Prediction Markets for Science: What Problem Do They Solve?

Roger Peng

I’ve recently seen a bunch of press on this paper, which describes an experiment with developing a prediction market for scientific results. From FiveThirtyEight:

Although replication is essential for verifying results, the current scientific culture does little to encourage it in most fields. That’s a problem because it means that misleading scientific results, like those from the “shades of gray” study, could be common in the scientific literature. Indeed, a 2005 study claimed that most published research findings are false.


The researchers began by selecting some studies slated for replication in the Reproducibility Project: Psychology — a project that aimed to reproduce 100 studies published in three high-profile psychology journals in 2008. They then recruited psychology researchers to take part in two prediction markets. These are the same types of markets that people use to bet on who’s going to be president. In this case, though, researchers were betting on whether a study would replicate or not.

There are all kinds of prediction markets these days–for politics, general ideas–so having one for scientific ideas is not too controversial. But I’m not sure I see exactly what problem is solved by having a prediction market for science. In the paper, they claim that the market-based bets were better predictors of the general survey that was administrated to the scientists. I’ll admit that’s an interesting result, but I’m not yet convinced.

First off, it’s worth noting that this work comes out of the massive replication project conducted by the Center for Open Science, where I believe they have a fundamentally flawed definition of replication. So I’m not sure I can really agree with the idea of basing a prediction market on such a definition, but I’ll let that go for now.

The purpose of most markets is some general notion of “price discovery”. One popular market is the stock market and I think it’s instructive to see how that works. Basically, people continuously bid on the shares of certain companies and markets keep track of all the bids/offers and the completed transactions. If you are interested in finding out what people are willing to pay for a share of Apple, Inc., then it’s probably best to look at…what people are willing to pay. That’s exactly what the stock market gives you. You only run into trouble when there’s no liquidity, so no one shows up to bid/offer, but that would be a problem for any market.

Now, suppose you’re interested in finding out what the “true fundamental value” of Apple, Inc. Some people think the stock market gives you that at every instance, while others think that the stock market can behave irrationally for long periods of time. Perhaps in the very long run, you get a sense of the fundamental value of a company, but that may not be useful information at that point.

What does the market for scientific hypotheses give you? Well, it would be one thing if granting agencies participated in the market. Then, we would never have to write grant applications. The granting agencies could then signal what they’d be willing to pay for different ideas. But that’s not what we’re talking about.

Here, we’re trying to get at whether a given hypothesis is true or not. The only real way to get information about that is to conduct an experiment. How many people betting in the markets will have conducted an experiment? Likely the minority, given that the whole point is to save money by not having people conduct experiments investigating hypotheses that are likely false.

But if market participants aren’t contributing real information about an hypothesis, what are they contributing? Well, they’re contributing their opinion about an hypothesis. How is that related to science? I’m not sure. Of course, participants could be experts in the field (although not necessarily) and so their opinions will be informed by past results. And ultimately, it’s consensus amongst scientists that determines, after repeated experiments, whether an hypothesis is true or not. But at the early stages of investigation, it’s not clear how valuable people’s opinions are.

In a way, this reminds me of a time a while back when the EPA was soliciting “expert opinion” about the health effects of outdoor air pollution, as if that were a reasonable substitute for collecting actual data on the topic. At least it cost less money–just the price of a conference call.

There’s a version of this playing out in the health tech market right now. Companies like Theranos and 23andMe are selling health products that they claim are better than some current benchmark. In particular, Theranos claims its blood tests are accurate when only using a tiny sample of blood. Is this claim true or not? No one outside Theranos knows for sure, but we can look to the financial markets.

Theranos can point to the marketplace and show that people are willing to pay for its products. Indeed, the $9 billion valuation of the private company is another indicator that people…highly value the company. But ultimately, we still don’t know if their blood tests are accurate because we don’t have any data. If we were to go by the financial markets alone, we would necessarily conclude that their tests are good, because why else would anyone invest so much money in the company?

I think there may be a role to play for prediction markets in science, but I’m not sure discovering the truth about nature is one of them.