A month or two ago, I was talking to Chris, and he brought up the idea of a government based on prediction markets. At the time, I dismissed the idea as unworkable, but now I have come across Robin Hanson’s more in depth development of the idea, which he calls ‘Futarchy,’ so I have given the idea some more thought. Hanson summarizes his idea,
In futarchy, democracy would continue to say what we want, but betting markets would now say how to get it. That is, elected representatives would formally define and manage an after-the-fact measurement of national welfare, while market speculators would say which policies they expect to raise national welfare. The basic rule of government would be:
When a betting market clearly estimates that a proposed policy would increase expected national welfare, that proposal becomes law.
Futarchy is intended to be ideologically neutral; it could result in anything from an extreme socialism to an extreme minarchy, depending on what voters say they want, and on what speculators think would get it for them.
Subsidized betting markets would trade idea futures to determine what the results of certain policies will be. I envision the political body used to define the overall measure of welfare as a lot like the Electoral Council I have discussed for Professional Voting, a proportionally elected body which relies on logrolling to make create efficient outcomes. Proportional elections are important in both Futarchy and Professional Voting because the values and perspective of the median voter are unlikely to be the same values and perspective generated by logrolling between parties representing all voters.
I have not finished reading and digesting Hanson’s in-depth paper on Futarchy, but I wanted to offer my initial thoughts. While, I should first say that I am probably biased against this idea because, the way Hanson proposes it, it would be a substitute for my own idea for making democracy produce better outcomes, Professional Voting.
Here are my initial concerns with Futarchy:
- Some goals are procedural, and therefore not measurable, i.e. the Rule of Law.
- I suspect that it would be very difficult to create an overall measure of welfare that includes basically everything that people care about, no doubt there could be good numerical measures of a lot of what people care about but not everything or close to everything that people care about.
- Even though my own values are utilitarian, I strongly doubt that most peoples values are; I suspect that most people’s values are based on ‘fairness’ and other process based concepts, and policies which try to maximize an overall measure of welfare (which would presumably be a state function) would not be very good at furthering those values.
Ideas futures seem most promising to me as an aid to Professional Voting; good policy-futures markets would provide a lot of valuable information to professional voters and elected officials responsible to them about which policies are most likely to further specific goals. Such information could improve the decision making process tremendously, even if the decision of which policies to implement and how were left up to the discretion of the professionally elected legislative body. But perhaps this is just my bias for favoring my own idea.
Still, I would like to see both Futarchy and Professional Voting tried in experimental and small scale governance settings. I think Futarchy, in particular, would work well for making corporate governance decisions because there is essentially one dimension (stock price) on which to evaluate the quality of decisions. I think Futarchy could largely solve principal-agent problems corporate governance experience due to rationally ignorant stock holders. Internal corporate ideas futures could ask, for example, whether replacing the current CEO would boost the stock price, which would give the CEO a very strong incentive to be a good agent for stock holders.
Such experiments would let us evaluate whether and under what circumstances Professional Voting and Futarchy generate better outcomes that more traditional democracy.