Understandable Social Systems

Brennan and Magness’ book Cracks in the Ivory Tower: The Moral Mess of Higher Education reviews many ways that colleges overpromise, and fail to deliver. It confirms (with Caplan’s Case Against Education) a picture wherein ordinary people are pretty clueless about a big institution in their lives. This cluelessness also seems to apply to many other life areas, such as medicine, charity, politics, etc. In each area, most people don’t seem to understand very basic things, like what exactly is the product, and what are the incentives of professionals?

That is, we each live in many complex social systems, such as political, transport, medical, religious, food, and school systems. Due to our poor understanding of such systems, we have low abilities to make intelligent personal choices about them, and even worse abilities to usefully contribute to efforts to reform them. This suggests a key criteria for evaluating social systems: understandability.

When we don’t understand our social systems, we can be seen as having little agency regarding them. They are like the weather; they exist, and may be good or bad, but we are too ignorant to do much about them. If a situation is bad, we can’t work to make it better. Some elites might have agency re such institutions, but not the rest of us. So a key question is: can we reform or create social institutions that are more understandable, to allow ordinary people to have more agency regarding the institutions in their lives?

One possible solution is to use meta-institutions, like academia, news media, or government regulators, that we may better understand and trust. We might, for example, support a particular reform to our medical system based on the recommendation of an academic institution. Our understanding of academia as a meta-institution could give us agency, even when we were ignorant of the institutions of medicine.

As an analogy, imagine that someone visits a wild life refuge. If this visitor does not understand the plants and animals in this area, they might reasonably fear the consequences of interacting with any given plant or animal, or of entering any given region. In contrast, when accompanied by a tour guide who can advise on what is safe versus dangerous, they might relax. But only if they have good reason to think this guide roughly shares their interests.  If your guide is a nephew who inherits your fortune if you die, you may be much less relaxed.

So here’s a key question: is there, at some level of abstraction, a key understandable institution by which we can usefully choose and influence many other parts of our social world? If we think we understand this meta institution well enough to trust it, that could give us substantial agency regarding key large scale features of our social worlds. For example, we could add our weight to particular reform efforts, because we had good reasons to expect such reforms to on average help.

Alas, academia, news media, and government regulators all seem too complex and opaque to serve in this key meta role. But three other widely used and simpler social mechanisms may be better candidates.

  1. Go with the majority. Buy the product that most other people buy, use the social habits that most others use, and have everyone vote on key big decisions. When some people know what’s best, and others abstain or pick randomly, then the majority will pick what’s best. Yes, there are many topic areas where people don’t abstain or pick randomly when they don’t know what’s best. But if we can roughly guess which are the problematic topics, then in other areas we may gain at least rough agency by going with the crowd.
  2. Follow prestige. Humans have rich ancient intuitive mechanisms for coordinating on who we find impressive. These mechanisms actually scale pretty well, allowing us to form consensus on the relative prestige of nations, professions, schools, cities, etc., and via these proxies, of individuals. Related ancient mechanisms let us form consensus on elite opinion, i.e., on what prestigious people tend to think on any given topic. Yes, elites are biased toward themselves, and to express opinions that make them seem impressive. Still, we can do worse than to follow our best.
  3. Embrace Winners. Nations, cities, firms, professions, teams, media, clubs, lovers, etc. often compete, in the sense that some grow at the expense of others that shrink or disappear. Often they compete for our personal support. And often we see judge that the competition is roughly “fair” and open to many potential competitors. In such cases, we may embrace the winners. For example, we may try many competitors, and stick with those we like best. Or we may go with the lowest price offer, if we can control well enough for quality variations.

Each of these big three mechanisms has limits, but they do seem to satisfy the requirement that they are very simple and many ordinary people can at least roughly understand why they work, and where they run into problems. Together they may cover a pretty wide range of cases. In addition, we can augment them with many other approaches. For example, we can just expose ourselves to choices and follow our intuitions on which are best. We can follow choices by those we know and trust well, those who seem to know more about a topic, and those who seem more honest in their evaluations. Together all these tricks may give us substantial agency re the social institutions in our lives.

Yet those examples of how badly most people misunderstand school, medicine, etc. suggest there is vast room for improvement. And so I look for ways to do better. Not just at designing institutions that actually work, in the sense of producing efficiency, equity, generality, robustness, evolvability, etc. Not just at designing meta-institutions with these features. And not just at gaining the support of majorities or elites, or at winning many fair competitions in the world. I seek meta-mechanisms that can also be simple and clear enough to their advantages be understandable to many ordinary people.

This is the context in which I’d like you to see my highest hopes for prediction markets. I offer them not just as mechanisms that actually work, producing and aggregating info at a low cost. After all, there may be other complex and subtle mechanisms that experts expect to achieve similar or even somewhat better results. But the problem in that case is that ordinary people may wonder how well they can trust such expert judgements.

No, I’m interested in the potential for prediction markets to serve as a simple understandable meta-institution, on par with and at the level of going with the majority, following prestige, and embracing winners. Simple enough that many ordinary people can directly understand why they should work well in many applications, and also to understand roughly where their limitations lie. Yes, not everyone can understand this, but maybe most everyone could know and trust someone who does understand.

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