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You could sorta kinda get to this today, by bundling futures or ETF's for a given country together with development projects. Some projects could be so useful (say, cleaning up commercial courts) that they could, in theory, be self-funding if bundled with, say, options on ETF's for that country.

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Ugh, can I note put links here?

The first case for a microfinance project is the "In defense of usury" WSJ article, about a randomized study of a loan's effect on individuals.

http://research.yale.edu/ka...

The second is a list of anecdotes from Opportunity International.

http://www.opportunity.org/...

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"Any org that didn’t make project information readily available to traders would automatically make people question its usefulness. Orgs that engage in successful useful projects at reasonable costs will want everyone to know."

I am telling you that this is false. Fundraising today is done either with emotional appeals with zero relation to facts, or with such liberal use of "analysis" as to exaggerate the returns on charity beyond what they could reasonably be. That means there's no incentive to share an actual success, because if you give all the details, it will look like an abject failure next to the un-filled-in stories other orgs tell. For a precise example of what I mean, see this report on microfinance <http: research.yale.edu="" karlan="" deankarlan="" downloads="" wsjdefenseusury.pdf=""> vs. this one <http: www.opportunity.org="" netcommunity="" page.aspx?pid="217&srcid=193">. The former can't compete, in fundraising terms, with the latter.

"Markets make decisions better than individuals" is often true, but it is not a universal unconditional truth. It depends on the things that often make it true being true, including: traders have access to enough information to form acceptably narrow bid-offer spreads (not currently true in charity), and traders have enough incentive to bet (not true when the return-*to-risk* ratio is unacceptably low, as it is when so little info is available and anyone with an acceptably narrow bid-ask spread is likely to be an insider).

We are trying to change these circumstances. As I've said, there already is a mechanism for betting on projects (donating), so the problem isn't there isn't a market, it's that the market's broken.

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Holden,

Any org that didn’t make project information readily available to traders would automatically make people question its usefulness. Orgs that engage in successful useful projects at reasonable costs will want everyone to know.

This of course is currently the case, successful projects are publicized and unsuccessful ones are hushed up. So as with companies and stocks people can base donations to charities on past performance. This is where GiveWell is doing a great job.

But decision markets help ensure the success of future projects. The market is much better than the individual at gathering and assessing information.

Robin’s examples (malaria nets and country loans) of were both for future projects. As you know we don’t have unlimited resources so we have to decide which projects to support and markets make these decisions much better than individuals.

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Holden, I meant to describe insiders who had enough info to, if they were honest with themselves, realize the project had little chance of much success. Yes, of course, they usually aren't honest with themselves. That is why it could be good to include traders who do have strong incentives to be honest with themselves.

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How often do you think an insider privately "knows the project will fail?" Dealing with people in this sector, one consistent pattern I've observed is a faith in the value of the organization and its activities that borders on religious. Of course, talking yourself into the value of what you're doing is common; what you're describing seems much less so. What is the profile of someone who is involved with and close enough to a program to be able to see that it won't work, yet not influential enough to do something about it, and mercenary enough to continue with the organization because of their paycheck (generally below-market in this sector anyway) but disclose the information on the sly in the hopes of ripping off someone on a gambling exchange? I don't think there are a lot of those floating around.

I don't think the problem is that people are promoting what they know are futile projects. I think the problem is that people aren't evaluating and discussing the projects critically enough.

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Holden, I certainly don't oppose getting these orgs to officially reveal more about their projects. But imagine an org that privately knew its projects had little chance of success, and whose donors who were giving the org the benefit of the doubt. If outsiders could discern this problem even without extra access to insider info, markets could publicize this failure and embarrass the org in a way donors would find it harder to ignore.

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John and Douglas - great to hear that you guys are interested in GiveWell. One of the big questions about our project is who's out there who would use it, and how we can serve them better. So please take a good look, fill out our survey if you get a chance, and email me with any comments.

Robin - yes, humans can bet no matter what information they have. But having less information leads to wider markets and less potential for value-added over the project funder. When we're talking about betting on the mortality rate across an entire country 3 years from now, that's a low-ratio bet even when the expected value is high. Nobody disagrees with your conceptual point, the question is where the priority should be, and I think it needs to be on getting information to people who already want to use it rather than paying people to bet on information they have very little of.

As for subsidizing insiders to trade on what they know, I oppose this idea outright, because I'd rather pressure funders to reveal their *actual information*, and let others get in on helping to interpret it, than incent them specifically to continue hiding it so they can try to take advantage of gamblers. Which do you think is more valuable to a group of intelligent, analytical individuals: the foundation's numerical prediction re: mortality rates, or the information that goes into it?

