2 minutes
Aligning market depth with actionability
The market for GOOG is one of the deepest and most liquid in the world. We have a better estimate of expected discounted profits of Google than we do of almost any other quantity of similar complexity. But it seems from a social point of view that this information is almost completely useless - Google is not about to raise new capital, nobody is going to acquire it, etc. Perhaps it provides some signal to the CEO or the board that helps them make decisions, but they have so much more data to go off of. The argument holds even more so for prices of e.g. SPY puts.
In contrast, if I want to know the estimated IFR of covid I have to go off of a couple of grant-funded academic studies interpreted by bloggers. The IFR is so much more actionable but receives almost no attention, even if there is a prediction market or two about it.
It seems like there are huge gains from encouraging deeper markets in assets whose prices contain more actionable information - including equities around the time of new stock issuances or mergers, but especially critical scientific and political variables. How can this be done?
There’s pobably some connection with Robin Hanson’s proposals for idea futures and their funding. Prices are fundamentally a public good, hence undersupplied.
2021-08-31 01:44