Graeme Wood on Futarchy

At the end of his article on the deaths of Intrade and its founder John Delaney, Graeme Wood considers futarchy:

It’s perhaps no great surprise that we haven’t embraced Hanson’s “futarchy.” Our current political system resists dramatic change, and has resisted it for 237 years. More traditional modes of prediction have proved astonishingly bad, yet they continue to run our economic and political worlds, often straight into the ground. Bubbles do occur, and we can all point to examples of markets getting blindsided. But if prediction markets are on balance more accurate and unbiased, they should still be an attractive policy tool, rather than a discarded idea tainted with the odor of unseemliness. As Hanson asks, “Who wouldn’t want a more accurate source?”

Maybe most people. What motivates us to vote, opine, and prognosticate is often not the desire for efficacy or accuracy in worldly affairs—the things that prediction markets deliver—but instead the desire to send signals to each other about who we are. Humans remain intensely tribal. We choose groups to associate with, and we try hard to show everybody which groups we belong to. We don’t join the Tea Party because we have exhaustively studied and rejected monetarism, and we don’t pay extra for organic food because we have made a careful cost-benefit analysis based on research about its relative safety. We do these things because doing so says something that we want to convey to others. Nor does the accuracy of our favorite talking heads matter that much to us. More than we like accuracy, we like listening to talkers on our side, and identifying them as being on our team—the right team.

“We continue to have consistent results and evidence that markets are accurate,” Hanson says. “If the question is, ‘Do these things predict well?,’ we have an answer: They do. But that story has to be put up against the idea that people never really wanted more accurate sources.”

On this theory, the techno-libertarian enthusiasts got the technology right, and the humanity wrong. Whenever John Delaney showed up on CNBC, hawking his Intrade numbers and describing them as the most accurate and impartial around, he was also selling a future that people fundamentally weren’t interested in buying. (more)

I don’t much disagree — I raised these issues with Wood when he interviewed me. As usual, our hopes for idealistic outcomes mostly depend on finding ways to shame people into actually supporting what they pretend to support, by making the difference too obvious to ignore.

More specifically, I hope prediction markets within firms may someday gain a status like cost accounting today. In a world were no one else did cost accounting, proposing that your firm do it would basically suggest that someone was stealing there. Which would look bad. But in a world where everyone else does cost accounting, suggesting that your firm not do it would suggest that you want to steal from it. Which also looks bad.

Similarly, in a world where few other firms use prediction markets, suggesting that your firm use them on your project suggests that your project has an unusual problem in getting people to tell the truth about it via the usual channels. Which looks bad. But in a world where most firms use prediction markets on most projects, suggesting that your project not use prediction markets would suggest you want to hide something. That is, you don’t want a market to predict if your project will make its deadline because you don’t want others to see that it won’t make the deadline. Which would look bad.

Once prediction markets were a standard accepted practice within firms, it would be much easier to convince people to use them in government as well.

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