Against Honouring Allied Bomber Crews

I saw a post today commemorating Bomber Command. British aircrews who flew raids primarily over German cities during the second world war. I don’t think they should be commemorated. Most flew missions attacking civilian targets. I expect that many new or suspected this was the case. That’s prima facia evil and wrong.

There are arguments on the other side. Maybe Social cohesion in war is important and honoring those who fight and follow orders improves cohesion. Maybe bombing civilians is fine if the alternative is a fascist takeover of your country. I don’t find either of those arguments very convincing. Social cohesion matters, but so does not committing atrocities or fighting wars of aggression. Honoring those who commit atrocities, assuming it is effective, also boosts the chance of soldiers agreeing to commit war crimes of of people being willing to fight in/support/see as glorious immoral wars. This is bad. How bad depends on the quantity of moral immoral wars and the difference in effect size honoring war criminals has on each kind of war. As for the second argument, I think doing a thing which has good consequences is only good insofar as your intentions are in line with the effects. I doubt many of the soldiers asked to bomb German cities thought through whether killing civilians was justifiable. I think they mostly just followed orders. More dammingly, I suspect that the vast majority would have done the same had their government been fascist and had they been attacking a democratic country in a war of aggression.

Thoughts on the 80k podcast with Mushtaq Khan

I recently listened to a podcast with Mushtaq Khan. He’s a development economics expert. He argued that productivity is primarily a result of knowing how to build good institutions (in the broad sense, this means businesses just as much as it means state institutions). He also argued that the traditional views of, and attempts to combat, corruption were hopelessly wrong.

His argument for institutions as being central to productivity is simple. Hospitals in developing nations are drastically less efficient not because the doctors are worse, most procedures are not hard and those same doctors perform fine when they go to the west, or due to equipment but due to bad organization. A particularly compelling part of the podcast was where he talked about wage differences and why they’re ultimately irrelevant. The productivity gap between a developing and developed nation can be 20 or 30x. Even for labor intensive goods, labor is only a minority of cost. Hence given the productivity differential no amount of wage lowering will make a 3rd world nation competitive. The real reason bangladesh won in textiles was not low wages, which every 3rd world country has but

  • A new protectionist agreement from the US excluding turkey/korea etc… from US markets but allowing LEDC’s like bangladesh
  • A korean firm essentially training a few hundred Bangladeshi’s and then those going off to build hundreds of businesses in Bangladesh.

When he talks about corruption he says things that resonate quite strongly with me, much more so than traditional narratives I see in NGO’s or university courses. Corruption is not the work of a small elite, It’s everywhere, everyone benefits and it’s essentially an equilibrium. Transparency doesn’t work. Everyone already knows who;s corrupt. Law enforcement and anti-corruption commissions don’t work. They become corrupted and worse are used to attack the enemies of the state. (Remember, everyone is corrupt. You have to be if you want a job. Hence anti-corruption drives and laws are just used to attack people who get on the wrong side of those with power or, ironically, who rock the boat and threaten to expose corruption).

What’s the solution to corruption? He’s less persuasive here and to be fair that’s expected. All states are different and changing the equilibrium from "everyone is corrupt and you must be too if you want to do business/not be killed" to "corruption is abnormal" is hard. His argument is that it happens when rules and law enforcement becomes in the interest of large organizations and when orgs can check each other. Being judged by your peers in a common law system. Korean firms requiring more reliable courts and legal systems as they grew and needed to be able to reliably make and enforce contracts with thousands or tens of thousand of suppliers. An argument he makes is that Korea’s success was not due to industrial policy, everyone did industrial policy and it didn’t work in most places, but due to Japanese colonialism wiping away patronage networks meaning the dictator was free to give out subsidies and then also to remove them, something that was not possible in other nations where firms had a great deal of political influence and would receive subsidies based on that influence, subsidies which could not be removed by leaders without risking backlash from the firms political network.

I’m a lot less convinced by his solutions than I am by his analysis of the problem. And I’m skeptical of problem analysis too. Broadly, I think there are a few problems I have with his views

  1. A persuasive sounding story != a true or complete story
  2. Incentives aren’t everything. Capacity also matters.
  3. There are many other factors.

