Efficiency vs. Equality

“Vote on values, but bet on beliefs.”

Did you hear about futarchy? No? You should. Robin Hanson suggested in his paper Shall We Vote on Values, But Bet on Beliefs? that we can use markets for filter proposed policies.

Why?

One of the three main assumptions of Hanson is that current democracies fail at aggregating enough of the available information. We know, through experiments and empirical data, that betting markets are a great institution for aggregating information. The strait forward solution is: Use betting markets for aggregating information in democracies.

Betting markets?

I’m going to write a longer article about them but you need to understand the term. Here we use one special variant of betting markets, the so called prediction markets. There are a lot for sports, presidential elections or movies. The market bets on a event like “the republicans will win on the next presidential election”. For easier evaluation you could win $1 if you’re right. I.e. the prices for the “republicans will win” paper would range from $0 to $1. So, if someone pays $0.50 on a paper he doesn’t really knows which one would win (You got a 50% chance to win, so you would pay $0.50 because in one case you get $1 with a 50% chance and in the other $0 with the same chance. Your averaged win is $0.50). We interpret the price as the chance that “republicans will win”.

How?

Let’s start with the basic conditions. Hanson suggests to introduce a new index called GDP+. GDP+ should include things like lifespan, leisure or happiness. One market (GDP+ market) estimates the status quo GDP+ at the moment.

We need the GDP+ for the other betting markets as an anchor. But what do the government do?

You still vote for parties and their guidelines (what we want). But now the markets would determine how to get it. The governmental representatives propose policies that would increase GDP+. If the feedback from the betting markets is positive they’ll execute the policy.

Hanson’s paper covers the idea in more detail and he discusses 23 design issues. For more information: Futarchy: Vote Values, but bet beliefs.