Kennii

Rugging Reality & A Potential Solution a very long post by a very annoyed idiot. For reasons that defy explanation, the latest trend in prediction markets is to have your markets expire to total lies & nonsense. Indeed, the hottest thing in the space is rugging your users who correctly predict the world around them. Everybody's doing it, man. The downside of this is obvious: people view prediction markets as unreliable, pointless, a rigged game, and dumb gambling. But the UPSIDE is you can get volume spikes as new users are tricked into betting on what is actually happening (only to learn later that its a cruel joke because of some meaningless clause in the rules). So, you know, there are trade-offs I guess! Just a few days ago, we talked about Planet Kalshi. Kalshi users who correctly predicted that Anthropic would advertise in the Super Bowl collectively lost around $2 million to a bizarre fine print interpertation of what constitutes a Super Bowl ad -- Kalshi excluded Anthropic's ad from counting ONLY because Anthropic didn't insert their logo into the ad; it was a bad-faith interpretation of a tiny rule that was buried hundreds of words into a dense PDF. This purposeful overturning of reality was a boon to Kalshi. They kept the market up during the game, new users kept betting on an Anthropic ad, the contract had tens of millions in volume, and Kalshi pocketed around $1.2 million in trading fees. Polymarket, apparently jealous of how much volume Kalshi was able to generate from unsophisticated users by endorsing total nonsense, and not wanting to fall behind in that category, has today decided to emulate their competitor with the shutdown markets. The headline market is here: The US government will enter a partial shutdown in around 8 hours or so. That's reality, and extremely well covered in the news media. For perspective, the Kalshi market is trading at nearly 100% (95% at this exact minute, because of fine print risk). And tonight's shutdown (because of disagreements over ICE funding) is not really some fake shutdown either: 300,000 federal employees (or around 13% of all Federal workers) will be impacted by it. Some will be furloughed, most will work without pay for the foreseeable future. And it's not only federal employees: travelers will be heavily impacted (TSA), including potential flight cancellations starting shortly. Those in disaster areas may be unable to receive assistance (FEMA). Congress has left town, and the shutdown is a foregone conclusion. Yesterday, on Polymarket, the price was trading around 98%. Today, it's crashed to 14% after the head of OPM indicated he wouldn't update OPM's website for nonsensical reasons: Polymarket's rules (look at the last line, it's the operative one) require that Kupor's specific website be updated: Scott Kupor has indicated the website will not update, and the shutdown Yes bet has gone from "free money" to "...and it's gone!" Now, one can quibble about the fine print and all of that. It may be "fair" to have this market expire to No, even if it's not the truth because the rules are quite clear! And maybe you fix it next time. That's a debate to be had (if you can't already tell, I am firmly in the "expire market to reality, no matter what" camp). But we can't have that debate before we figure out what the hell happened next. Because Polymarket diabolically took it one step further. They had a SECOND shutdown market for how long the shutdown will last where the criteria was looser, and more able to reflect reality. The sources were not just this single website, it was also OPM in general, government sources in general, and a consensus of reporting. This market was considered the 'safe' one to bet on, because of the more equitable rules. But Polymarket, for reasons that are unexplained and probably unexplainable, decided that if the first market is a lie, the second market also needs to match the lie. And they changed the rules hours before the shutdown was set to begin. It would now ignore any OPM guidance not on that specific URL, ignore other government websites, and ignore the news media. (Minutes before this clarification hit, a series of trades seemed to know that it was coming, which is concerning) Users streamed into the discord saying that you can't change the contract like that. That this is a scam. That this isn't right. Total crickets from Polymarket's team. So, it appears, unless Scott Kupor changes course and aligns OPM with reality in the next 8 hours, that everyone who correctly predicted a partial shutdown tonight on Polymarket will lose all of their money for bad reasons. In the meantime, the volume has really exploded! So I guess that's the silver lining lol. START OF A SOLUTION? Prediction markets are created by writing rules in the hopes of anticipating what could possibly happen, and making sure your rules account for all the outcomes you can think of. People think this is easy, and there are a lot of armchair noobs to prediction markets who are like "you are terrible at writing rules!" In the defense of people tasked to do this, it's really hard!!! Because unforeseen things happen all the time that the rules have trouble navigating. A recent rules fight happened over a "Who will perform at the Super Bowl?" contract on both sites when Cardi B was pictured dancing on stage, for a couple of seconds, with Bad Bunny. The rules didn't anticipate that! Is that a performance or not a performance? Both sites had to navigate that on the fly as biased users argued their side. The issue is this: when unforeseen things happen, you start with the "bad"/"unexpected" answer and then try to work backwards to what the well-intentioned rules meant. How do you fit these two things together? It's like you get to the end of a jigsaw puzzle, and the last piece doesn't fit into the only spot left. Do you force it in and be done with or declare the puzzle worthless and throw the whole thing out? As anyone who knows a lawyer can tell you, often times you can argue in either direction. Credibly! You could make a case that Cardi B performed. You could make a case that she didn't. And then rule fights sometimes become bogged down in minutiae and meaningless distinctions of unimportant aspects of the event. To use our shutdown example, whether OPM updates is a (relatively) unimportant aspect of the event. It's used because it is nearly always reliable, and because it is widely referenced by the people impacted: Federal employees. But it has idiosyncracies, as every Polymarket user just learned, some the hard way. So my solution, or at least how I think about the solution, is that instead of receiving the broken puzle piece and working BACKWARDS to see how it fits, prediction markets should think about PROACTIVELY creating the answer when they make the market, including why the market exists. Make the puzzle modifiable, if the final piece isn't what you expected. Like so: What: "This is a market designed to determine if any part of the US government has shut down by [date]." Why: "It's important for government employees to anticipate if their employment may be impacted, and important for US citizens who interact with government services to know if there will be significant alterations." Pretty straight forward, I think. And also it's useful and helps to make the case for why you've put this up, what you're trying to determine about the world. And then you add in one rule to every single market: "If unexpected events happen, Polymarket/Kalshi reserves the right to expire the market to align with its original purpose." Basically, you codify into your rules that you won't allow the market to expire to nonsense, no matter what. Now, something like this will not be foolproof. There will still be issues. But it reframes the market. It tells users what they should be looking for. It grounds everything that you're doing in the same basic truth of the situation. And just as importantly: it also severely disincentivizes users from trying to exploit fine print rules (this is extremely, extremely common and very, very toxic). Let's imagine this with our Cardi B market. What: "This is a market designed to determine who will perform during a major musical and entertainment event, the Super Bowl halftime show." Why: "Performing during the halftime show can greatly increase an artist's profile, and the quality of the performers will be key for the network airing the Super Bowl." If you start with the What and the Why that grounds the market, it is then easier to make a determination at the end. If I were running the market with those rules, and those explanations, I can easily reach a decision -- "Cardi B having a dancing cameo for 2 seconds is not at all why we made this market. Her dancing was unimportant, and did very little to raise her profile. It is not what we intended a 'performance' to be." Conversely, you can imagine someone different writing a much more permissible What/Why that is more free spirited, and aligning that 2 seconds of dancing with a Yes expiration. The point is to create an answer AHEAD of time for what you're looking for at the event's conclusion. The reality is that right now, it's all a black box. These "clarifications" alternate between a terse voice of Oz and dizzying word bombs that confuse users even more. Arbitrary decisions that liquidate user's accounts aren't explained. They're scattershot. There's very little continuinity. Rule books that govern rule fights simply don't exist. And now you have large markets about relatively straight forward events that are becoming unmoored from the dock of reality and floating off into the ocean. And you have users drowning en masse. And you have prediction markets facilitating it. A solution has to be found.