The psychology of mass delusion?

Hi,

I went to the Ethereum meetup in London, and didn't get to ask this question as I didn't think of it in time.

In the presentation, the example of earthquake insurance was given - that a smart contract could be used to "bet against" or "bet for" an earthquake in a particular place by a particular time, with the money essentially used as insurance is today.

It got me thinking - what if there wasn't an earthquake but enough people thought there had been for some reason?

The earthquake isn't the best example, but humans tend to be herd followers. In 2001, quite a few people thought the NASDAQ stock index should be above 5000. (Plenty of people today think the DOW should be above 16,000.) Enough people given enough credence to what Kim Kardashian does that she is unfortunately a celebrity. There are countless examples of things being 'true' that either shouldn't be or that are debatable.

How will smart contracts handle such things? What if there isn't an earthquake but enough people are convinced (for some crazy reason) that there was and the contract pays out, to have it later disproven?

Is this a function of the contract to correct? That there must be "withdrawal" language? What if I get my ether, spend it all, and then the contract tries to claw it back to find I have none?

How would something like this be handled with the current model (or a future one) of Ethereum?

Thanks.

Comments

  • StephanTualStephanTual London, EnglandMember, Moderator Posts: 1,282 mod
    edited May 2014
    Hey Thomas, thank you for coming over to the London Meetup yesterday.
    Quite a few questions here, let's start in reverse order:

    "What if I get my ether, spend it all, and then the contract tries to claw it back to find I have none?"
    That's not possible. In any given prediction market the dapp would require you to put the money 'up' before being allowed to place the bet. There is no mechanism in ethereum that would allow a contract to 'pull' money from your account, just like there is no such thing on bitcoin. Thankfully :)

    "the contract pays out, to have it later disproven?"
    Simply look at what exists today. Weather derivative markets were valued at USD 11B in 2011 for example.

    I asked a trader that very same question: where do you get your data ("NASA"), what do you do if someone had a gun pointed at the operator who controlled the data feed. Answer is simple: brokers act as buffers, take a commission to a) profit b) insure themselves and , yes, transactions would be rolled back.

    I imagine on Ethereum in the context of the hedging and prediction markets we'll see similar entities appear where data feeds can't be relied on 100%, with various levels of risk matching different levels of commission.

    But more interestingly I think we'll see choice: some dapps will offer consumer protection, others won't. Reputation systems will give users indicators of confidence. What people use is their choice based on these repsystems and their own experience.

    "How will smart contracts handle such things? What if there isn't an earthquake but enough people are convinced (for some crazy reason) that there was"
    I asked that same question 3 days after I joined Ethereum :) - http://forum.ethereum.org/discussion/31/what-would-a-trusted-data-feed-look-like/p1
    TL;DR: data feed contracts can be:
    a) baskets of trusted data feeds (Bloomberg, CNN, Forbes sign feeds with their respective private key, publish the public keys on their websites).
    b) schelling coins http://blog.ethereum.org/2014/03/28/schellingcoin-a-minimal-trust-universal-data-feed/
    c) swarms of weather stations all report back in, outliers are removed, average is found.
    d) combination of all the above

    "people given enough credence to what Kim Kardashian does that she is unfortunately a celebrity"
    Cancel your cable subscription and use RSS feeds for news, I found it helps a lot :)
    Post edited by StephanTual on
  • thomas_quinlanthomas_quinlan Member Posts: 2
    Stephan,

    Thanks for the answers! It's good to know I'm at least asking smart questions! ;-)

    I haven't had a cable feed (or any TV feed) for more than five years. This is why I find it so depressing that I even know about Kim Kardashian - even second-hand sources are too numerous.

    Thanks!
  • cuddaloreappucuddaloreappu Member Posts: 20
    @thomas in case of a natural disaster like earthquake , i think it can be quantified by the reading found on the Richter scale, that the contract is setup to deliver only when the Richter scale reading is above say 6.0 or whatever.

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