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Wed Sep 15 21:42:39 PDT 2021
> the promise of smart contracts for beneficial goals.
Futarchy: Robin Hanson on How Prediction Markets Can Take over the World
Transcript of interview
https://www.youtube.com/watch?v=9WLg-y_gT0w CSPI #18: Robin Hanson w
I recently had Robin Hanson on the CSPI podcast to talk about
futarchy. It’s one thing to spread knowledge on a particular issue,
it’s another to invent a new technology to create more knowledge in
the world, and help apply it where needed. That’s what I see Robin
doing. He convinced me that although it may take a very long time, one
day humanity will give less of a role to systems like peer review and
unaccountable bureaucracy in determining how we understand the world,
and more of a role to prediction markets. The logic is just too
compelling. But sooner is better than later, and if you want to be
involved, please reach out.
How it would work. Source.
The first step towards this glorious future is convincing people that
a world where more decisions are made based on prediction markets is
desirable and achievable. In that spirit, below is a transcript of our
conversation, lightly edited for clarity. To read more about futarchy,
(beginning of transcript)
Richard: Hi, everyone. Welcome to the CSPI Podcast. I’m here today
with Robin Hanson. Robin, How are you?
Robin: Happy to be here and ready to talk about a big topic.
Richard: We’re glad to have you. Before we get started, while a lot of
our audience is going to know who you are can you just give a brief
description of your background? What do you do? What are your research
Robin: I'm an associate professor of economics at George Mason
University. I do an excessively diverse range of things. I just had a
paper accepted in a astrophysics journal on the Grabby Aliens. I've
done information aggregation. I have two books, one called The Age of
Em: Work, Love, and Life When Robots Rule the Earth, and the other The
Elephant in the Brain: Hidden Motives in Everyday Life. I guess we'll
just find out more about my prediction market work in this talk.
Richard: Do you have a degree in economics?
Robin: No. I have a PhD in social science from Caltech. Caltech has a
pretty small social science department with say 20 faculty covering
all of social sciences. My degree was in social science. The first
time I went on the job market I actually did better in political
science, but second time I got this job offer in economics.
Richard: Okay. What are your interests? One of the things I think
we're going to spend the bulk of the time talking today is the idea of
a futarchy. Is that how you pronounce it?
Robin: Futarchy would be a fancy name for decision markets applied to
government. The larger topic would be what institutions can we all
share to argue and aggregate information so that we can form
collective beliefs that we can act on together? That’s a question in
Robin: It's a question in government. It's a question in business.
It’s a very fundamental, difficult problem. I think there's potential
for doing a lot better than we've done.
Richard: Yeah. What’s the problem? What do you see as the main issue
that this is trying to solve?
Robin: Well, you know most of you have been in conversations all your
life. You know that in conversations it’s very complicated. People
have all sorts of agendas. They aren't entirely honest all the time
and they aren't focused on particular tasks. It's not clear you know
that you can believe what they say.
A reporter calls up various expert people with credentials or whatever
and gets quotes for them, but they don't have a good incentive to tell
their best estimate of the truth in those interviews. They're often
incentivized to sound provocative, to ally with whatever political
tribe they're with, et cetera. We have these problems all over in all
the rest of the conversations we have in business, and government, and
academia et cetera.
The question is could we give people more direct, better incentives to
actually tell the truth and figure out the truth so that when we had a
meeting and people raised hands, and we made a decision what to do we
would be doing it on the best knowledge we could have?
Richard: Yeah. The way you answered that question, that made me think
of something. Do you see this as a matter of incentives in the sense
that whoever the experts are they just have to have better incentives,
or do you also see it as sort of a selection process in that there is
some trait, or collection of traits that humans vary on, and some
people are just better at getting at truth than others? Do you take
the first position?
Robin: Both of those factors are important, and so you want an
institution that relies on both. You don't want to just take a
particular group of people and give them better incentives, nor do you
just want a process that selects people. You want to both select
people and give them good incentives so that people know when they're
selected that they will fact those good incentives and they will be
selected on the basis of anticipating that those good incentives will
work well for them.
Richard: Yeah. Futarchy is the process of aligning incentives to get
better opinions, better policy?
Robin: Well, futarchy is decision markets which is an application of
prediction markets in general, which is an application of speculative
markets in general. We might say we have this general institution of
speculative markets, basically stock markets, commodity markets,
betting markets, et cetera. They've been around for many centuries.