First let’s talk one meta-level up. I’ve read mean books on development. More than a few of them focus on Asia and SK in particular but a few went further back and looked at the industrial revolution and European/American development. One thing is consistent among the good ones. They all tell stories that sound plausible but are absolutely incompatible.

  • Bad Samaritans attributes S Korea’s success to industrial policy
  • How Asia Works attributes success to industrial policy + agricultural reform + export discipline
  • Other articles attribute success to genetics, specifically IQ
  • Lack of state dominance, e.g the democratic liberalism of the UK and US
  • geography & geopolitics
  • waterways and natural cost of transportation
  • climate
  • religion
  • culture Reading them in isolation, most of these theories can sound plausible but they can’t all be true. I’m very skeptical of my ability to tell which development theory is true based on how persuasive a specific author/thinker makes it sound.

Second, incentives. His whole shtick is giving the various actors in society the right incentives. The problem here is that incentives aren’t all that matter. Put an ardent communist in power and give them the right incentives to make the state effective, they’ll just try different variants of communism. Running a country means choosing from a near infinite variety of options. You’ll only consider a limited subset based on what is normal and what you think is likely to work. This is largely based on your ideology. Giving leaders good incentives is all fine but it’s not enough. There has to be an ideology of economics/politics which is decent enough to give them good options to choose form. This bleeds over into point 3, other factors.

The most damming criticism for me is the lack of steel-manning of opposing views. He talks a lot about institutions and incentive equlibriums. I think these things are important. I think other things are also important. Do you have hostile neighbors. Is the state strong enough to control it’s territory. Is there a common national identity or is your state just some lines on a map? Is the ruling elite educated or not? What’s the dominant ideology? What is the culture like? (Is China’s 1000+ years of Confucian bureaucracy really unrelated to their country running well despite having a billion+ people?).

All in all interesting to listen to but not enough to overcome my high meta-skepticism of anything I read/see/hear on development economics.

Also, I think it’s good to write things like this. The perfect is the enemy of the good. My main aim should be to write a lot because my main problem is not writing enough. Also, writing is a skill and a habit. The more I write, the more I develop both. (Also, no one actually reads my writing so there’s no risk of me misleading people by writing things that are wrong)

Startup Idea: Children as a Service

We generally hold that people have the right to have children and that neither the state nor society can stop people from having children. We tend to believe this even in cases where people are obviously parasites on society and will be unable to take care of their children. e.g: Drug addicts, habitual criminals, repeatedly abusive/neglectful parents. Why is this?

Two theories? For most people reproductive rights are sared or close to it and cannot be infringed on or traded away. For me it’s just a useful social norm. Even if I would be fine with an isolated case of stopping a unsuitable person from having children, I worry about the erosion of "The government/majority isn’t allowed to dictate who can have children" norm.

To the extent we believe that reproductive autonomy is valuable, I think we should probably believe it’s also valuable as a positive right, not purely a negative one. I care a lot about people not being sterilized or forced to have abortions but I also car about people not being infertile due to other, non-human causes. If having children is very important to many people, then it’s bad when certain people are unable to do it.

Why can’t people have children? One reason is infertility. Another, far more common reason is not finding a partner. I think this reason is under-appreciated by society.

In an ideal society, everyone would be able to have children much the same way everyone can order a $5 jar of peanut butter from Amazon. How can I move society towards this?

Advocacy for research into exo-wombs etc… is one avenue but not one I think is tractable.

Another idea is to create a business offering children as a service. The firm would maintain

  • a high genetic fitness sperm bank
  • a high genetic fitness egg bank
  • a bank of well-paid, healthy surrogates

Prospective parents with lots of money could essentially get a child as a service with no more effort than getting a house or car. They could either go with a fully outsourced package (sperm + egg + surrogate) or bring some parts in house as they wished, using their own sperm, egg or womb.

Key Value Proposition: Make getting a child as easy as buying a house

What about safeguards for the children? A few thoughts

  • Non identity arguments apple. Any existence is better than no existence.
  • If we’re overwhelmed by demand, we should priorities the best parents.
  • If we have more supply, we should offer our service to every parent who will create a net positive life for the child.
  • There are also positive externalities from this project, both in terms of eugenic effects and in terms of creating likely highly successful members of society

Inefficient writing systems

A phonemic language is one where how you write is very similar to how things sound. Essentially, if you know how to say something and you know the alphabet, then you can write/read the same thing. Serbian is an example of a phonemic language. A non-phonemic language is one where words are not written how they sound. English is a non-phonemic language. Non phonemic languages are harder to acquire literacy in. Children learning to read and write in the UK have to learn a host of complex rules, exceptions and individual word spellings. Finally a logogramatic language is one where the alphabet doesn’t represent sounds. Instead symbols usually represent words or ideas. Chinese is such a language. If you want to learn how to read/write it to any reasonable level, you’ll need to know at least 3000 characters.

