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The Pressing Need for Augur

by Peronet Despeignes

Will Iran test detonate a nuclear bomb within a year or two?
Will Israel attack Iran?

Will inflation in Greece soar above 20%?
Will Greece’s economy shrink by more than a third this year?
Will another Western government scalp people’s bank accounts, Cyprus-style?

Will an emergency Article V Constitutional Convention be called by at least three states in the US?

Will the US eventually raid private retirement accounts (IRAs) to cover its own massive debts?

Will ISIS launch a mass attack on a top-40 Western city causing more than 100 casualties by the end of next year?
Will Saudi Arabia’s monarchy be dethroned in a coup d’etat?

Will the Christian population of the Middle East shrink by more than 30% over the next 5 years?

Will the US dollar lose at least 30% of its purchasing power within the next three years?
Will the euro’s purchasing power collapse at least 30% within the next year?

Will Hillary Clinton become US President?
Will Carly Fiorina become US President?
Will Martin O’Malley become US President?
Will Scott Walker become US President?

Will Donald Trump become US President?
Will he eventually run as an independent?
Will someone we haven't even heard of yet become US President?
Will Brazilian president Dilma Rousseff be impeached?

Will there be a shooting incident between China and another Asian country within the next few years?
Will there be a shooting incident between China and the US within the next few years?
Will there be a shooting incident between Russian and NATO air, land or naval forces within the next two years?
Will Putin attack at least one Baltic State within the next year?
Are we stumbling toward World War III?

Will Germany ban the PEDIGA movement?
Will the UK hold a referendum on EU membership?

Will Germany get fed up and abandon the euro?

Will at least two EU countries abandon the EU's internal "open borders" policy?

Will manufacturing jobs in the US increase by 10%?
Will the US unemployment rate drift lower this year?

Will Coinbase experience a massive security breach resulting in the loss of at least one million dollars' worth of BTC?

Will the core bitcoin protocol suffer a major crypto security breach?
Will Ethereum launch and be used by at least 1 million mainstream users within 3 years?
Will Bitcoin crash below $100?
Will it soar above $500?
Will it do both?

Will the Pentagon suffer a massive China/internet-related security breach?
Will another major Hollywood studio experience a major internet-related security breach?
…Will it be Marvel / Disney?

...Will it be Warner Brothers?

Will Chile get hit by a mega earthquake resulting in at least $1 billion in property damage and the loss of 100,000 Chilean lives?

Will the entire Pacific Northwest face a tectonic catastrophe that dwarfs it?

Will a miracle cure for diabetes be discovered?
Will a new global epidemic claim the lives of at least 1,000 on U.S. soil within the next two years?
Will scientists report the first successful implantation of a memory into a primate via optogenetics within the next year?
Will mind controlled cybernetic exoskeletons for the handicapped be available to a mass audience in two years?
Will a real blizzard lead to power cuts for more than 10 million Americans next year?
Will the Mars Curiosity Rover discover organic matter on Mars?
When will the first car equipped with vehicle-to-vehicle (V2V) safety technology be offered for sale to the general public in the US?
Will a NASA-funded ‘space taxi’ transport astronauts to the International Space Station before 2018?

Will Sears declare bankruptcy?
Will Foxconn lay off more than 25% of its workforce by January 1, 2017?

Will the price of oil drop to $20 a gallon?
Will it soar above $80?
Will Star Wars: The Force Awakens gross more than $2 billion worldwide?
Is Game of Thrones novelist George R. R. Martin in good health – will he suffer a heart attack before finishing the next novel in the series or before the start of the next TV season?

Will William and Kate, the Duke and Duchess of Cambridge, have a third baby within a year?

Will George and Amal Clooney divorce?
Will such-and-such in Hollywood and such-and-such in Hollywood divorce?
Will such-and-such in Hollywood and such-and-such in Hollywood marry?
Will such-and-such in Hollywood and such-and-such in Hollywood remarry?
Will Ben Affleck and Jennifer Garner remarry?

There’s a lot of uncertainty facing all of us — some of it not-so-serious, some of it quite serious. Much of it is a matter of prosperity and poverty, life and death.

This is a dynamic world filled with risk and opportunity. It’s becoming more fast paced and less predictable – more exciting and more dangerous. Our security, success and well-being and our ability to effectively respond increasingly depend on a clear and quick understanding of where things stand and where they're headed in politics, finance, economics, international affairs, science, technology and on other fronts.

