01 Apr 2026 Search

Previously: micropayments as a reality check for news sites

Would planning assumptions about the war on Iran have turned out to be so wrong if, say, the US government had gone whole hog for prediction markets instead of LLMs? Well, yes. If there’s enough pressure to get the “right” answer, any system can be leaned on to produce it. If the USA had dug up some old DARPA research on prediction markets and used it for war planning, we’d still be in the same situation, only the news would be about how prediction markets failed, not about how the Pentagon’s LLM frenzy did.

Instead, the big prediction market news is ‘Gamblers on POLYMARKET vowing to kill me if I don’t rewrite Iran missile story’… by Emanuel Fabian at The Times of Israel. Journalists were offered bribes and received threats over changing a news story that was key to resolving a prediction market contract. The big connection between news organizations and prediction markets is not competition, as Prof. Robin Hanson suggests, or a source of one more ticker on a crowded news screen, but dependency. A prediction market needs an outside source of information, or “oracle” to resolve contracts, which for most kinds of world events markets means a news site.

The Times of Israel situation is a much larger scale version of a problem that we ran into with bug futures. The cost of resolving a contract is high relative to the value of the contract. That applies to both really small incentivization market issues (does this patch fix this bug?) and big picture markets. Previous criticism of war markets, such as Gamblers can now bet on the outcome of wars – and that’s a problem, by Karoline Thomsen and Douglas Guilfoyle, focuses on the problems of corrupting decision makers and incentivizing leaks. But insider trading is a feature, not a bug. Prediction markets tend to blend into incentivization markets. Prof. Andrew Gelman writes,

To put it another way, the ideal for a prediction market is for it to have high stakes (so that it’s costly to try to manipulate the price) with bettors being people with no influence on the outcome. But such a market will be a ripe target for people who can influence the outcome and for insider trading.

In general, the possibility of insider trading is a win for prediction markets—and a good argument for why there should be more prediction markets—because the risk of insider trading tends to disincentivize people from forming the kind of organizations (large size, low trust level) whose members are likely to participate in insider trading. But the oracle problem is a lot bigger. The solution we came up with has two parts.

First, pay the oracle, a lot. Reporting from a war zone is obviously costly and risky, but resolving any market is usually going to cost a pretty high fraction of the money at risk. So we imposed high oracle fees, which are paid by the winners and disclosed up front.

Second, make it easy for traders to avoid the oracle fees by getting out of their positions. So you end up with a market that trades in a narrower band of prices (there are no worthless positions. Even a bet on an impossible event is worth about the same as the oracle fee, because the holder of the winning side would rather get their 90% now than hold out for 100% minus a 10% oracle fee at maturity.)

Oracle fees are easy for an internal bug futures market or other internal corporate prediction/incentivization market, but for markets on news events, where the oracle is an outside source, markets need other options.

  • Public sector oracles. Government bodies such as United Kingdom Maritime Trade Operations and the Bureau of Labor Statistics already produce oracle-ready information. And prediction markets provide an anti-corruption and counterintelligence check on those. It’s hard to tell if a government agency has a foreign spy, but an insider trading problem will be more likely to show up in the market numbers. (For example, the current US administration is obviously leaky as shown by prediction market trading patterns, and this evidence of leakage helps people decide whether to share information with it.) So there is a good case for the public sector to provide oracle-friendly statistics and event reports.

  • A copyright-like oracle right for news organizations. Article One, Section 8 of the United States Constitution just says securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries, so an oracle right would probably work here. Partnerships between news companies and prediction markets are a thing, but there’s still a free riding problem that an oracle right would help address. If a news site is not opposed to prediction markets on principle, it has lots of incentives to seek oracle deals, including because of the money talks bullshit walks effect. Total money at stake in contracts for which this site is an oracle could be a useful qualitative news metric, and a news site that can’t be a reliable oracle is probably unreliable in other ways too.

News site revenue is a hard problem, and diversifying revenue is a big deal. Although a lot of people like micropayments, and the ability of a site to get micropayments is a useful crowdfunded quality check, micropayments have a fundamental problem. Much of the value provided by a news site is the stories that didn’t happen. Nobody would pay to read “City Council Didn’t Steal Everything In Town Because a Reporter Was At The Meetings” but that (unwritten) story is worth more to the town than the alternative.

It seems like the viable options are either an actively enforced ban on prediction markets, which would limit the number of people with the resources and incentives to bribe or threaten reporters, or an enforceable oracle right, which would give the news organization additional money to keep reporters safe and honest, and an incentive to stay accurate and useful as an oracle in order to keep oracle deals. Otherwise, traders on free-riding prediction markets, whether legal or illegal and tolerated, have the ability to subvert the news sites they use, but the news sites have no funding for their defense. More: How Meta will fail at prediction markets