Author Topic: Getting Paid to Increase Beta  (Read 8832 times)

psztorc

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Getting Paid to Increase Beta
« on: May 30, 2014, 11:17:10 pm »
 I'm just throwing this idea out here. Assuming it even makes sense, it certainly wouldn't be in version 0.1.

The design incorporates Markets that have a 'Beta', which adds liquidity to the Market at some upfront cost.

Its possible that someone (Alice) will see a market, and say "I'm interested in learning about this, I wish that market were more liquid." Currently, Alice can donate $ to the Market to increase its Beta, as easily as making a share purchase.

However, it might be better to reward Alice for doing this (more of "I think that more people would trade if the Beta were just a little higher."). Perhaps she can get a tiny fraction of any future trading volumes, if the original owner agrees? If some other condition is met? Any ideas?
Nullius In Verba

zack

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Re: Getting Paid to Increase Beta
« Reply #1 on: May 31, 2014, 01:59:56 am »
I think that the increase in accuracy of knowledge will be reward in itself more often than not. People dying of cancer REALLY want to be able to increase beta to save their life.

In the implementation I am working on, one of the transactions is called "prediction_market".
If you use a new marketID, then this creates a new market. If you reuse an old marketID, then this increases beta of the existing market.

The prediction_market transaction can have multiple buy_shares transactions within it, allowing the creator of the transaction to move the price simultaneously with increasing beta.

somnicule

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Re: Getting Paid to Increase Beta
« Reply #2 on: June 07, 2014, 04:28:24 am »
The author of a market is partially paid according to the liquidity they provide to the market. Someone increasing Beta should probably be rewarded with trading fees proportional to the amount of liquidity they've provided. So if, say, 25% of trading fees go to the market author, after someone pays to increase Beta they get the amount they paid to increase beta, over the total maximum loss of the market maker.

So let's say the initial author provides 2000 TRU of liquidity to set the initial beta, they get 25% of all trading fees up until the point where someone increases the Beta via another 500 TRU, after which point the author receives 20% of trading fees after that point, and the other liquidity provider gets 5% of trading fees after that point.

Not sure how much sense this makes, I haven't checked out the math yet with regards to how much beta is shifted.

martinBrown

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Re: Getting Paid to Increase Beta
« Reply #3 on: June 16, 2014, 11:34:10 pm »
The abe & sandholm LMSR basically does this. It automatically increases the beta parameter proportional to the cumulative trading volume. The downside to this "liquidity-sensitive" LMSR is that as the beta increases, the market becomes more resistant to price changes, so it won't adapt to "market shocks". See figure 1b in this paper.

psztorc

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Re: Getting Paid to Increase Beta
« Reply #4 on: June 17, 2014, 03:02:38 pm »
Yes, I've considered that paper. I actually already do what they do, and slightly overcharge the Trader to reward the Author (author-entrepreneurship). The Author himself could take this money and Amp Beta.

I guess I no longer think that my OP idea is efficient. Authors can take out loans to Amp Beta, which would be a little more organized, I think.
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darkmatter7

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Re: Getting Paid to Increase Beta
« Reply #5 on: July 30, 2014, 06:32:09 pm »
On a related side note:

Have we discussed
  • "Localized" Markets: This would involve a market with a valid participants rule
  • "Dark" Markets: Some user wants to "buy" the information output of a market while keeping that output secure

(2) Is most relevant here: I have been exploring secure multiparty computation protocols for this purpose and will explain more when I have time.




psztorc

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Re: Getting Paid to Increase Beta
« Reply #6 on: July 30, 2014, 07:02:05 pm »
Anonymity might make (1) incompatible with this project, but I suppose you could give out colored coins (via valid-participants rule) and only allow those to be traded. (Why would you want to exclude anyone, anyway?)

(2) is a little curious. Private firms ( GE, Best Buy, Google) already do this, but I can't see it being easy to 'hide' the market. People need to know what the market is, and what the prices are, in order for the idea to function. Any participant could leak that information.
Nullius In Verba

Troy

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Re: Getting Paid to Increase Beta
« Reply #7 on: October 14, 2014, 10:59:44 pm »
I like this concept.

If some portion of the transaction fees could be allocated to pay dividends at certain intervals to those who hold an open position in the market on either side? This rate could be either fixed globally, or potentially specified by the author when a market is created. Allocation of dividends could be based on each participant's CashCoin cost basis of their open position. This would provide an incentive for individuals to open positions in a market early, and an incentive for market participants to encourage others to participate as well, increasing transaction fees and also the market liquidity. This way when you open a position in a market you also hold an interest in increasing the liquidity of the market itself.