But too many of the surveys, polls, experts and other mass media we count on to get a sense of where things are going and to make good judgements about the right course of action are contaminated by “noise” — by bias, ego, error, flawed methods, ideology, groupthink, habit, inertia, political correctness, taboo, vested interests, ulterior motives, fragmentation, deception, intimidation, cults of celebrity, cliques of punditry, flat-out ignorance, inaccuracy and random fluff.

For starters.

Pundits are often wrong – sometimes catastrophically so

In just the past seven months, we’ve been beset with big surprises and even bigger questions about the future direction of the "United" States, the "United" Kingdom, the European "Union", Russia, China, Japan, South Africa, Cuba, Venezuela, Egypt, Iran, Israel and the rest of the Middle East, about the future role (if any) of human beings in their own economy, about how far (how soon) humanity intends to go in playing G-d... and about what the consequences of all of this will be.

We could all use a bit more clarity about the future.

What if we could tap into the “Wisdom of the Crowd” on demand and pool the vast reservoirs of knowledge, insight and awareness that rest in the minds of every one of us – of people across the world from various places with various perspectives and different levels of access to different sources of information – to get a more honest, better informed and instant read on the present and head start on the future? In real time? 24/7/365?

Two minds are better than one, right? Well, what about a thousand? How about a million? A billion….?

An Early Warning System… for Everything

Imagine a better Early Warning System – for Everything – that tapped into the collective intelligence and awareness of Humanity.

Imagine a virtual Crystal Ball that pooled our collective knowledge and even pooled our biases so that most of those biases canceled each other out. This world is drowning in noise. Imagine a tool that could help filter clear signals from the noise.

That’s what prediction markets do, that's what prediction markets are, and that’s what Augur will be: some much needed relief from This Age of Rampant Distraction, Confusion, Disinformation and Noise.

It will be an open platform where people can speculate on predictions about anything and where the rest of us can easily monitor that speculation to get a sense of where things are headed -- which big events of interest, that matter most to us, are likely or unlikely to happen.

We are ironing out the bugs and adding new features (please excuse Scott's Halloween costume). The open-source codebase can be found on our GitHub here.

Prediction markets are windows into the future in which people “say” what they think will happen by “putting their money where their mouths are" and therefore have a financial and reputational incentive to get it right. People talk, but money talks more clearly and reveals more.

In some sense, prediction markets are nothing new, because all markets are specific forms of prediction markets — prices in markets for all goods, all services (including all labor) and all assets are driven by expectations about the future.

For instance:

• investors in equity markets buy and sell stock in companies - driving share prices up or down - based on whether any particular expected event (CEO departure, new product launch, buyout/merger, etc.) will drive any given company's sales, profits and general value up or down

• speculators in the trading of coffee, oranges, pork bellies and other yummy futures buy and sell these commodities based on whether government policy, weather or any other expected development will lead supply to outpace or further outpace demand or vice versa. The same goes for resources like copper and natural gas. Just the hint of the risk of a possible war (rather than the actual reality of one) can buffet the price of a commodity (like oil) whose availability is seen as vulnerable to the risk of disruption.

• land prices typically soar on expectations new highways, commercial centers, new infrastructure or other big investments will be built nearby

• salaries (which are basically “prices” for labor) are based on the value added employers expect workers to bring in over the coming year.

However, a big challenge in analyzing these markets is that it can be hard and time consuming to figure out what specific issue, event or prediction is driving a price up or down at any given time - especially if you're not "in the know" and just an outsider, "on the outside looking in."

Pure prediction markets isolate and filter speculation to speculation about specific events. By making a share in a prediction worth 1 unit of cryptocurrency if it happens and zero if it doesn’t, the price of the prediction at any time becomes a rough measure of what "The Crowd” thinks of the odds of that specific event.

This makes it possible for the general public to get simple, crystal clear signals on what “The Crowd” really thinks is likely or unlikely to happen. Instead of wondering what’s driving the price of coffee up or down today, or what’s driving Apple’s stock price up and down at any given time, you can learn what specific event people in the know are anticipating.

That’s why the biggest beneficiaries of prediction markets might not be the people who trade in them, but the rest of us who can use them as a kind of easy weather report on where things stand and where they’re headed on multiple fronts. In this sense, prediction markets can be a democratizing force that distributes access to valuable information more quickly and more widely.

