{"id":32913,"date":"2018-03-09T12:09:13","date_gmt":"2018-03-09T20:09:13","guid":{"rendered":"https:\/\/cryptoslate.com\/?p=32913"},"modified":"2026-03-31T14:18:42","modified_gmt":"2026-03-31T13:18:42","slug":"introduction-augur-prediction-markets","status":"publish","type":"post","link":"https:\/\/cryptoslate.com\/introduction-augur-prediction-markets\/","title":{"rendered":"Introduction to Augur and Prediction Markets"},"content":{"rendered":"

Augur<\/a> is a decentralized oracle and prediction markets platform, built to conform to the logic of the Ethereum network protocol. Crypto prediction markets<\/a> as such are event derivative marjoeykets created for the purpose of trading the outcomes of concrete events, with aggregated price wagers of crowd-sourced opinions thought of as well-calibrated indicators of how likely an event is to occur (“Traders put their money where their mouths are”).<\/span><\/span><\/p>\n

Augur's Intellectual Legacy<\/span><\/h2>\n
\"Augur\"<\/a>
Combining the magic of prediction markets with the power of a decentralized network to create a stunningly accurate forecasting tool \u2014 and the chance for real money trading profits.<\/figcaption><\/figure>\n

The concept had first been articulated by Friedrich Hayek in his famous 1945 essay “The Use of Knowledge in Society”<\/a><\/span> and further contextualized in James Surowiecki's “The Wisdom of Crowds”<\/a><\/span>, where he makes a point of how the weighted aggregate of the opinions and beliefs of diverse range of independent groups and individuals that integrate a plethora of different views produce better and much more accurate predictions than specialized panels of experts or individuals alone.<\/span><\/p>\n

Augur aims to flesh out an engine that propels market efficiency by introducing mechanisms which cut through the semantic noise and misinformation. It plans to do so by forcing participants to clearly articulate their statements and binds them to their individually held beliefs.<\/span><\/p>\n

The efficient market hypothesis assumes three forms \u2014 “soft”\/weak, semi-strong and strong. The first claims that market prices already reflect all publically available information, the second that they also rapidly change to additionally accommodate new public information and the last, “strong” form, that prices instantly reflect also the hidden “insider” information.<\/span><\/p>\n

As a meta-tool meant to absorb the advantageous qualities of all already existing tools while leaving out their disadvantageous ones, Augur assumes the “strong” form as “insider” information would inevitably be extracted in the aggregate sum of the whole. Another obvious initial use case which presents itself is an indirect mechanism for shorting of other assets. In fact, prediction markets as such can be seen as a generalization of all derivatives.<\/span><\/p>\n

Nassim Nicholas Taleb, in his Medium post on Bitcoin<\/a><\/span>, resounds a similar sentiment:<\/span><\/p>\n

Somehow, under scale transformation, emerges a miraculous effect: rational markets do not require any individual trader to be rational. In fact they work well under zero-intelligence \u2013 a zero intelligence crowd, under the right design, works better than a Soviet-style management composed to maximally intelligent humans.<\/span><\/p><\/blockquote>\n

However, Surowiecki himself highlights three key criteria which separate ‘wise' crowds plain ‘crowd psychology':<\/span><\/p>\n