The continued existence of non-phonemic writing systems is a suboptimal equilibrium. Such writing systems make learning to be literate in a language far harder than it needs to be. They also probably have very serious costs. They effect hundreds of millions of people and, given that even in first world countries between 10% and 25% of adults are functionally illiterate (remember that your bubble is strong), their costs in terms of lost productivity and individual flourishing are likely large. Still I’ve never heard anyone talk about language reform. Why is that?

One theory is elite blindness. Almost everyone in the elite is fully literate. You don’t get to be a journalist/professor/union leader/politician/NGO worker if you’re not literate or have a low IQ (which strongly correlates with literacy). Because our personal bubbles tend to be incredibly strong, most elites are hence surrounded by people similar to them or at most a standard deviation or two away in terms of IQ. Hence most people with power will not only never struggle with literacy themselves but they will also never meaningfully interact to the 10 – 20% of society which does. Hence the problem is essentially invisible to everyone who matters.

Another theory is sunk costs. Even if we did recognize the problem with bad writing systems, there’s a massive sunk cost in terms of how many people use the current language and how hard it is to shift that usage to a different form. It would take a national campaign, a large amount of resources and a huge political effort. The problem seems intractable, hence no one bothers to bring it up.

A third theory is that it’s not controversial/sexy. There’s no bad guy to point at. There’s no ideological struggle or way to tie language systems into larger political narratives. It’s a fairly dry issue that no individual or political faction can be blamed for.

(N.B: While I’m fairly convinced that having a non-phonemic language makes learning to read and write much, much harder than it needs to be that’s based on personal experience and conversations, not an any kind of systemic research. Maybe I’m just wrong. Epistemic Status: Reasonably high confidence)

Low intelligence is a problem we should care about more

In the past many things we today consider very bad were normal. Slavery, war, starvation, dirty water, oppressive governments. Many people realized that these things were bad but did nothing to try to change them. Why? Some of the reasons are obvious. Instinctive passivity. Collective action problems. Different/wrong morals. Still, I think one of the major reasons people didn’t do more is that they were essentially blind to these problems because they saw them as natural and inevitable. I think something similar applies to IQ today.

People have vastly different levels of intelligence. Some of this is due to culture and other environmental effects that take place after birth. From teaching rationality to reducing ambient lead exposure, there are things we do to try and alter the environmental influences of intelligence. Still, in developed nations most of the root cause of a person’s intelligence isn’t environmental, it’s genetic. IQ is highly hereditary and dumb people are usually dumb because they had dumb parents and visa versa.

The existence of stupid people is a problem. It’s bad for those people because they are less productive, easier to take advantage of and also less capable of thinking, reasoning and understanding the world. It’s bad for society because the stupider a person is, the less economically productive, more predisposed to violence/crime and less capable of voting well they are.

I find it strange that we aren’t shouting from the rooftops about how much of a problem stupidity is. I think it’s partly the assumption that it’s natural/intractable and partially social desirability bias. Normal people, even elites, don’t want to publicly state that they have high intelligence as it’s seen as immodest and insulting to others. I also suspect that because most people’s filter bubbles are so strong (what proportion of professors/engineers/doctors/lawyers regularly interact with a sub 85 IQ person?) most of us encounter an artificially narrow range of intelligence around us and so underestimate how big the real differences are.

A closing fun fact. Around 25% of people (IQ <= 90) literally can’t understand conditional hypotheticals(e.g: If X happened, would Y be true?).

Ideas flow easily into empty vessels

I remember a few events in college.

