, if not it would still be good to test it out & also to gauge interest.
Winner of the Suberbowl?

Good one. That would probably be one of the ones that generated the most action.

Could also go for something more controversial to get attention, don't know what though.

Title: Re: Simple Binary Prediction Market Discussion
Post by: alt on December 08, 2015, 10:00:56 pm
I am not sure what issue you are referring to.  I fear some communication issues are due to translation issues.
maybe....
I am wondering if there is a way to force settlement all asset imediately.
if we don't have this function, how to finish this prediction game?

can anybody give a guide what's the right way of implement the predition market?
Title: Re: Simple Binary Prediction Market Discussion
Post by: puppies on December 09, 2015, 05:46:47 pm
I am not sure what issue you are referring to.  I fear some communication issues are due to translation issues.
maybe....
I am wondering if there is a way to force settlement all asset imediately.
if we don't have this function, how to finish this prediction game?

can anybody give a guide what's the right way of implement the predition market?

I can't give you a guide.  I've thought about it a bit, but there are a couple of things I am not sure of. 

If for example you started out with an asset and defined it as a yes/no on a future event.  For this example we will use something simple like a coin flip.  We will call our asset heads, and set a feed of 1heads/1bts with a forced settle at 1.99 and 0 sqp.  If I am willing to bet on heads then I will borrow 1 heads at a collateral rate of 200% thus putting up 2bts, and getting 1 heads. I would then place this 1 heads for sale at 1bts.  Someone willing to bet on tails would purchase that 1 heads.  At this point I would be short 1 heads with a collateral position of 2, and would have the 1 bts I sold my heads for.  My counterparty would have spent 1 bts and have 1 heads.  Now we would flip the coin.

If the coin is tails then the settlement is easy.  we simply move the feed up to 1heads/2bts.  The short would force settle at the feed price, and the long would be able to sell to double their money.  Even if the short added funds to increase collateral, they could still be force settled.

If the result is heads then its a little harder.  You would need a way to force settle the longs.  At worst the asset issuer could recall the asset from the longs and place for sale as close to 0 as possible.  Thus the shorts could purchase the asset, close their shorts and keep the collateral. 

One of the great unknowns is fees.  Particularly what fees are paid for recalling all assets to the issuer?

Also It seems as if by adjusting collateral requirements and starting feed price you could change the odds, but I haven't reasoned all the way through that yet.

***edit***
After thinking about it a little bit more.  I think for a 1 to 1 odds bet, a starting feed of 1 with a sqp of 1.333 would probably be a better idea.  Then to close out, you would set the feed to 1.5.
Title: Re: Simple Binary Prediction Market Discussion
Post by: Shentist on December 09, 2015, 07:22:35 pm
Why not allow delegates to publish results of an outcome?

They can publish the result if the committee decides to create a prediction market asset.

It can all be done right now.

could you explain it more in detail?

most of us don't know the technical possibilities we have right now. so how could this be done?
Title: Re: Simple Binary Prediction Market Discussion
Post by: bytemaster on December 09, 2015, 07:44:14 pm
https://bitsharestalk.org/index.php/topic,20523.msg264808.html#msg264808