That information tends to be of remarkably high quality. They're not perfect, but it turns out that prediction markets are more accurate on average than the usual surveys, industry forecasts, experts and pundits. That’s clear from a massive and ever-growing library of case studies and academic research.
Google's been using them. We hear a major international lender is looking into them. The American intelligence community just has to have them:
The record of prediction markets is impressive... prediction markets offer a method by which to improve analytical outcomes and to address some of the deficiencies in analytical processes and organization... prediction markets can contribute to more accurate estimates of long-term trends and threats and better cost-benefit assessments of ongoing or proposed policies.
That's a quote from then-CIA analyst Puong Fei Yeh back in 2006 ("Using Prediction Markets to Enhance US Intelligence Capabilities" - great overview, btw, CIA). He called prediction markets a "Standard & Poors 500 Index for Intelligence."

Shouldn't this tool be made available to everyone? Wouldn’t it be useful before going to work in the morning to have a quick heads-up from a “Weather Report” that's about a lot more than just the weather and likely to be a lot more accurate?

Why Prediction Markets Work

As Dr. Émile Servan-Schreiber explains in this excellent series of videos, including Q&A, prediction markets are found to work better than conventional forecasts for at least three important reasons:

• Since good trading performance is rewarded by financial gain and bad trading performance is “punished” by financial losses, prediction markets reward expertise and “punish” the not-so-knowledgeable who answer without having a clue. Over time, knowledgeable people who know earliest gain more of a voice than people who know less or later.

• Prediction markets pool diverse perspectives, so that even as knowledge on the system piles up, many of the biases cancel each other out.

• Their biggest rewards go to whomever gives “signals" earliest that stray furthest from the conventional wisdom. In other words, prediction markets give the biggest rewards to those who dissent the most and the earliest from erroneous groupthink.

For companies, intensifying global competition means that success (or, heck, just stayin' alive) requires tapping into such "out of the box" thinking - as soon as possible, and continuously.

Consulting group McKinsey & Co. noted a while back (The social side of strategy, May 2012), that it's now imperative for many businesses to figure out the most effective, efficient and instantaneous ways of "encourag(ing) dissenting voices" that can "immediately alert managers to potential weaknesses."
"Enabling employees to communicate through ambient signals instead of relying on words and elaborated opinions is an effective way to lower the threshold and still catch the prevailing mood," it said. "Familiar examples of ambient dialogue include polls, 'liking,' and voting... (but) more powerful and sophisticated forms of ambient dialogue include prediction markets."

George Mason University’s Robin Hanson, an adviser to Augur, is widely considered the modern inventor of the concept, grounded in part on the writings of Austrian economist Friedrich von Hayek, and says it best, when he describes the value added of prediction markets in the context of academia and pundits:

[We] rely too much on the "expert" advice of a self-interested insider’s club of pundits and big-shot academics... These pundits are rewarded too much for telling good stories, and for supporting each other, rather than for being right.. Let us create betting markets on most controversial questions, and treat the current market odds as our best expert consensus... The real experts (maybe you), would then be rewarded for their contributions, while clueless pundits would learn to stay away.

A central idea behind prediction markets is that large, diverse groups are collectively smarter than we are individually, most of the time. We benefit from pooling our awareness, wisdom and even our biases, because biases brought together tend to cancel each other out. That reduces the “noise,” clears up the “signal” and gets us closer to the truth.

This notion of “collective intelligence” should sound familiar – it’s one of the basic rationales for democracy, jury-based judicial systems and any collaborative group decision-making. The idea is that none of us has a monopoly on the truth about everything, so power, control and decision-making is often best distributed away from a single person or small group (be it a king, dictator, a single judge or select committee) and spread across a much larger, more diverse group of people to reduce exposure to individual character flaws, error,  ignorance and other defects. This tends to improve the average quality of decisions.

Prediction markets take that idea to a whole new level, allowing groups of people - rather than just a single person, pundit or posse - to convey their opinion on whether something is likely to happen… and put their money and reputations where there mouths are.

Augur
That's where Augur steps in and takes things a massive leap further. It will be the first ever, decentralized platform for open, transparent, global, automated, prediction markets that anyone anywhere can create, use and monitor without worrying about middlemen, counterparty risk or
other vulnerabilities. Previous prediction markets failed because of these vulnerabilities.
They were also limited in their potential by the fact that the choice of which predictions to post were left to one individual or one company in charge of the platform rather than to the general public. In other words, until Augur, it has never before been left to the market - to the general public - to decide which prediction markets it was most interested in seeing. We are already seeing evidence through the current demo trials that Augur could evolve from being a prediction market platform into something more - something like a kind of dynamic, uncensored, highly-charged real-time forum (we might have a lot more to say about this in a later blog post).

