Prediction Markets and Beyond

a16z Podcast

a16z

Science, Innovation, Business, Entrepreneurship, Culture, Disruption, Software Eating The World, Technology

4.4 • 1.1K Ratings

🗓️ 2 December 2024

⏱️ 110 minutes

🔗️ Recording | iTunes | RSS

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Summary

This episode was originally published on our sister podcast, web3 with a16z. If you’re excited about the next generation of the internet, check out the show: https://link.chtbl.com/hrr_h-XC We've heard a lot about the premise and the promise of prediction markets for a long time, but they finally hit the main stage with the most recent election. So what worked (and didn't) this time? Are they really better than pollsters, is polling dead? So in this conversation, we tease apart the hype from the reality of prediction markets, from the recent election to market foundations... going more deeply into the how, why, and where these markets work. We also discuss the design challenges and opportunities (including implications for builders throughout). And we also cover other information aggregation mechanisms -- from peer prediction to others -- given that prediction markets are part of a broader category of information-elicitation and information-aggregation mechanisms. Where do domain experts, superforecasters, pollsters, and journalists come in (and out)? Where do (and don't) blockchain and crypto technologies come in -- and what specific features (decentralization, transparency, real-time, open source, etc.) matter most, and in what contexts? Finally, we discuss applications for prediction and decision markets -- things we could do right away to in the near-future to sci-fi -- touching on trends like futarchy, AI entering the market, DeSci, and more. Our special expert guests are Alex Taborrok, professor of economics at George Mason University and Chair in Economics at the Mercatus Center; and Scott Duke Kominers, research partner at a16z crypto, and professor at Harvard Business School -- both in conversation with Sonal Chokshi. As a reminder: None of the following should be taken as business, investment, legal, or tax advice; please see a16z.com/disclosures for more important information.

Transcript

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0:00.0	These markets are actually very good at producing predictions, which tend to be more accurate than polls.
0:08.5	There is a sort of subtle distinction between wisdom of a random crowd and wisdom of an informed crowd.
0:16.0	Instead of having politicians decide what policies to have, politicians and voters would just decide on what our metric for success is going to be.
0:27.6	As you're deciding, like, which thing do we build first or, like, as we're progressively decentralizing, like, what do we prioritize?
0:32.7	You actually have to understand the market context you're working in.
0:36.4	We, as humans humans love making predictions.
0:39.5	And to improve our predictive power, we filled up mechanisms that leverage the wisdom of the masses,
0:45.0	whether it be political polls, financial markets, even Twitter, or X community notes.
0:50.0	One such mechanism that had its moment this year was prediction markets,
0:59.9	with search queries for platforms like Polymarket or Kalshi going hyperbolic ahead of the election.
1:09.4	Now, today's episode is all about prediction markets, including where they're useful and where they're limited, but also how they coexist with other mechanisms like the polls.
1:12.1	So was the attention they received an election year phenomena or a sign for something to come? And what's the difference between gambling
1:17.2	and speculation anyway? And what implications does that question have on their future in the United
1:22.6	States? Given that this episode was originally published on our sister podcast, Web3 with A16Z,
1:28.5	we also explore where Web3 and decentralized networks play a role here.
1:32.7	Finally, if you're excited about the next generation of the internet,
1:35.9	be sure to check out Web3 with A16Z wherever you get your podcasts.
1:40.4	All right, on to the episode.
1:47.3	Welcome to the episode. Welcome to Web 3 with A6 and Z, a show from A6 and Z crypto about building the next generation of the internet.
1:54.3	I'm Sonal Choxi, and today's episode is all about prediction markets and beyond.
1:59.6	Our special guest is Alex Tabarak, professor of economics at
2:03.0	George Mason University and chair and economics at the Mercatus Center and Scott Cominers,
	...

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