Predictive tool Augur demonstrates the sometimes nonexistent wisdom of crowds

Bitcoin and the blockchain came out of a libertarian resurgence response to the 2008 housing crisis. Governments could not be trusted to not inflate their currencies, and let the markets decide for themselves the best course of action, and therefore, governments had to be eliminated from the equation.

When Satoshi Nakamoto concocted the idea for the blockchain, he imagined a completely decentralized wealth-storage device that would maximize democratic participation while minimizing the influence of overbearing and often incompetent government bodies.

But even we have to wonder what he would have thought if had seen Augur coming.

What is Augur?

Augur is a decentralized prediction market platform built on the Ethereum blockchain. The protocol allows anyone to create, manage and trade across prediction markets. These markets allow speculators to effectively bet on the likelihood of future events. It seeks to harness the ‘wisdom of the crowd’ to function as a tool to gather as much information about the probability of an event to determine its likelihood. The protocol behind the blockchain was created by the Forecast Foundation, which created and supports the protocol, but doesn’t manage its markets, hold funds or trade on the network.

Prediction markets provide incentives to participants that contribute their knowledge to the collective wisdom pool by rewarding correct predictions. Obviously, most predictions come as closed-ended binary yes or no questions like, ‘Will the Toronto Maple Leafs win the Stanley Cup?’ and people gather appropriate information, come up with a reasoned answer and vote accordingly. Those with the correct vote win.

These prediction pools are scattered across both the visible internet and the dark web, and naturally, the deeper you go, the darker the prediction pages get.

The wisdom of crowds

The notion of the wisdom of the crowd is the idea that large groups of people are collectively smarter than individual experts when it comes to problem-solving, decision making, innovation and prediction. It runs directly contrary to the notion that crowds of people are more likely to engage in tribal behaviour, group dynamics, and generally be as savage and base and dumb as the person with the most charisma.

There’s more than enough examples of this kind of intellectual sterility to go around. Take, for instance, frenzied investors who jump on and off stock market bubble bandwagons like the one that happened in the 1990’s with dotcom companies. Or if you prefer a little tongue and cheek, the cryptocurrency craze of 2017, which is now widely considered to be a bubble. If you prefer something more recent, we could bring up the post-legalization year one cannabis bubble in the Canadian cannabis space as a bubble that’s still showering companies with economic fallout after a disastrous summer.

The crowd involved in these bubbles invest basically on speculation that said companies (or commodities) would be profitable at some time in the future with little or no evidence to support the claim. Many of these companies prices soar (see Canopy Growth for details) despite the fact that many haven’t even generated revenue.

Eventually, reality catches up, and suddenly the crowd’s collective wisdom is in question.

There’s also a dark side to the wisdom of crowds, and that’s a little something called diffusion of responsibility, by which members of a crowd when they view some heinous activity will collectively shrug their shoulders and assume that someone else will take care of it.

On the surface, Augur’s prediction’s pools are full of innocuous bets involving items like cryptocurrency pricing predictions, sports outcomes and political events like Donald Trump’s impeachment. No worries about diffusion of responsibility there. But once you get beyond the surface, and no, we won’t be linking to any of those sites, we get into the darker and more murky moral areas.

And that’s where we catch a glimpse of what this technology is capable.

Assassination markets

An assassination market is a prediction market where any party can bet on the date of death of given individual, and collect a payoff by way of Augur’s consensus mechanism for block-closing, if they’re correct. It sounds almost like the plot of a half-baked science fiction thriller, but this kind of behaviour could theoretically incentivize assassinations, because the assassin, knowing when the action would take place, could stand to actually profit from making an accurate bet about the subject’s death.

This is the world we live in.

At least the Augur community on Reddit thinks that incentivizing murder is 100% immoral.

That looks like a positive display of the wisdom of crowds.

That’s a plus, we guess.

—Joseph Morton

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