With the continuous improvement of AI technology, prediction markets, as a tool for measuring public opinion and future events, have been increasingly applied in daily life. But how does AI ensure that predictions are fair and accurate? Let's gradually deconstruct this starting from the development of prediction markets.
How do prediction markets work?
Prediction markets have a relatively long history, evolving from simple betting to today's more complex technological tools. Many prediction markets now rely on a protocol called "Optimistic Oracle" (abbreviated as OO) to process market outcomes, such as the well-known UMA protocol that serves markets like Polymarket. The process is not complicated: once the market is established, the system waits for proposers to submit answers. If no one disputes the answer within 2 hours, it will be confirmed; if there is a dispute, the system will reprocess it, and it may even escalate to a vote by UMA token holders.
In prediction markets, participants make predictions based on their own information and can profit based on the outcomes. Since everyone has different sources of information, this information is continuously integrated and updated in the market. Because participants all want to earn more money, they will bet as much as possible based on the "truth." This mechanism allows the market to continuously present more accurate information.
Advantages of prediction market design
The design of prediction markets makes them more objective than traditional media. Traditional media may be influenced by various positions and biases, but prediction markets incentivize participants to seek the truth through economic rewards, rather than merely expressing opinions.
Challenges of prediction markets
Although prediction markets can theoretically provide results close to the truth, there are still some loopholes in actual operation, especially in settlement.
On one hand, prediction markets are vulnerable to manipulation by large amounts of capital, especially through the purchase of a large number of governance tokens to influence outcomes. For example, the trading volume of the 2024 U.S. presidential election market reached $1.1 billion, while the price of UMA tokens is about $2.76. If one person buys 51% of the governance tokens, they can manipulate the market's settlement outcome with about $170 million, profiting from it. This risk of economic manipulation significantly undermines the fairness of prediction markets.
On the other hand, humans have a herd mentality, which is particularly evident in PoS consensus mechanisms. Participants tend to follow the decisions of the majority rather than making independent judgments, especially when there is significant controversy in the market. This group effect can lead to market settlements deviating from objective facts.
How can AI solve these challenges? — Taking the U.S. presidential election as an example
To address these issues, the AI settlement mechanism is currently one of the most effective solutions. By integrating AI Settlement Oracles into smart contracts, prediction markets can reduce human manipulation and ensure fairer outcomes.
Taking the prediction market for the 2024 U.S. presidential election as an example. With huge trading volumes and numerous participants, such a large-scale market is easily susceptible to manipulation or influenced by group decisions. However, by introducing AI Settlement Oracles, market settlements can become more fair and transparent.
First, AI's automation and intelligent reasoning capabilities can make autonomous decisions based on evidence and data in the market, avoiding human interference. For instance, when election results are disputed, AI can automatically make judgments based on existing evidence without relying on individual token holders' votes. This not only enhances the fairness of the market but also reduces the troubles caused by disputes.
Moreover, AI Settlement Oracles can effectively prevent economic manipulation through decentralized reasoning and decision-making mechanisms. AI will autonomously assess the evidence in the market, ensuring that settlement results are accurate. For significant events like the U.S. presidential election, AI can make more objective inferences based on a large amount of historical data and market information, avoiding large capital controlling market outcomes.
Thirdly, AI's decisions are based on data and evidence rather than human subjective judgment. This avoids biases caused by groupthink. In cases of significant disputes over election results, AI can act as an independent, objective third party, providing more accurate settlement results rather than relying on majority decisions under the PoS mechanism.
How to improve the accuracy of prediction markets?
The introduction of AI Settlement Oracles adds new possibilities for the future of prediction markets. By combining human intelligence, machine intelligence, and incentive-based consensus systems, prediction markets can better reflect the trends of the real world and may even influence real-world decisions, such as overturning election results or serving as legal evidence.
AI Settlement Oracles are not only applicable to significant events like the U.S. presidential election but can also be used in other complex prediction markets, such as economic trends and international situations. As the scale of prediction markets continues to expand, the application of AI will become increasingly indispensable, helping to scale the market while ensuring the accuracy and fairness of settlement results, providing a guarantee for the healthy development of the market.
Conclusion
Through automated intelligent decision-making, AI can effectively prevent economic manipulation and group effects, ensuring that market settlements are closer to the truth. This innovation not only addresses current market issues but also provides infinite possibilities for future expansion and application. So, for this year's U.S. election, have you used AI to predict the results?
References:
https://mirror.xyz/orablog.eth/VlrdcPu7aUJkYUCiiPobUTxPsxoiSqL2dKZMAyHOZYU
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