alt Hacker NewsWisdom of the crowd has some fatal flaws that are especially important when it comes to things like IPOs.
- Most significantly, most scientific research focuses on things that are actually amenable to guesses with a normal distribution, like "amount of jellybeans in a jar" or "length of the border between country A and country B". An IPO is a binary choice where it either goes public or not. There is no correct value to converge to.
- It has been shown that as bettors gain more information about the bets of others, predictions lose accuracy and bettors converge to a consensus value instead. It seems to me that online prediction markets would be extremely prone to this as the bets of other people are all there in the market price.
- Prediction markets generally become more accurate as the diversity of the bettor pool grows. The users of polymarket and Kalshi heavily skew towards young men from certain socioeconomic groups, who may be biased towards one or the other outcome.
In the case of an OpenAI IPO, it seems likely multiple of these would converge as people start to fall prey to groupthink because "everybody knows that they'll IPO soon" in their local media bubble.
Replies
> It has been shown that as bettors gain more information about the bets of others, predictions lose accuracy and bettors converge to a consensus value instead.
This makes intuitive sense to me; is there a name for this phenomenon?
A prediction platform’s biggest value is publicising information from possible insiders, who at some point will work harder to maintain secrecy not to lose their informational advantage. So all that remains are people gambling on public info.
That said, greed from insiders looking to make a quick buck will always skew the price towards ‘truth’
> An IPO is a binary choice where it either goes public or not. There is no correct value to converge to.
Of course there is - they are betting on the "when".
> It has been shown that as bettors gain more information about the bets of others, predictions lose accuracy and bettors converge to a consensus value instead.
I dunno how to reply to this - that is exactly my point, but it appears (to me, anyway) that you are saying this in disagreement?
Let me clarify - my point is that wisdom of the crowd converges on to a value that is quite near the actual value.
> In the case of an OpenAI IPO, it seems likely multiple of these would converge as people start to fall prey to groupthink because "everybody knows that they'll IPO soon" in their local media bubble.
Sure, if everyone is in the same local media bubble, that once again, that is unlikely, because these are people who don't make money from the result, they make money from correctly predicting it, hence they are exactly the demographic that will seek out more and more information outside of any bubble they may be in.
It's one thing when proponents of $FOO spend time boosting their PoV/wishes/hopes on a forum. It's quite another when they have to put their money where their mouth is: then they are open to new information!
if you can identify where and how prediction markets are wrong, why aren't you applying that and making millions?
> - Prediction markets generally become more accurate as the diversity of the bettor pool grows. The users of polymarket and Kalshi heavily skew towards young men from certain socioeconomic groups, who may be biased towards one or the other outcome.
Citation? If your small population is high IQ, accurate predictors and you diversify to average IQ population, won't the accuracy go down not up?
The question isn't "will they IPO" the question is "when will they IPO" which is not a binary question. The rest of your point about Polymarket users now being mostly degenerate gamblers is true though.