I went to a small liberal arts college in the Netherlands. The students were almost all left wing and anti-war/anti-us foreign policy. I was sitting in an extra curricular lecture on the Syria conflict organized by an American professor. She had invited the head of a pro-washington think tank to come in and talk about the conflict. What followed was 40 minutes of propaganda. Pictures of dead children. Descriptions of how the Syrian regime was barrel bombing civilians. Conspicuously absent was any mention of the various atrocities committed by the Washington/turkey backed rebels. At the end of the lecture the presenter passed around a letter and asked people to sign demanding tougher military action against the Syrian regime. Of the 60 or so left wing students, I’d say more than half were willing to sign. All it took to convince them to put their name to bombing a foreign country was a 40 minute lecture.

Another memory from university. I was the coach of the debating society. An older PHD student, a former successful Indiana lawyer, who attended our sessions asked me to attend an event with him. It was a show debate between me + him and another team formed of two students or professors. I can’t quite remember. This took place during the height of the refugee crisis. The motion was something along the lines of "Europe should not accept refugees". We were arguing in against accepting refugees. The audience was literally only sociology PHD students. Almost all were pro migration initially. After 20 minutes of speeches by me and my partner and a sound crushing of our opponents, more than half of the spectators were convinced of our side of the motion. Many literally came up to us afterwards and told us that we’d changed their minds on the issue.

Why is it so easy to convince people of things, even things that they strongly disbelieve? A few ideas.

One reason is that most people are empty vessels. If you read broadly, your mind is filled arguments and ideas. Whether the question is land reform, a war, a law or any other pressing issue you’ll at least see the outlines of the debate. Know roughly what the different sides say. That gives you an inoculation to persuasion. You can tell when a speaker is missing one side of the debate. You aren’t as easily swayed by one-sided narratives or surface level arguments. On the other hand, when you read almost nothing and know almost nothing any argument or theory sound appealing and persuasive. If you think I’m being too harsh, I’m not. Of the students I shared classes with, almost none read beyond their course readings. Those that did read at best a book or two, usually poppy stuff. This is the intellectual elite. Normal people don’t have even that.

Another reason relates to the wrong amount of trust/epistemic modesty. Rationalists talk a lot about epistemic modesty. That’s part of it. You shouldn’t be ready to sign your name to a letter asking for the bombing of a country, essentially taking sides in a civil war, after a 40 minute lecture. You should realize that you are fallible, ignorant and that there are people whose sole purpose is to persuade you and who are pretty good at their jobs. A more important part and one not as often discussed is trust. Ask any mentalist or stage magician and they’ll tall you how important the social proof of the stage and the role is. Something similar happens when people listen to arguments from someone they perceive as being high-status. If I walked up to those same students in either case on the street or after a class and gave them the same arguments, I doubt more than 5% would be convinced. But when you have a stage and a role, people’s minds turn into mush.

It’s scary how easily influenced most people are. Maybe it’s not as bad as I think. After all a high-ranked liberal arts college essentially means your selecting for people who are agreeable enough to sit through years of school work and homework and study enough to get good grades. A sociology PHD means the same + being willing to swallow mountains of bullshit. Still, I’m not hopeful. My experience of people at work or in high-school wasn’t better.

Unrefined thoughts on some things rationalism is missing vs religions

Rationalism seems somewhat like a proto-religion to me. It has norms of behavior very different from society at large. It has apocalyptic prophecies which it’s members strive to stave off. Still, what’s missing? I think a few things:

  • Rituals
  • Symbols
  • A community
  • Institutions around which to build a rationalist life
  • The normalization of rationalism as a central identity rather than a peripheral one or a non-identity


Rituals come in many shapes and sizes. Some rituals are recurring and universal. Passover, Petrov Day or Eid all happen once a year at the same time for all believers. Others are singular and specific to the individual. A Bar-mitzvah, Hindu marriage or Irish wake all happen at different times for different individuals and mark transitions from one part of life to another. Some are happy. Others are sad.. Some are for the whole community. Think of Haj. Others are for friends and familly, think of a wedding. Others are for family alone.

I think a major purpose rituals serve is to create/reinforce identity. I’m not sure how they do this, but I have a few plausible mechanisms in mind:

  • Getting members of the same community/faith to meet and spend time together
  • Giving people time to think about important questions and their faith
  • Triggering irrational mechanisms which make our brains recognize each other as being part of the same tribe. (similar to how marching in time or wearing a uniform in the army works)

Raemon’s ritual sequence has some good thoughts on what makes rituals work and failure modes of rituals., Ruby’s wedding ceremony has some of the best speeches/rituals I’ve read.