If the rate were variable per market, then market authors might set the rate low for markets where they think they can do a good enough job generating interest in the market themselves (thus increasing their own transaction fee payout); however higher dividend rates are more appealing to potential participants to enter the market in the first place.

This would have to eat into the percentage of transaction fees allocated to other parties, but it might be worth it.
« Last Edit: October 14, 2014, 11:10:25 pm by Troy »

zack

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Re: Getting Paid to Increase Beta
« Reply #8 on: October 15, 2014, 05:20:22 pm »
If I simultaneously buy both share types, isn't that the same as increasing beta?

koeppelmann

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Re: Getting Paid to Increase Beta
« Reply #9 on: October 15, 2014, 06:02:11 pm »
What do you mean by simultaneously? And if you buy 1000 shares of state one and then 1000 shares of state two you do not change the Beta at all.
Try it out: https://cdetrio.github.io/prediction-market-lmsr/index.html

This is by the way the reason why I think this critique here is stall very valid:
http://forum.truthcoin.info/index.php/topic,130.msg510.html#msg510

The critique leads to this need:
"I think it would be necessary to place classical buy/sell orders in the truthcoin blockchain that either get active as soon as the market maker price goes below them or that could be matched by other orders directly."
« Last Edit: October 15, 2014, 06:04:47 pm by koeppelmann »

Troy

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Re: Getting Paid to Increase Beta
« Reply #10 on: October 15, 2014, 10:11:49 pm »
If I simultaneously buy both share types, isn't that the same as increasing beta?

Yes, but if you buy both sides (matching with yourself), you would lose because you would have zero net position, and would only get back a fraction of any spent transaction fees if there are any dividends paid to shareholders

koeppelmann

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Re: Getting Paid to Increase Beta
« Reply #11 on: October 15, 2014, 10:18:43 pm »
If I simultaneously buy both share types, isn't that the same as increasing beta?

Yes, but if you buy both sides (matching with yourself), you would lose because you would have zero net position, and would only get back a fraction of any spent transaction fees if there are any dividends paid to shareholders

No! Really - check it - it will not effect the Beta/ aka. it would not make the market more stable. The same transaction after this buy would move the market the same way as before the buy.

Troy

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Re: Getting Paid to Increase Beta
« Reply #12 on: October 15, 2014, 10:33:41 pm »
If I simultaneously buy both share types, isn't that the same as increasing beta?

Yes, but if you buy both sides (matching with yourself), you would lose because you would have zero net position, and would only get back a fraction of any spent transaction fees if there are any dividends paid to shareholders

No! Really - check it - it will not effect the Beta/ aka. it would not make the market more stable. The same transaction after this buy would move the market the same way as before the buy.

Yes you are right. The only think you would really be influencing is the transaction volume. Although you might be able to get creative and place multiple bids at different prices and only match some of them on the other side. I think that would increase the beta?

zack

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Re: Getting Paid to Increase Beta
« Reply #13 on: October 15, 2014, 11:20:23 pm »
I was wrong.
Buying both types of shares doesn't increase liquidity. The price is just as easy to move as before.

B*ln(e^(q1/B)+e^(q2/B))
I buy X*B of both types of shares.
B*ln(e^(X+q1/B)+e^(X+q2/B)
B*ln(e^X(e^(q1/B)+e^(q2/B))
B*X+B*ln(e^(q1/B)+e^(q2/B))

psztorc

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Re: Getting Paid to Increase Beta
« Reply #14 on: October 16, 2014, 01:49:55 am »
Interesting comments....

Are you all by any chance comparing scenarios where the market prices in the pre-buy-both and post-buy-both are at 50% 50%?  For example, are you using [5, 5] shares first, and buy 45 of each for [50, 50] shares, and looking then at the effect of buying one of the first share [+1, +0] on the market prices?

If you are, I would try it again with starting shares of [4, 6] and increasing to [40, 60].

Buying more shares of all states does have the same practical effect as increasing b, but the market scoring rules (logarithmic, spherical, quadratic) change the expression of that practical effect. The LMSR pumps in some extra 'practical liquidity' by draining liquidity from the center (".5", where it assumes individuals will be eager to trade) and dumping it into the edges.
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