They have this remarkable property that they often aggregate
information very well from a diverse people. The idea of prediction
markets is to use that mechanism on purpose to get better information
about particular topics of interest, and then decision markets are
prediction markets where the topic is directly targeted at a
particular decision, where you're asking about the consequences of a
particular choice to make those market estimates and advice as
directly actionable as possible.
Richard: Yes. It would be an example of futarchy, say if there’s a
bill before Congress. It’s a, say stimulus bill, something in the
news. You would have some measure of outcome, the GDP of the country
in five years if you pass it or you don't pass it. Then basically the
system you envision, basically there'd be a way for the legislators to
have their votes tied, or whoever makes the decision tied to the
results of the market. Is that right?
Robin: Right. I think it’d be easier to start with like a more
personal, smaller scale example before we get to reforming national
Robin: I would suggest considering, fire the CEO markets. In ordinary
public companies there's the CEO. One of the most important decisions
that the board of directors makes is whether to keep or fire the CEO.
The proposal would be to have stock markets that are conditional on
whether or not you fire the CEO. An ordinary stock market you trade
stock for cash, and the price there is an estimate of the value of the
company and all the different scenarios it might be in. Now we're
going to make called off stock markets and these are markets where we
make trades of stock for cash but those trades are called off, or made
as if they never happened if certain conditions aren't met.
We could have a ‘if the CEO stays in power through the end of this
quarter’ version of the market. In those markets the trades will be
based on the expectation of how much the company will be worth if the
CEO does stay. Then we can also have markets where the trades are
called off if the CEO doesn't leave by the end of the quarter.
Now this will be markets where people estimate, how much is this
company worth if the CEO leaves? Then the difference between those two
prices, CEO stays and CEO leaves, becomes an estimate of the value of
the CEO for this company. That would be direct decision advice. The
board of directors could look at that price difference and say,
“Should we keep him, or should we dump him?”
Richard: Is there any legal barrier to a company doing this or someone
setting up a market like this?
Robin: Well, there is SEC regulations about commodities. This could be
thought of as a stock derivative. You need some sort of permission
there. That's the main regulation limit. Of course you'd also need the
board of directors in the company to be interested in these numbers.
That's more the real limitation.
Richard: Yeah. But it seems like you don't need to convince that many
people as long as, putting aside the regulatory issue. If you have a
corporation, presumably if the system of markets being better than
other kinds of decision making is right they should have a huge
advantage right, in the market? They should be able to make a profit
and their business should do well.
Robin: Our consistent experience with speculative markets is that when
we compare them to other mechanisms like polls or committees they’re
either about the same or substantially better. They’re almost never
much worse. Sometimes the question is just easy, and any mechanism can
give you the answer, like is the sun shining right now or something
like that right?
Everything will just tell you the answer. But then sometimes things
are hard or complicated, and then existing institutions are doing a
bad job. In that case the market can cut through and give you a better
Richard: Okay. I get that. But then the question is wouldn't you just
be able to... I mean you should be able to do this and then you can
just have a tournament for your CEOs right? You could have 10
different prices right? You can just see the best one…
Robin: Right. This conditional market mechanism hasn't actually been
tested out in the world outside of the laboratory tests in that we
haven't been able to get people interested enough to try it. We've had
a lot of tests of speculative markets that aren't conditional in the
sense that we've had markets on deadlines, whether you make a deadline
in sales and things like that.
We've probably had 100 different trials like that over the last few
decades. Typically what happens is that if there's enough support for
the market in order to induce an affectivity then again the price is
about as accurate or more accurate than the status quo and most users
are satisfied. The costs are modest. That's been the history for many
However a key problem is usually the market gets killed in the sense
that an organization says to stop and doesn't continue it. The main
reason is that it's relatively disruptive. These markets are
politically disruptive. The way they are disruptive is analogous to,
imagine you put a very knowledgeable autist in the C suite, that is
somebody in the C suite that knows a lot about the company and they go
to the meetings. They just blurt out when they know things that it's
relevant to the conversation but they have no political savvy.
They have no sense of, what does anybody want to hear, or who will be
bothered by anything they say. That sort of an autist would not last
long in the C-suite. They would be shunted aside and become an advisor
to someone perhaps, trusted advisor to their side but they wouldn't be
allowed to speak in the boardroom. But that's what a prediction market
is. It has no idea who wants to hear what it has to say.
