A Mencius Moldbug has written a confused and rambling 7400 word critique of futarchy. But since Mencius seems to have passion and potential, let me try to communicate. Most readers may prefer to skip this post; it will get tedious.
So if PM good, DM bad, your complaints should focus on features that distinguish decision and prediction markets, right?
OK, except that morons may largely cancel each other, in which case you don't need as many non-morons. But this issue applies equally to prediction and decision markets, doesn't it?
You can ask for a full probability distribution. If speculators know they don't know anything, then they will give you a broad distribution that expresses a lot of uncertainty. This is them telling you they don't know much. In your nose example, they may just give you the distribution over nose sizes for elite Chinese. And how is this issue different for prediction vs. decision markets?
Trader experience does seem to improve their collective accuracy. But this hardly means accuracy was zero initially. By now we have a great deal of experience in field and lab prediction markets where accuracy was valuable from day one. And how does this issue distinguish prediction vs. decision markets?
Play money markets do often fail badly, but many of them have done very well. All else equal I prefer real money markets, but "complete waste of time" is way too strong. And how does this distinguish prediction vs. decision markets?
There are several possible concerns you might have here. First, traders might sabotage events in the real world to improve their forecast accuracy. This can be a problem for any forecasting mechanism that rewards accurate contributions, and there are several ways to deal with it. Also, traders might try to distort the market price because that price influences decisions. Theory, lab data, and field data suggest this is not much of a problem. And how do these issues distinguish prediction vs. decision markets?
Er, in pretty much every speculative market that has ever existed, traders have had differing relevant info. Identical info is a very rare situation. Some traders had more total info, and the traders who had less would have been well advised to leave. And how does this distinguish prediction vs. decision markets?
After the fact it is quite easy to test for forecast accuracy. And even if initial accuracy was poor, why not begin if we expect accuracy to greatly improve? And how does this distinguish prediction vs. decision markets?
We can sensibly compare small differences in conditional expectations even when conditional variances are high. For example, even when you cannot predict the date of your death well, you can reasonable expect a longer lifespan if you exercise today than if you do not exercise today. The difference in these two expectations can be tiny compared to the variance in your realized lifespan, and yet you can have reasonable beliefs about this difference, and act on them. See also the presidential nomination decision markets which have been run for many years by IEM and Intrade as proof that decision markets are mechanically feasible, even in situations of great uncertainty.
There is now a prediction market industry, where I do a lot of consulting, most of which is to private companies. Most of this consulting is on prediction markets, but some are decision markets.
For firms I recommend forecasting profits or stock price, not revenue. For nations I suggest a full national welfare; GDP is only a first step to such a measure.
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