Great post; I had been thinking about writing something very similar. In many ways I think you have actually understated the potential of the idea. Additionally I think it addresses some of the concerns Owen raised last time.
Evaluation Costs
The final prize evaluations could be quite costly to produce.
I actually think the final evaluations might be cheaper than the status quo. At the moment OpenPhil (or whoever) has to do two things:
1) Judge how good an outcome is.
2) Judge how likely different outcomes are.
With this plan, 2) has been (partially) outsourced to the market, leaving them with just 1).
Cultural Risks
If Impact Prizes took off, I could imagine some actors drawing into the ecosystem who only motivated by making profits.
This is not a bug, this is a feature! There is a very large pool of people willing to predict arbitrary outcomes in return for money, that we have thus far only very indirectly been tapping into. In general bringing in more traders improves the efficiency of a market. Even if you add noisy traders, their presence improves the incentives for ‘smart money’ to participate. I think it’s unlikely we’d reach the scale required for actual hedge funds to get involved, but I do think it’s plausible we could get a lot of hedge fund guys participating in their spare time.
Legal Implications
In terms of legal status, one option I’ve been thinking about would be copying PredictIt. If we have to pay taxes every time a certificate is transferred, the transaction costs will be prohibitive. I am quite worried it will be hard to make this work within US law unfortunately, which is not very friendly to this sort of experimentation. At the same time, given the SEC’s attitude towards non-compliant security issuance, I would not want to operate outside it!
Quick other thoughts
One issue with the idea is it is hard for OpenPhil to add more promised funding later, because the initial investment will already have been committed at some fixed level. e.g. If OpenPhil initially promise $10m, and then later bump it to $20m, projects that have already sold their tokens cannot expand to take advantage of this increase, so it is effectively pure windfall with no incentive effect. A possible solution would be cohorts; we promise $10m in 2022 for projects started in 2019, and then later add another $12m, paid in 2023, for 2020 projects.
I think copying PredictIt would be pretty messy. I’m curious about the feasibility of using crypto, similar to CriptoKitties. It seems like several crypto groups did essentially a similar thing, and perhaps in the medium-term, they will be recognized as being legal in the United States.
“If OpenPhil initially promise $10m, and then later bump it to $20m, projects that have already sold their tokens cannot expand to take advantage of this increase, so it is effectively pure windfall with no incentive effect. ”
I agree cohorts are one solution. Another issue though, is that if the audience thought there was a decent chance of a bump, then the (“40% chance there would be a $10mil bump”) would be factored into the price.
Great post; I had been thinking about writing something very similar. In many ways I think you have actually understated the potential of the idea. Additionally I think it addresses some of the concerns Owen raised last time.
I actually think the final evaluations might be cheaper than the status quo. At the moment OpenPhil (or whoever) has to do two things:
1) Judge how good an outcome is.
2) Judge how likely different outcomes are.
With this plan, 2) has been (partially) outsourced to the market, leaving them with just 1).
This is not a bug, this is a feature! There is a very large pool of people willing to predict arbitrary outcomes in return for money, that we have thus far only very indirectly been tapping into. In general bringing in more traders improves the efficiency of a market. Even if you add noisy traders, their presence improves the incentives for ‘smart money’ to participate. I think it’s unlikely we’d reach the scale required for actual hedge funds to get involved, but I do think it’s plausible we could get a lot of hedge fund guys participating in their spare time.
In terms of legal status, one option I’ve been thinking about would be copying PredictIt. If we have to pay taxes every time a certificate is transferred, the transaction costs will be prohibitive. I am quite worried it will be hard to make this work within US law unfortunately, which is not very friendly to this sort of experimentation. At the same time, given the SEC’s attitude towards non-compliant security issuance, I would not want to operate outside it!
One issue with the idea is it is hard for OpenPhil to add more promised funding later, because the initial investment will already have been committed at some fixed level. e.g. If OpenPhil initially promise $10m, and then later bump it to $20m, projects that have already sold their tokens cannot expand to take advantage of this increase, so it is effectively pure windfall with no incentive effect. A possible solution would be cohorts; we promise $10m in 2022 for projects started in 2019, and then later add another $12m, paid in 2023, for 2020 projects.
Thanks! Some quick responses to parts.
I think copying PredictIt would be pretty messy. I’m curious about the feasibility of using crypto, similar to CriptoKitties. It seems like several crypto groups did essentially a similar thing, and perhaps in the medium-term, they will be recognized as being legal in the United States.
I agree cohorts are one solution. Another issue though, is that if the audience thought there was a decent chance of a bump, then the (“40% chance there would be a $10mil bump”) would be factored into the price.