While certain rationalists do celebrate certain rituals such as Solstice or Petrov Day, these rituals are not widely celebrated (most rationalists I know don’t celebrate them) and are few in number. Importantly, they’re also only one kind of ritual. There’s no rationalist ritual to mark the transition from childhood to adulthood. From life to death. From an individual to a family. I think most pieces of the puzzle are missing.


A cross means Christianity. The Stars and Stripes means America. Every identity has it’s symbols. I think symbols are important. I’m not sure why I believe this. I know people in history Maytered themselves over symbols. Old faithers dying for the two fingers instead of three. Maybe symbols are a coordination mechanism. A way to stake out an identity in public, to make yourself visible to others in your group and those not in your group. To tell the world you as a community exist. Maybe they’re a personal reminder. Like a magic object that contains a part of your Self.


If you’re christian, you will more often than not have a community of christians you can access. This often won’t be your only community, but it’s there. Through coordination mechanisms like services, Sunday school, baptisms etc… you’ll meet people and eventually have a network of acquaintances.

That’s not the case for rationalism. In most cases you’ll have some online forums and blogs and maybe a local meet up with a few people once in a while.

Thoughts on why this is the case:

  • There are too few of us. Hence most places have too few rationalists to form a stable community.
  • Rationalists are overwhelmingly male and 20 – 35. This isn’t enough for a community, at least not the kind of one a church or religion offers.
  • We don’t have rituals. Hence meetups are awkward to organize, often stilted and revolve around the discussion of readings or rationality problems or even just lack any structure at all. Contrast this to a church where you show up every Sunday, listen to a service and then make smalltalk or go to a picnic.


The word institution is broad. Here I use it to mean a real, formal organization with rules, membership and goals. Rationalism doesn’t have enough of these.

  • We don’t have a church, whether centralized like Mormonism/Catholicism or decentralized like Protestantism/Islam. No one dedicates their life to rationalism. Maybe that’s fine. After all, in many religions priests are community members with jobs, not a separate caste.
  • No one spends real time, energy or effort evangelizing rationalism. There are some arguments for why this isn’t done more, but I think the reason we don’t proselytize isn’t that we find the arguments against proselytize convincing. Rather it’s that no one get’s around to doing it. it’s a shame. From outreach in schools and universities to free education on avoiding epistemic capture, happy death spirals and partisanship, there’s a lot Rationalism could give to the world. I doubt even 0.01% of people matching the intellectual profile of today’s lessWrongers have been exposed to rationalism.
  • There’s no rationalist education. CFAR is expensive, inaccessible, only open to adults and only processes tiny numbers. It also does not provided a rationalist education. Rather it provides a toolbox of things which may make you better at acting rationality. There’s a difference between instrumental rationality and rationalism. The former is about getting better at a skill. The latter is a systems of beliefs and values which includes reason and knowledge as one of it’s core aims. (The other being preventing the many apocalypses waiting over the horizon) I’m not sure how necessary all of these institutions are but I think at least temples/churches and some kinds of schools are necessary for a functioning religion/movement.

Rationalism as a "core" identity

People have lots of different identities. I can be an employee of my company, a software engineer, a partner to my girlfriend, a Serb, an Atheist etc… Still, some identities are more core than others. Very few people hold their love of strawberry yogurt to be deeply important, meaningful and something which undergrids their day to day life. Many people do feel that way about their Religion.

Right now I think that for many people rationalism is a peripheral identity and attempts to embrace it as a core identity are seen as cringe or culty.

Strength, not courage, is the second component of goodness

I’ve long thought that there are three parts to being a good person

  1. Wisdom: Knowing what the right thing to do is
  2. Courage: Having the bravery required to do it
  3. Choice: Choosing to do it

All three deserve their own articles but for now let’s look at courage. My initial reasoning for courage was simple. Knowing is the right thing to do doesn’t mean anything if you’re too much of a coward to do it. When I was younger I would always imagine extreme scenarios when thinking about this virtue. Would I give up my life if asked to pledge to a false faith. Would I really choose death over giving up 5 innocent people to the secret police. As I’ve got older and stepped into the real world more and more, my experience has been that most people are essentially cowards and won’t even pay the most minor costs to do the right thing. Experiences I’ve had include:

  • A debating coach preferentially giving tournament spots to people she liked. Very few people in the club being willing to speak out, despite knowing this was happening and agreeing it was wrong, because doing so might loose them spots.
  • A consultancy lies on it’s timesheets, overcharging clients. None of the highly-paid, ultra-employable engineers besides myself are willing to go on the record and say to superiors that this behavior is immoral and literally illegal
  • A company made up of woke, socially conscious millennial being fine with defrauding the NHS by selling 1 min text chat’s between a counselor and child/teen as equivalent to full 40 min counseling sessions

Still, the problem with courage is that it describes only resistance to forces from the outside world. To be good, it’s not enough merely to be able to resist external pressure or social coercion. You also have to be able to master your own daemons. Whether it’s the urge to cheat on your partner, greed for the last cookie or biases against other peoples due to your upbringing, many character defects, irrationalities and compulsions can lead you to immoral behavior. Resisting these internal daemons is just as much a part of being a good person as resisting external daemons.

What word captures the ability to do what is right irrespective of both external and internal pressure? I think strength is that word. A person who is strong will do what is right even when doing so is hard. A person who is weak will cave, whether it’s to threats or to their own impulses. One issue is that whereas courage was too narrow, strength is a bit too broad. It can imply physical strength and also non-moral self-control. Still, I feel like capturing a slightly bigger area than I mean to is better than excluding half the area I want to cover.

Book Review: Inspired

INSPIRED: How to Create Tech Products Customers Love (Silicon Valley Product Group)

An interesting observation from four years in tech is that most orgs are absolutely dysfunctional when it comes to product. Teams don’t have autonomy and metrics to strive for, rather they’re feature factories who’s success is measured by how many epics they can pump out, irrespective of how much those epics actually contribute to the business. Products are planned out months in advance by managers rather than made and remade hundreds of times in response to user testing and feedback. Even on the technical level, most orgs and teams have to burn half their time fighting through technical debt and tangled systems to actually deliver value. I still remember working for a major bank where deploying code to production took months (not including the mandatory change review process), developers had to work on slow and buggy remote laptops and our software ran on windows server 2000s as any change to newer version would have had to go through a laborious security review. (For the non-technical, Windows 2000 is more than a decade old, is no longer supported or updated and hence has dozens of know severe vulnerabilities. Any hacker with two brain cells and a copy of metasploit can break into a windows server 2000). The core problem with the world is that most firms are dysfunctional and broken. And this is just from the highly selective sample I’ve had of large, successful companies with large tech departments and a willingness to admit that something was wrong. I assume the average level is far lower outside my bubble.

Inspired is a book which does something very important. It explains what good looks like in product. That is, what the correct way of doing product development is. It does this in a writing style akin to that of a smart 14 year old. It does it in short, bite-sized chapters that are absolutely clear. It does it without equivocating. It’s one of the best books on product development I know of and you should probably read it if the topic interests you in the slightest.

I think that roughly speaking, there are two kinds of people who will read this book and two different things you can take from it. If you work in a high-performing tech firm you’ll probably already know, at least on an intuitive level, what good looks like. In that case Inspired will not be a revelation. In fact, most of the things it talks about will seem obvious, trivially true and uninteresting. I still think it’s a useful read for a few reasons:

  • It will help you solidify your vague intuitions about what good looks like. You’ll go in with a rough feel for how product should function. You’ll leave with clear and precise concepts, organizational structures and processes.
  • It will help you understand why things work the way they do and why alternatives are worse
  • It will teach you at least a few things. Even in a high performing org, you won’t do everything well. Weather it’s product discovery, communicating product vision or any one of a number of sub-areas, chances are you’ll have a few useful takaways

On the other hand, if you haven’t worked in a high-performing org then Inspired is a glimpse into the promised land.

  • It can show you what good looks like. This is always useful. It means you can help move your team or org in the right direction. It means that when you look for jobs, you can choose the right orgs to move to.
  • It can show you the arguments and reasons for abandoning inefficient processes such as change boards or feature teams. Reasons you can use to help drive change at your workplace.
  • It can help you understand the fundamental problems behind product (e.g: How do we know what users want?). This is important because processes, even processes that are tried and tested, do not always generalize. Businesses differ greatly and it’s important to understand the core problems of product and why the processes in the book solve them so that you can adjust those processes to your business environment or potentially come up with different, better ways of solving the same problems.