It will often say things that people do not want to hear, and that
embarrass them, and that contradict what they've said. Then all the
worse of course it will be proven right.
Richard: Yeah. But what's stopping the autist, or I guess what's
stopping them is nobody has just done this yet? But theoretically you
could imagine the autist setting up the rules for the corporation,
Robin: You might if they were in charge at the beginning sure.
Richard: Yeah. That's what you need. You need one rich autist
interested in these ideas. He would go in and he would say the board
has to operate according to these…
Robin: Now we move to the question of like, what fraction of companies
out there are actually maximizing profits?
Robin: It’s a very basic question in economics and in our world. We
economists tend to assume as a simple initial working model that
organizations that are for profit actually do maximize profits. That's
the thing they usually do. If you give them a choice of A or B, and B
is higher profit they'll choose B.
Here if you apply that model you say, “Well, this looks like it would
give them key information to make key decisions like, ‘Will we make
the deadline,’ and it will be valuable. The cost is relatively low so
of course they would do it.” That's what you would say if you were
applying that theory. Then here we have a case where it looks like,
well it hasn't happened yet.
You might think, “Okay, innovation is slow. It takes a while,” but
we’ve been waiting several decades. Honestly if I look across a wide
range of other areas of corporate behavior I can't fully support this
profit maximizing theory. I think I can find a lot of other places
where what they do does not maximize profits.
I could give you a long list of examples. We could go through some of
those but then the question is, “Well, how do I come to terms with it?
What theory do I have affirms in the absence of profit maximizing to
explain the behavior?”
Richard: Yeah. Well, actually I like the idea of going through the
list. Besides not operating according to betting markets what leads
you to the position that corporations don’t maximize profit?
Robin: Well, of course until recently we appeared to have too little
remote work. Most commenters had though remote work should be much
more widely adopted and it hadn't been. We also have the standard
story of too many meetings. Almost everyone in large organizations
complains there are too many meetings with too many people in them
that last too long, yet they keep happening.
We usually have too many people interviewing new candidates as opposed
to just looking at their credentials on paper. We often have, when a
new person becomes the boss of a group of people usually some of the
people they're the boss of they inherited, and some of the people they
get to pick. Usually they give higher evaluations to the second group
of people and everybody knows that.
But they leave that on the books. We let them do that. There is a
standard not invented here bias where we're not so interested in stuff
that wasn't invented here compared to stuff that was invented here.
There is yes man bias which is of course famously well known that if
you're a manager and you’re trying to get people to tell you the truth
about things one powerful strategy is to ask them what they think
before you tell them what you think, and then use what you think as a
way to judge how good what they think is.
Even if you're not very well informed compared to them it still can
give them an incentive to tell you what they think because their best
guess about what you think is still whatever the truth is. However
many managers don't follow this strategy. They very clearly telegraph
what they think and therefore induce other people to be yes men, or
yes women, where they just parrot and repeat back what the boss said
so that not longer produces an incentive for the people to think
carefully about what they think.
It instead gives them incentive to parrot what the boss says. These
are a half dozen examples here but I have a blog post somewhere where
I went through 20 of them. Again we go down the list and we go, “Each
one, if it was just one I might say, ‘Okay. I just don't understand
that somehow. I'm not looking at it right. Somehow it really is profit
maximizing.’” But if I've got a list of 20 of these things and they're
big things I go, “Well, I guess I need a better theory.”
Richard: Yeah. Okay. What is the alternative theory?
Robin: I'd say that we want to think of large organizations as fields
of battle between coalitions, but that each coalition is fighting for
control over the organization, and most of these policies are in the
interest of individual coalitions. They're just not in the interest of
the organization as a whole.
For example, in a coalition you want lots of your people in the
meetings so that they can push for your agenda. It's great if the
other people aren't in the meetings, especially if say they're remote
working and they can't make a lot of the meetings, so you want the
other people to be remote and not in meetings and your people in the
You want your people to be interviewing new candidates so they believe
that they owe you a debt of gratitude if you're hired, et cetera down
the list. When coalitions are competing with each other there's
policies that help coalitions which isn't so much what helps the
company. Related to prediction markets or forecasts most coalitions
are organized around a set of shared interests and they form an
agreement to support certain projects.
They just don't want their agreement to support those projects to be
at risk to fluctuating estimates. Prediction markets will fluctuate
right? At the moment it might favor something and then a week later it
might change its mind right? That's just not very reliable as a member
of your coalition. You want to get together and support George's
project, and George's division. Then you want to do that early on and
stick with it regardless of how the estimates change.
