An application I was expecting you to mention was longer term forecasts. E.g. if there was a market about, say, something in 2050, for example, the incentives for forecasters are perhaps less good, because the time until resolution is so long. But a “chained” forecast capturing something like “what will next year’s forecast say” (and next year’s forecast is about the following year’s forecast, and so until you hit 2050, when it resolves to the ground truth).
This assumes that forecasters are less effective when it comes to markets which don’t resolve for a long time.
In principle, normal markets should work this way. That is, if there’s a market that won’t settle for a year, but you think next week the price is going to go up a bunch, you will want to buy it now, and then sell it when the price goes up. If lots of people do this, the price goes up now, instead of next week (and in fact, if everyone saw that coming, it went up last week instead, and so on). If the market is reasonably liquid and/or there are market makers, you’re not committing yourself until settlement, you can just sell out of your position when the price corrects (or when you give up on it doing so).
If, on the other hand, the market is not reasonably liquid, then I don’t think iterated markets fix your problem, because people don’t have a strong reason to expect the next market forecast to match the actual probability, so they can’t profit by trading on that basis.
I think this sort of use case is very important. I think that this problem is probably better addressed with other methods rather than straightforward sequences of separate questions, but I imagine the latter will occasionally be useful as a solution.
I’ve also been thinking about this use case recently. I think I like the term “progressive” forecast, but I’m curious to get more takes!
Readers of this comment thread might be interested in this blog post from Johnathan Mann and this followup, where this concept is called “iterative markets”.
You can imagine strategies like, ”There’s just one question. However, people will get paid out over time, if the future aggregate agrees with their earlier forecasts. These payments can trigger at arbitrary times, and can feature a lot of flexibility regarding how far back the forecasts are that they reward.”
The effect is very similar to doing it by formally having separate questions.
(I’m sure many would consider this a minor difference)
An application I was expecting you to mention was longer term forecasts. E.g. if there was a market about, say, something in 2050, for example, the incentives for forecasters are perhaps less good, because the time until resolution is so long. But a “chained” forecast capturing something like “what will next year’s forecast say” (and next year’s forecast is about the following year’s forecast, and so until you hit 2050, when it resolves to the ground truth).
This assumes that forecasters are less effective when it comes to markets which don’t resolve for a long time.
In principle, normal markets should work this way. That is, if there’s a market that won’t settle for a year, but you think next week the price is going to go up a bunch, you will want to buy it now, and then sell it when the price goes up. If lots of people do this, the price goes up now, instead of next week (and in fact, if everyone saw that coming, it went up last week instead, and so on). If the market is reasonably liquid and/or there are market makers, you’re not committing yourself until settlement, you can just sell out of your position when the price corrects (or when you give up on it doing so).
If, on the other hand, the market is not reasonably liquid, then I don’t think iterated markets fix your problem, because people don’t have a strong reason to expect the next market forecast to match the actual probability, so they can’t profit by trading on that basis.
Good point.
I think this sort of use case is very important. I think that this problem is probably better addressed with other methods rather than straightforward sequences of separate questions, but I imagine the latter will occasionally be useful as a solution.
I’ve also been thinking about this use case recently. I think I like the term “progressive” forecast, but I’m curious to get more takes!
Readers of this comment thread might be interested in this blog post from Johnathan Mann and this followup, where this concept is called “iterative markets”.
I did find that interesting, thanks for the links!
What other methods do you have in mind for it?
You can imagine strategies like,
”There’s just one question. However, people will get paid out over time, if the future aggregate agrees with their earlier forecasts. These payments can trigger at arbitrary times, and can feature a lot of flexibility regarding how far back the forecasts are that they reward.”
The effect is very similar to doing it by formally having separate questions.
(I’m sure many would consider this a minor difference)