“An Outside Context Problem was the sort of thing most civilisations encountered just once, and which they tended to encounter rather in the same way a sentence encountered a full stop.”
– Iain M. Banks, Excession
My last piece on where prediction markets break down made me realize I hadn’t written about outside context problems here yet.
Outside Context Problems are the most interesting situation one can encounter, when considering pure innovation.
TL;DR: if you expect an embryonic prediction market to tell you the result of a highly-politicized event when there are perverse incentives at play, and a significant disparity between amount-at-risk and expected outcome, you are going to have a bad time.