Richard: Do you think this is what happened? I'm sure you've seen the
charts showing for example in universities administrators, the number
of administrators are going through the roof and the number of
professors is flatter, just barely rising. I saw another one with the
same thing with doctors versus medical administrators.
Then someone on Twitter said that chart was no good. I'm not sure if
it's good or not, but do you think as a general matter this is what's
happening? Perhaps there's this administration bureaucracy that's
where this coalition is getting bigger and bigger and it's just
expanding because it's optimized for its environment?
Robin: It's not a crazy theory but I haven’t thought that through. The
question is if I had a coalition in a university for example would
increasing the number of administrators within my part of the
university help me win coalition battles against the other ones? If
yes, then the theory is predicting that this happens, but it's not
obvious that that’s true. But I don't know university administration
as well as other people so maybe someone who knows that can comment.
Richard: Yeah. Is this just a matter of it’s when institutions get too
big? Does your theory predict that the smaller the corporation, if you
have a founder for example, just a founder of just a few people, that
they’re going to behave more rationally than a larger corporation
that's been around for a while?
Robin: That’s not my theory. That's just very widely predicted. Almost
everyone says that small organizations have fewer of these
coordination problems. They have other problems. There’s a lot of
problems that bedevil smaller organizations. Often it’s just like the
leader is arrogant, or blind and has all sorts of just personality
issues, etc. Right?
Robin: That tends to be the problem you have with very small
organizations is the very personal conflicts. But at least you don't
have these larger coalition battle problems.
Richard: This is a problem it seems like. This theory would go...
Well, let me ask you this way. What's wrong with the classic free
market position that what will happen is you'll have varying degrees
of rationality and the ones that are the institutions, and firms, and
individuals who are rational will just out compete the ones who are
not? What do you see going on there?
Robin: I mean I think in fact the correct response is to say the free
market version is probably the best. You just have no idea how much
worse things can be. People often look at the status quo of a business
world say that is relatively free market. They look at this up close
and they go, “This looks terrible how could you possibly be defending
The argument has to be, “Well, it would just be so much worse without
this.” And in fact often if you look to large stable organizations
like universities and government agencies, or churches that have been
around for a long time it is in fact worse. I think that's roughly
right. Another story might be we've hobbled some of the competition
between firms that might solve some of these problems.
I honestly think one of the biggest wins we could do is to just allow
stronger hostile takeovers. The laws at the moment make it harder to
do hostile takeovers. They require a substantial tax on them in
essence. If you see a badly run company and you have an idea how it
could be run better the problem is how are you going to profit on
that? But if you could just buy up the company, change its management
and then sell it again after it was better that would be a big,
powerful engine for making it better.
There have been times when that mechanism has been allowed to do more
and it has made huge changes. That's what inspired people to lock it
down and prevent those changes because they were scared it was coming
Richard: Yeah. There's just this status quo bias. What's the
regulatory barrier there? Is it antitrust, or what is it that makes it
difficult to do this?
Robin: The key thing is that when you are going to try to do a
takeover bid you have to warn people so they can bid up the price on
you, which means that you end up paying a substantially higher price,
20%, even more above what you would have paid if you could have bought
the stock in stealth without people knowing you were trying to buy it
Richard: Where do you... This is a technical question. How do you
announce it and what happens if just some other….
Robin: Well, there is a formal process by which you announce that you
have a certain number of shares in the company and that you're hoping
to buy more. Again you can't have bought very many of them by the time
you announce this. Then what typically happens is the prices get bid
up in the expectation that you'd be willing to pay more for the
Then you may or may not succeed in buying it up. There's also a number
of other things we allow such as poison pills, various rules in which
if there's a takeover then all the sudden some people get some extra
stock, and some extra voting shares, and some extra abilities to make
it hard for you. We have a whole bunch of these rules that have
basically made it difficult for people to take over companies.
Richard: Yeah. Your view is basically irrationality persists,
irrationality as in non-profit maximizing behavior, and then
presumably that's hurting the aggregate wealth of society. That exists
because basically we're protecting institutions. We have a status quo
Robin: Right. We're making it hard to make changes. On the other hand
competitive business world is one of our best worlds we have in our
world. It's one of our shining examples of productivity and innovation
is the business world to the extent that it is free to do something.
