4

I have seen Augur discussed as a means to help identify a market Schelling Point (or focal point). What exactly is a Schelling point and how can Augur contribute to this aspect of game theory?

Are there certain types of markets where Augur is more or less likely to be more successful in identifying the Schelling point?

5

https://en.wikipedia.org/wiki/Focal_point_(game_theory)

a solution that people will tend to use in the absence of communication, because it seems natural, special, or relevant to them.

That same article includes this example, which I find to be highly illustrative:

two people unable to communicate with each other are each shown a panel of four squares and asked to select one; if and only if they both select the same one, they will each receive a prize. Three of the squares are blue and one is red. Assuming they each know nothing about the other player, but that they each do want to win the prize, then they will, reasonably, both choose the red square. Of course, the red square is not in a sense a better square; they could win by both choosing any square. And it is only the "right" square to select if a player can be sure that the other player has selected it; but by hypothesis neither can. However, it is the most salient and notable square, so—lacking any other one—most people will choose it, and this will in fact (often) work.

Augur's reporting system has evolved quite a bit since its inception and at this point I believe that it no longer really uses Schelling points, though we often do still use the terminology in discussion. Originally, in a market like "Who will win the World Cup?", the goal for reporters was to report the same way as all other reporters. Given no knowledge of who else is reporting, the best way to answer that is likely to result in you reporting the same way as everyone else is to report who actually won the world cup.

Today, the reporting system is mostly a performance optimization on top of the forking system, and we no longer try to stop people from colluding. Because we assert the fork system to be secure (but very slow and expensive), we can then assume that people will report the way the forking system would resolve if it came to that, because ultimately it will come to that if people report against what the forking system would report.

The forking system similarly doesn't really use a focal point but instead market dynamics put significant financial pressure on participants to choose the outcome that they think the most future Augur users will prefer, as that is where REP will hold the highest future value.

Your Answer

By clicking "Post Your Answer", you acknowledge that you have read our updated terms of service, privacy policy and cookie policy, and that your continued use of the website is subject to these policies.

Not the answer you're looking for? Browse other questions tagged or ask your own question.