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- What are the class implications of something like this? If you are accused, you better hope you know some rich folks willing to buy some innocent shares! By the way, Prof. Dorf has an interesting blog post on this topic. You can find it at http://michaeldorf.org/2008_01_01_archive.html about 3/4 of the way down the page. --Main.AdamCarlis 11 February 2008
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> | RE: Adam, that's a great point. Class implications are certainly a huge concern. The argument might go: If the case clearly lends itself to one particular conclusion, assuming the market is thick enough, it would be extremely difficult to manipulate. A rich man buying millions of dollars of stock in his own innocence would not be able to tip the market if all the other speculators were convinced of the other side. If it is less clear which way the case should be decided, a wealthy investor could potentially influence a close market. But is that really much different than our current system? A wealthy or well-connected suspect can afford expensive representation and jury consultants whose job is to tip the jury is cases where the verdict is not patently clear - which is essentially the same endeavor as a wealthy investor interested in tipping the market. Moreover, if we allowed for speculators to advocate, it might be more financially prudent for a speculator to focus on effectively advocating for his desired verdict than to merely buy up his own stock. Either way, of course, this is not ideal - we do not want people buying verdicts, so to speak. But Frank would tell us that they already do. There is a class bias in our current system, we try to minimize and ignore it, but it's still there. The market system is certainly no better, but it's arguably not any worse. And at least, in a certain sense, it's more honest. (See below).
But of course, concerns about the nature and legitimacy of our justice system still prevail. Those kinds of issues are what ultimately make it a thought experiment rather than a serious proposal. | | | Shantih, shantih, shantih.
In a certain sense, prediction markets for judicial decisions seem absurd. It almost seems to mock the legal system, robbing it of its pomp and solemnity. Imagine if we opened markets for sentencing in capital punishment cases - how morbid and perverse! The notion of betting on whether someone lives or dies is offensive to our moral sensibilities. How could we make a game out of such a grave matter? The idea of prediction markets as juries is even more ludicrous. We have modeled our system around the notion that the mob must be contained – certainly we cannot hand over our most sacred legal function to market speculators. It’s offensive to our notions of justice and demeaning to the value of our judicial verdicts.
But indeed, perhaps that's precisely the point. Maybe prediction markets have stumbled upon a way to reconcile the dilemma exposed in Frank's Modern Legal Magic. If the uncertainties of our legal system are, as Frank contends, both irreconcilable and unbearable - where does that leave us? What do we do about something we can neither fix nor endure? It might sound foolish, but maybe - just maybe - the answer is that we laugh at it. Rather than succumb to the crushing weight of responsibility for an uncertain legal system, we recognize it for what it is, admit that it cannot be solved, and then we don a cynical smile and do the only thing we can do: Try to profit from it. | |
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> | [NOTE: I don't think I really mean this, it's just food for thought. I promise I'm not an awful person.] | | | Prediction Markets for World Events
Incentives for Sharing Information | | | Self-fulfilling Prediction Markets
Prediction Markets for Decisionmaking | |
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> | Prediction markets also have the potential to become powerful policy making tools. Imagine if we opened up markets for policy questions and allowed citizens to buy shares in the answer. Just as we imagined judge-markets for constitutional questions, these legislator-markets would incentivize people to invest not merely in the choice they believe is right, but in the choice they believe other people will believe is right. It is hyper-democratic - encouraging people to anticipate the desires of others, and to put them before their own. | | | Conditional Markets | |
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> | In order to understand the notion of foresight markets for policy questions, we turn to the idea of conditional markets. It is possible to imagine designing a market that would bring out the connections between variables and events, and to use those predictions as guides to decision-making. Economists Wolfers and Zitzewitz explain:
"In 2002 we could have floated two securities, one paying $P if Saddam were ousted in a year (where
P is the future oil price), with the purchase price refunded otherwise, and another that
paid $P if Saddam remains in power, again refunding the purchase price. The difference
in the equilibrium price of these two securities can be interpreted as the market’s
expectation of the effect of ousting Saddam on oil prices. This inference does not require
researchers to wait until sufficient variation in the political situation has accrued for a
regression to be estimated. Moreover, changes in the market’s beliefs about how ousting
Saddam would affect oil prices can be directly measured through such a conditional
market." (Page 23)
Very few of these markets have actually been created, so it is difficult to predict how well they would work, but given the market incentives for accurate prediction, it is not implausible to believe that such conditional markets might accurately gauge policy considerations - or, at least, might aggregate information efficiently enough that we get the best possible predictions.
Markets as Legislators
Imagine the possibilities of such contingent policy-making markets. They're efficient and potentially quite accurate; they're hyper-democratic in that they offer financial rewards for accurate consensus; they're potentially damage-reducing, as winning policy investors will retain their market-profits even if policies fail. At the risk of entering into the realm of political science fiction, it is possible to imagine these market mechanisms replacing all the decision-making functions of the state. Economist Robin Hanson, who was instrumental in the creation of DARPA's original prediction market, suggests just that. He posits a state where decision-markets are used to weigh all policy proposals against their perceived effect on the national welfare. This new state - the Futarchy - will have solved the problem of information failure that accounts for the unsuccessful policy-making in democracy. (See here for brief summary of Hanson's theory.) Hanson's fascinating proposal flirts with the notion of anarcho-capitalism, a philosophy that advocates a market-economy in place of government. I find this particularly fascinating, because the DARPA project called Total Information Awareness that first instantiated prediction markets - a project in which Hanson himself was involved - elicited publicly outcry when it was viewed as the first step down the road to a totalitarian state. | | | Market Manipulating | |
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> | Protecting Minority Interests | | | Crazy Science Fiction-y Implications
Perception/Reality |
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