Now you could just say, "Well, if we make it more free to pursue
profits and to innovate then it could be even so much better."
Richard: It's funny because you say this is the best world we have
when you compare it to other things. My background is in international
relations. People often start with the assumption that the country is
trying to maximize something…
Robin: Right. That's even crazier an assumption, presumably it's even
easier to find counterexamples to that.
Richard: Yeah. I would go further and say it's harder to find you know…
Robin: Examples of it happening.
Richard: Yeah. Exactly. Why doesn't the US just..
Robin: Right. How many wars were started that were actually expected
profit wars for example?
Richard: Yeah. They tend to be pretty crazy. The whole field to a
certain extent is sort of built around... Of course that's not how
Robin: Right. But in the future we could imagine for profit, for
company nations for example. Might imagine that it would be possible
to make better run nations and that they would be more rational in
this sort of selfish, strategic sense. That's a thing that could
happen in the future. In some sense futarchy is this proposal to use
decision markets for governments and it could in fact achieve that.
Maybe we should say a bit about how that might work?
Richard: Do you put futarchy in a larger intellectual tradition?
Because a lot of people when they're coming up with an idea... Did you
come up with this term by the way?
Robin: Yeah, and I've been ridiculed for it. It has various
associations in different languages, et cetera, but I was just
thinking of it as a future government. That was my origin of the name.
And yet of course the context, there's two key contexts. One is to
show how far the idea could go if you just talk about, say firing CEOs
or changing churches, or all sorts of smaller organizations. I don't
think people get quite as inspired as if they could see how it could
become a form of government, because that's pretty grandiose and high
Futarchy is trying to show how it might look if you went all the way
to that level of application. Not that I'm recommending that we do
that first at all. I would recommend we try small scale experiments
and work our way up to large organizations, but still that can be an
inspiration to go down the path because you hope you might go that
Of course it's also related to other proposed forms of government and
so it has some differences and similarities to others. You can think
about what it's emphasizing and what its problems are compared to the
Richard: We put aside, we started with the markets for CEO
performance. Could you talk a little bit about the broader, the
grander idea? How would your ideal government function?
Robin: In the CEO case we have an outcome that we agree on that's the
relevant outcome, IE the stock price for this public company. Then we
have discrete decisions. Do we fire the CEO or not? That's the key
things we need to make this apply to other things.
For a national government say, the discrete choices would be each new
bill that's proposed. We'd be asking, “If we pass this bill are we
going to be better off?” Then for the outcome we're going to need to
construct it more for a nation. The idea is the legislature still
exists but now they vote on bills that defines a national welfare
It's a bit like say GDP at the moment, say the Bureau of Labor
Statistics defines GDP and then it oversees the measurement of GDP. Of
course many scholars often look at GDP numbers and say that the
countries with higher numbers are better, and try to recommend
policies that would increase your GDP.
Well, now we’re going to authorize this same sort of agency to
estimate number like GDP except we’re going to tell them to put more
things in the number. Bills before Congress would say, “Count more
trees, and count leisure, and count international reputation.” They
would just make a bigger formula that included all the stuff they
cared about in this measure of national welfare.
But now there would be assets, financial assets that pay out in units
of national welfare. If national welfare ends up being 12.9 then it
pays out $12.9 or some other financial unit. Now we can then bet on
national welfare. But more importantly we can bet on national welfare
conditional on whether a particular bill passes.
Then for each bill we'd have these two prices, the price of national
welfare if the bill passes and the price if it doesn’t, and then the
difference between those two prices is a direct advice about whether
or not to pass that bill. We could set that on the side and just have
it be giving advice to a legislature, or we could put it directly in
charge and just say, “When the market approves of it by having a
higher price then that's just as if the legislature had passed it and
it just becomes law.”
Richard: To just make sure we’re clear let’s say we’re debating
Obamacare. Then we would have to first have sort of an aggregate
measure right? We’d say, “What's GDP going to be?” Maybe give that
like 40% of the calculation. What’s the human life expectancy in the
US going to be in 10 years or whatever. Then you would just do this
for a bunch of different things. Then you would just have a market,
basically say, “Okay. If Obamacare passes it's going to be X, and then
if Obamacare doesn't pass it's going to be Y,” right?
Richard: And then…
Robin: This national welfare function, we don't have to redefine it
for each new bill. It's just the standard welfare function that we
have for all the bills we consider. