Vitalik Buterin: Prediction markets are making their pursuit of truth stronger through economic accountability and probability anchoring mechanisms.

Recently, Ethereum co-founder Vitalik Buterin wrote an article explaining from a mechanism design perspective why prediction markets are more "healthy" than discussions of emotional topics in traditional financial markets and social media.

He pointed out that the core mechanism of the prediction market lies in directly binding the expression of community sentiment to real economic consequences, thereby constructing a strong "feedback mechanism" in the market.

Analysis suggests that on social media or traditional media platforms, users often gain attention through bold, emotional predictions without having to take any responsibility for the accuracy of their statements.

In stark contrast, participants in prediction markets must bet with their own funds, and the returns are directly linked to the final outcome of the event, which forces them to form opinions based on rational analysis and objective facts.

Buterin also stated that whenever he sees panic-inducing news headlines, he checks the prices of related prediction markets, and the rational probabilities presented by the market often help him calm his emotions. This is a direct embodiment of the role that prediction markets play in "cooling down" emotions.

In addition, Buterin also emphasized that the prices of prediction markets have clear boundaries compared to traditional stock markets, which effectively reduces reflexivity effects, "greater fool theory," and manipulation behaviors such as pump and dump; at the same time, the characteristic of its contract settlement price being either 0 or 1 fundamentally eradicates the speculative frenzy that induces irrational asset valuations.

Although Buterin acknowledges that, in theory, there are politicians who hold the power to "create disasters" and may profit by betting on the occurrence of disaster events in advance. However, he believes that the traditional stock market also carries the risk of manipulation, and its trading volume is much larger than that of prediction markets.

Overall, the prediction market is increasingly approaching the truth over time due to its inherent feedback mechanism and bounded design, and the probabilities it presents can more accurately reflect the uncertainties of the real world, making it a healthier tool for information aggregation and decision-making.

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