Buterin asks whether crypto prediction markets reflect the wisdom of the crowd or are skewed by illiquidity and the political bias of their social base.
On the eve of the United States presidential election, most mainstream polls are pointing to a highly likely Joe Biden victory, though this isn’t reflected in crypto prediction markets.
For Ethereum co-founder Vitalik Buterin, the “big difference” between them presents something of a puzzle, and he’s offered three guesses as to why such a disparity has emerged.
In what he posed as a pro-prediction market or favorable view, Buterin suggested that these markets “correctly incorporate the possibility of heightened election meddling, voter suppression, etc. affecting the outcome.” In contrast, statistical models perhaps “just assume the voting process is fair.”
To check this, Buterin appealed to Nate Silver in a bid to understand how statistical models account for the impact of both “regular” electoral irregularities such as voter suppression and lawfare, and the “irregular” irregularities that some have been extrapolating from Trump’s 2020 campaign rhetoric.
Silver is a statistician as well as the founder and editor in chief of the statistics-driven political news site FiveThirtyEight. In 2016, FiveThirtyEight gave Trump significantly higher odds of winning the election than the majority of pollsters and pundits, as well as traditional betting markets. As of press time, Silver has not responded to Buterin’s query.
Buterin’s second guess was that prediction markets are still too illiquid to be truly accurate. Buterin also noted the presumed political allegiances of prediction market participants:
2. Prediction markets are difficult to access for statistical/politics experts, they're too small for hedge funds to hire those experts, and the people (esp wealthy people) with the most access to PMs are more optimistic about Trump
(This is the pro-stats-model explanation)
— vitalik.eth (@VitalikButerin) November 3, 2020
Buterin’s third hypothesis, which he dismissed, was that pollsters and other technocrats and analysts are “incorrigibly dumb and just haven’t learned their lessons around detecting surprise pro-Trump voters as happened in 2016.” This, Buterin wrote, “intuitively just feels unlikely to me.”
Buterin, notably, has spent significant time developing an alternative, collective decision-making procedure called quadratic voting, together with his collaborator Glen Weyl, which they claim would be more equitable than existing systems.
On the eve of the election, FiveThirtyEight is forecasting a 10% chance of a Trump win. Their list of “weird and not-so-weird possibilities” largely accounts for the vagaries of the U.S. electoral college system, and the various ways in which it skews the weight of the popular vote.