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Holden-- My wife and I give to charities. While what Robin is talking about maybe of interest to some, what you are doing would be much more valuable to me.Keep up the good work!

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Robin,

Thank you.

For many years "Mrs. Shakespeare" and I have beenlooking for a source of information on the effectivenessof charities. The BBB, Charity Navigator, and otherevaluators have been of modest help. Comments by PeterDrucker and Tom Peters have been helpful in other ways.But we have never before come across anyone who was tryingto evaluate charities on their effectiveness in assystematic and thorough a way as Holden's GiveWell.How useful they will be, I do not know and at so earlya stage in their efforts would not even try to guess.Despite their having put the bulk of their informationin the user-hostile PDF format, the first half was wellworth the read. Their work may be worth following andperhaps a little volunteer time.

So thank you for your work on Decision Marketswhich led to your post that brought GiveWellto our attention.

John

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Saife, I don't see how a mechanism for finding out the size of a project's impact can be blamed for not taking into account the value of that impact. The markets are just intended to tell you what projects do what; it is a separate question to ask what effects have what value.

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This sounds like a very interesting idea to me, but I do have one concern: the places where development projects are least likely to succeed are the places that need these projects the most; whereas the places where the impact is likely highest are the places where these projects are not needed the most.

My concern here is that the high expected positive returns that will be apparent from (presumably) accurate forecasts will drive more and more investment towards areas that do not need this investment that much, and away from the areas that need it the most.

Even though we would get a higher impact in the relatively well-off places, morally, a development organization has an obligation to concentrate on the less well-off areas, where even a smaller impact of the project might be much more important in humanitarian terms in the long run.

This again goes back to the problem of aggregating across differnt impacts and measuring them compared to one another: health, education, income, etc...

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Toby, decision markets can work with only a few investors.

Holden, for most regions we should at least be able to get aggregate mortality rates and economic growth rates.

Holden and April, giving more info should help markets make better estimates, but they will make estimate with whatever info they have. If other evaluation institutions do not have better info, then decision market estimates can be competitive with those other institutions. And with enough of a market subsidy, people from inside these organizations can be tempted to trade secretly to reveal their info.

Michael, yes of course you'd want to start on the largest projects, but with enough of a trading subsidy the markets could in fact estimate thousands of projects. If you see prices you think irrational you would be paid to correct them.

Mason, we are trying everywhere we can.

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I don't wish to to minimize Holden's very valid points about the paucity of information on development projects. However, for every project the World Bank prepares, it does release both a Project Information Document (during the elaboration of a proposed project) and a Project Appraisal Document (when it is a approved) - which contain the key elements of what activities the project will support, and what goals (intermediate and outcome) they are targeting.

I agree with Michael (and Lant Pritchett) though - for any additional information which the bi-laterals or multi-lateral development institutions would need to make public in order to inform the bets in the decision markets - some serious external pressure would need to be placed on them.

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I think we (most people reading this) can agree that decision markets are a good idea, and have diverse applications, from healthcare, and college to national defense and charity programs.

They work because they reward people for sharing what they know and punish those who talk about topics they don’t know anything about.

So what steps can we take to make decision markets happen? They are widely accepted in valuing companies, maybe marginal changes from there are a good place to start. This could include markets for CEO candidates, or office locations.

An office location market may lead to an army base location market. A CEO market may pave the way for a presidential market.

We can continue to go over different areas in which decision markets would be useful, but unless these areas are proposed and evaluated with the goal of finding the best market to start in, I’m not sure how much good it does to continue to outline the general idea to specific markets.

Regarding a potential failure of decision markets in general;

I am surprised at how ineffective markets are at discouraging corporate buyout and mergers. The buying company’s stock price almost always falls when buyouts are proposed, and hindsight generally confirms them to have been poor investments, yet they continue.

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1. The liquidity of the market would start out very very low. There are many thousands of projects each year and the large majority of the people who have the required information probably don't have internet access. So it would have to be demonstrated on a handful of very large projects about which a large number of people with internet access were knowledgeable.

2. What if a large fraction of the successes occur for reasons that are ex-ante unknowable? For example, if I had two contingent shares -- one that paid $1 if Mount Vesuvius erupted next year and the average temperature in eThekwini, South Africa were over 70 degrees in the year 2050, and another that paid $1 if Vesuvius did not erupt and the average temperature in eThekwini were over 70 degrees -- would these shares be bid to different values? How could they be? Empirically, of course, one could find that they are, just like one might find that Robin's proposed shares get bid to different values.

3. No one involved in the aid business has any reason to cooperate (see Lant Pritchett's paper). But it couldn't be done without their cooperation, since the method requires information on projects that were considered but ultimately rejected. Some sort of public shaming method would have to be used.

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