Another interesting thing is the writing style. It’s very different from most business books in a few key ways:

  • It’s short and to the point. Whereas most business books have a single fairly simple core idea or gimmick they try to sell and complexify, inspired has dozens if not closer to a hundred ideas or best practices and spends no more time than necessary on each.
  • It’s comprehensive. Again, many business books focus on a single technique or strategy. [[Inspired (Silicon Valley Product Group]] instead goes through pretty much every facet of product from the top level down to the nitty gritty.
  • It doesn’t equivocate. Most business books are written by people who have risen through the ranks of large organizations. This creates a strong selective pressure for authors who are never too critical of others and will never specifically say "This thing that most people do is bad and wrong and a red flag" as that kind of openness and criticality is a quick career killer in most orgs. Inspired is nothing like that. Again and again good behavior and practices are contrasted to bad behavior and practices and the latter are often ruthlessly deconstructed.

Exploiting Crypto Prediction Markets for Fun and Profit

I believe that exploiting inefficiencies in crypto prediction markets is an easy way to make market beating returns. This guide is a step by step walkthrough of how to make bets on these markets. I think this is useful because the process is somewhat complicated and there are a few non-obvious mistakes which can wipe out your returns.

The payoff per trade is in the region of 3% with a roughly 30 – 60 day turnaround time. Because of various costs, it’s probably not economical to trade on less than 5k USD as the fixed costs will eat up your margin.

This is not financial advice. I may be wrong. The steps may be wrong. The specifics will become outdated over time. This is not zero-risk.

1: What are crypto prediction markets

Prediction markets are markets where people predict things, then the thing happens and then people either make or loose money based on whether their predictions were correct. The "market" in prediction market comes from the fact that rather than having a single agent set the odds and offer people bets, as is the case with a bookie, instead there is a supply of options representing outcomes which people bid on and freely exchange. The tokens are distributed in an initial auction. People can trade their tokens between the auction and the market resolving. Once the market resolves, those options can be redeemed for a fixed amount if they represent the correct outcome. Tokens representing the incorrect outcome are worthless.

There are various kinds of markets and formats but the simplest is a binary yes no question which resolves on a specific date. A few examples are:

  • "Will 100 million people have received a dose of an approved COVID-19 vaccine in the US by April 1, 2021?"
  • "Will ETH be above $2000 on April 1st, 2021?"

The tokens for these markets typically resolve for 1$ if they’re correct or 0$ if incorrect, meaning the token price is bounded between 0$ – 1$ and converts neatly to a percentage.

2: Why should we believe we can beat the market?

On the object level because these markets are often obviously insane. At the date of writing there is an active prediction market asking if Trump will be president of the USA on the 31st of May, 2021. The odds are 0.95/0.05. Vitaliks post describing how he made money from the US election is another good example. On a more meta level, because prediction markets are far less optimized than other financial markets. Prediction markets today are small, shallow and inaccessible. Because of this they are not subject to the strong optimizing forces that work on larger markets such as those for stocks/bonds. Most of the money in prediction markets comes amateurs making bets with their personal money, not professionals and financial institutions whose existence depends on being better than you at making those bets.

3: How to identify good bets on prediction markets?

Intuition and common sense combined with basic research. To me it’s been fairly obvious when certain markets were deeply wrong. A few markets I think are insane at the moment:

While there is no structured method to identifying insane markets there are a few things that are good to keep in mind:

  • There’s a 2% trading fee on polymarket + around 0.4% from buying crypto on an exchange so bear in mind that a 5% return on paper is actually a 2.6% return after fees.
  • Many people trading on prediction markets use high cost ways of moving money in/out. That means that they often loose 3 % or so in fees.
  • The resolution criteria of the market determine which side is correct. It’s important to look at the resolution criteria, not just the question.
  • The listed spot price per option may not be the price you pay. The larger your investment relative to market size the more you can expect to pay an average price different from the spot price.
  • Time to return matters a lot. A 2% return in 2 months beats a 5% return in 6 months.

