Comments on: Don’t event derivative prices represent aggregated expected probabilities, rather? http://www.midasoracle.org/2008/11/02/interpreting-prices-as-probabilities/ Prediction Markets, etc. Thu, 02 Feb 2012 23:13:18 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Medemi http://www.midasoracle.org/2008/11/02/interpreting-prices-as-probabilities/#comment-22457 Medemi Sun, 02 Nov 2008 14:44:21 +0000 http://www.midasoracle.org/?p=11040#comment-22457 I always become a bit wary when people talk about truth and reality. Or facts. :-D What better way to measure reality than what we're doing with prediction markets ?   I could create a market stating "There will be at least 3 chairs standing by tomorrow" Nobody would offer this market, or trade it, because the answer is obvious to us. Nevertheless, the price of 100% would still represent reality, our consensus reality.   Obama to win the election is trading at 85%. Given that there are no price changing events expected, and given the absence of distortional factors, and given the markets are liquid mature and accurate, it could be argued that what that 85% represents is EXACTLY reality, our reality. You may want to chew on this a bit.   http://en.wikipedia.org/wiki/Reality <em>According to the less realist trends in philosophy, such as </em><a href="http://en.wikipedia.org/wiki/Postmodernism" title="Postmodernism" rel="nofollow"><em>postmodernism</em></a><em>/</em><a href="http://en.wikipedia.org/wiki/Post-structuralism" title="Post-structuralism" rel="nofollow"><em>post-structuralism</em></a><em>, truth is subjective. When two or more individuals agree upon the interpretation and experience of a particular event, a consensus about an event and its experience begins to be formed. This being common to a few individuals or a larger group, then becomes the 'truth' as seen and agreed upon by a certain set of people — the </em><a href="http://en.wikipedia.org/wiki/Consensus_reality" title="Consensus reality" rel="nofollow"><em>consensus reality</em></a><em>. Thus one particular </em><a href="http://en.wikipedia.org/wiki/Group_(sociology)" title="Group (sociology)" rel="nofollow"><em>group</em></a><em> may have a certain set of agreed truths, while another group might have a different set of consensual 'truths'. This lets different </em><a href="http://en.wikipedia.org/wiki/Communities" title="Communities" rel="nofollow"><em>communities</em></a><em> and </em><a href="http://en.wikipedia.org/wiki/Societies" title="Societies" rel="nofollow"><em>societies</em></a><em> have varied and extremely different </em><a href="http://en.wikipedia.org/wiki/Notion_(philosophy)" title="Notion (philosophy)" rel="nofollow"><em>notions</em></a><em> of reality and truth of the external world. The </em><a href="http://en.wikipedia.org/wiki/Religion" title="Religion" rel="nofollow"><em>religion</em></a><em> and beliefs of people or communities are a fine example of this level of </em><a href="http://en.wikipedia.org/wiki/Social_construct" title="Social construct" rel="nofollow"><em>socially constructed</em></a><em> 'reality'. Truth cannot simply be considered truth if one speaks and another hears because individual bias and fallibility challenge the idea that certainty or objectivity are easily grasped. <strong>For </strong></em><a href="http://en.wikipedia.org/wiki/Anti-realism" title="Anti-realism" rel="nofollow"><em><strong>Anti-realists</strong></em></a><em><strong>, the inaccessibility of any final, objective truth means that there is no truth beyond the socially-accepted consensus. (Although this means there are truths, not truth).</strong></em> I always become a bit wary when people talk about truth and reality. Or facts. :-D
What better way to measure reality than what we’re doing with prediction markets ?
 
I could create a market stating “There will be at least 3 chairs standing by tomorrow”
Nobody would offer this market, or trade it, because the answer is obvious to us. Nevertheless, the price of 100% would still represent reality, our consensus reality.
 
Obama to win the election is trading at 85%. Given that there are no price changing events expected, and given the absence of distortional factors, and given the markets are liquid mature and accurate, it could be argued that what that 85% represents is EXACTLY reality, our reality.

You may want to chew on this a bit.
 

http://en.wikipedia.org/wiki/Reality
According to the less realist trends in philosophy, such as postmodernism/post-structuralism, truth is subjective. When two or more individuals agree upon the interpretation and experience of a particular event, a consensus about an event and its experience begins to be formed. This being common to a few individuals or a larger group, then becomes the ‘truth’ as seen and agreed upon by a certain set of people — the consensus reality. Thus one particular group may have a certain set of agreed truths, while another group might have a different set of consensual ‘truths’. This lets different communities and societies have varied and extremely different notions of reality and truth of the external world. The religion and beliefs of people or communities are a fine example of this level of socially constructed ‘reality’. Truth cannot simply be considered truth if one speaks and another hears because individual bias and fallibility challenge the idea that certainty or objectivity are easily grasped. For Anti-realists, the inaccessibility of any final, objective truth means that there is no truth beyond the socially-accepted consensus. (Although this means there are truths, not truth).

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