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From a recent Telegraph article:
Professor Tyler Cowen, also of George Mason University, thinks that the problem of bad governance is far too complex to be solved simply by making predictions of how policy decisions may or may not turn out. "I don’t agree with the futarchy idea," he says. "The record of prediction markets is a strong one, but I wouldn’t want to use them to run an entire government.
Imagine a similar statement on voting:
The problem of bad governance is far too complex to be solved simply by having citizens elect representatives. The record of representatives is strong, but I wouldn’t want to use them to run an entire government.
Or imagine similar statements about propositions, laws, judges, administrative agencies, public hearings, free press, constitutions, etc. See the problem? Every institutional mechanism is going go be far simpler than the complex problems to be solved – can that really be a reason to reject them all?
Cowen Disses Futarchy
"The record of representatives is strong, but I wouldn't want to use them to run an entire government.", while apparently proposed as a straw-man, seems to be a fair summary of most modern so-called "democracies" (not matching the definition of "democracy" as used in the Federalist Papers, but closer to what the Papers called a "republic" instead) -- rather than using elected representatives to run the ENTIRE government, they mix such representative with non-elected "experts" in some parts of the government AND typically some direct democracy in other parts.
Which parts of the government are run by representatives, which ones by direct democracy, and which ones by experts, differ by country (and to some extent by state, e.g. within the US), but the existence of such complex mixes is nearly universal (the Federalist Papers make a pretty good case to advocate why that should be so, in general, details apart). So, I don't see why, similarly, "new" tools such as prediction markets should not be added to the mix, while remaining quite short of running the ENTIRE government.
Have prediction markets been used for a substantial period of time to run a large part of a government?
Does the fed changing policy, (in this case, interest rates) just in time before the new york stock exchange opens count?
Seriously, the gyrations of the stock markets of the world are a very strong input parameter in policy making in most of the nations of the world. From my understanding of prediction markets, they should be behaving similarly. So, atleast we have an analogous situation if not an exact one.