It will run on a decentralized network called Ethereum that allows for direct peer-to-peer transactions, automated/algorithm-enforced custody of funds and no intermediaries. It would run on code and decentralized consensus. That's a fancy way of saying that, much like bitcoin, BitTorrent and (to some extent) the Internet itself, it would be hard (and very unprofitable) for any one person to take down the network.

Even its referee system – which determines whether events happened or not – is decentralized, making use of the same “Wisdom of the Crowd” approach to crowdsourcing decisions, with the added bonus of special algorithms to keep individual referees accountable. Their voting clout is linked to their historical fidelity to the consensus. That means egregious "liars" and "loafers" who repeatedly stray from the consensus and stick out like sore thumbs in their voting patterns are contained, stripped of their voting clout over time, drop-kicked and effectively booted from the system. Automatically.
(Note that users who want to create markets will also have a role to play in making the referee system effective by submitting predictions-questions that are specific enough to have clear "yes" and "no" answers -- for instance, one of the questions at the top, "Will inflation soar above 20% in Greece this year?" would need to better define the time horizon and the inflation measure to ensure referees can answer "yes" or "no" quickly and decisively).

This could be big. Prediction markets are essentially binary options or idea futures. According to the Bank of International Settlements, the outstanding notional value of all options, futures and other derivatives is about $700 trillion.

If Augur succeeds and gets even 1% of a 1% slice of this total figure, that’s $70 billion. We shy from making projections of the kind of volume a system like this could experience because, frankly, the
possible figures are staggering to the point of being laughable.

I’ve been an economics reporter, and a big part of my job was trying to stay ahead of the pack and add value by trying to figure out what big developments were around the corner before others did. An effective tool like Augur is a dream come true - it could bring about much greater transparency on the big issues that matter most to all of us. The work being done is vital and vast in its potential implications.

It’s more than just the concept – which is a powerful one at that. I have followed Team Augur’s progress over the past year and have worked closely with them. These are fine minds (and they can be hilarious).

If you read their bios on the homepage closely, you might catch a glimpse of one of the things that distinguishes them, even before they came together to form Augur — it's their willingness to pursue truth, veer away from comfort zones, break boundaries and think past outdated silos that have artificially separated various bodies of knowledge for decades.

They also show an admirable maturity, self-control and focus on the long-term goal, as well as a willingness to adapt and course-correct in response to new facts and changing conditions. In less than a year, they have set a new standard in the world of cryptocurrency. It’s a group that commands respect and support by its sheer example.

Get Involved

However, there are serious challenges facing Augur – technical, promotional, logistical and possibly regulatory, among them. This team thinks ahead and seems well equipped to handle these issues, but it could use help. There are potentially many lives and livelihoods riding on Augur’s success.

We all need better insight into the future, including the consequences of our actions today. We all need to support what these people are trying to do at this very unsettling time (on a growing number of multiple fronts) in history - so for those of you who have talked about, written about, analyzed, praised, and bemoaned the lack of, prediction markets, now is the time to stop talking, stop writing, stop praising, stop bemoaning and get involved.

Chris, Jack (twitter), Joey (twitter), and Scott lead Augur’s development efforts – check out the open-source codebase, check out the online demo or download the software. Try it out, kick the tires and share feedback.

Jeremy (twitter) and Tony (twitter) lead Augur’s promotional efforts – if you like what you see, tell them about other people and groups you think should be introduced to the concept. Better yet – if you see room for improvement in when and how the platform is promoted and discussed, please share your thoughts.

Me? I’m in SpecialOps. I could tell you what I’m doing, but I’d have to memory-wipe you -- just kidding. I don’t really know how to do that, and in any case, there will be a lot more about what I’m involved with in the weeks to come, much of which you’ll see right here and in Augur's twitter feed.

The endgame is that there is no end: We intend to relentlessly make prediction markets broadly and widely useful, as vital and as indispensable a tool in people's lives as their smartphones, apps, maps and morning weather reports.

Because life is a winding road, filled with twists and turns. The scenery can be ordinary, wonderful, sometimes not so wonderful, always changing, often surprising. Right now, there’s dense fog up ahead. We all need to see more clearly where the heck we're going so we can try to make better decisions and avert disasters.
I think Augur could help. A lot.
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