I realize that not giving a clear way to identify exploitable markets weakens the case for this. Still, I think it’s better to be upfront. There’s no magic formula, just intuition and reason. Even then there’s always the meta-uncertainty over your level of confidence in your predictions. If that’s too much of a risk for you, or if you think you’re not sufficiently well-calibrated, then you probably shouldn’t do this.

4: How to participate in prediction markets

There are four basic things you need to do:

  1. Acquire crypto
  2. Get the crypto into the market
  3. Place the bet
  4. Redeem your winnings While these steps are in theory simple, there are a few non-obvious mistakes you can make that will wipe out your earnings or expose you to tail risks. This guide minimizes or eliminates most of these risks.

This guide assumes you’re going to be using polymarket. Polymarket is one of the largest and most reliable on-chain markets at the moment. Different markets may require different deposit methods or tokens to participate in so this guide won’t apply.

Acquire crypto

The first step is to acquire crypto. Polymarket accepts USD coin (USDC), a stable coin pegged to the US dollar. You’ll need to acquire X USDC, where X is the amount in USD that you want to bet. You’ll also need around 0.03 Ether (ETH) for transaction fees. The main risk in this step is incurring transaction costs. High costs usually arise from one of two mistakes:

  • Using a consumer rather than trader platform (e.g: using Coinbase means you incur a 1.5% fee on any buy/sell)
  • Using a debit/credit card to deposit fiat which usually incurs fees of around 4%.

Follow these steps to avoid that risk:

  • Make either a Kraken or Coinbase Pro account (Note it has to be Coinbase Pro, not regular Coinbase)
  • Verify your identity to enable trading
  • Deposit fiat via a free bank transfer method. (e.g: In the UK a CHAPS transfer costs £22 while a FPS transfer is free. Check the fees for your country and choose a free method)
  • Buy 0.03 ETH for transaction fees. Convert the rest of the fiat to USDC.
    • Note that if the fiat you deposited is not USD, you may need to do a conversion from your fiat –> ETH –> USDC. This will double your fees.

Done correctly, your total fee should be around 0.2 – 0.4% or less. There are volume incentives so going over around 50k will reduce your fees somewhat.

Get crypto into the market

The second step is to get your crypto into polymarket. There are two risks here: fees and loosing your crypto due to human error. We minimize fees by using metamask. Metamask is a crypto wallet. Its unique feature is that it allows you to give other apps permission to do things with your money. By doing a "metamask deposit" into polymarket, you avoid the fees incurred with a standard deposit where you transfer money from your exchange wallet to polymarket’s wallet. We minimize the risk of human error by saving backup access codes and testing that those codes work.

Do the following

  • Set up metamask
    • Download and install metamask
    • Follow the instructions to create your wallet
    • Remember to save your recovery phrase. I suggest write it down on two pieces of paper. Put one in your wallet and another in a safe location.
    • Test your recovery phrase.
      • Uninstall metamask.
      • Reinstall metamask.
      • Use your recovery phrase to recover the wallet you made.
  • Withdraw funds to metamask from your crypto exchange
    • Go to your exchange and navigate to the withdraw screen
    • Add your metamask wallet. (You can copy your metamask wallet address by clicking your account name at the top of the page)
    • Withdraw the USDC and ETH. If you’re withdrawing a large amount, consider first withdrawing $10 to make sure you’ve got the address right.
  • Go to polymarket. Make an account. Go to deposit and choose "Metamask Deposit". Deposit all your USDC.
  • In polymarket, use your deposited USDC to purchase options on a market.

Getting out of the market

Once the market ends you’ll be able to redeem any options you have. Redeem your options by clinking the button and withdraw them to metamask or a crypto exchange wallet. You’ll need ETH to do this but the total cost should be less than $40 USD or so. Alternately, wait a while for polymarket’s no withdrawal options to go live as they’ll have far lower fees.

4: Risks to consider

Following the steps above will minimize your fees. That being said, there are still a few risks to consider. These are:

  • You’re wrong about a given market being insane
  • USDC loses value for some reason
  • You make a mistake somewhere in the process resulting in the loss of your crypto. The most common error here is not writing down and keeping your recovery phrase but other mistakes include sending crypto to the wrong address or being pawned.
  • The prediction market you’re using fails. Decentralization protects against certain threat vectors such as insider attacks but flaws in the smart contract itself can still occur. See this link for an interesting write up of how such an exploit plays out.