Market Pricing.


I learned today that prices in prediction markets are not the probabilities of events happening, rather they are, under suitable conditions, what society thinks are the probabilities of events happening. The market provides an economic incentive for people to become better predictors of events.

This got me thinking that prices may not reflect the true value of objects, rather they are just what the actors believe the value of objects are. It is competition that provides an economic incentive for people to better value objects. However, in some situations the prices of objects could be very different from their actual value. This is particularly bad for PTC. If a patent holder prices their patent too high (as I believe they are prone to do), then everybody loses, but there is no competition pushing the patent holder to correctly price the patent.

It seems to me that: we use markets to distribute scare resource because they are scare, but markets only operate efficiently if the resource is infinite. In reality this is a sliding scale. One one side are prediction markets, where the resource is infinite—there are an infinite supply of yes/no claim pairs worth $1—and on the other side are PTC where the is a monopoly there is practically no incentive to produce proper prices. In the middle are things like pork bellies which are a scare resource, but probably plentiful enough to produce reasonable prices. In some case land property is probably closer to PTC than to pork bellies.

I’m not an economist, so maybe I don’t know what I’m talking about. I wish I had more economist friends to straighten me out. Maybe oddthink will have some comments.

Please join us in reframing the debate on intellectual property, which isn’t actually property, by using the term Patent, Trademark, Copyright (PTC) instead of IP.



Russell O’Connor: contact me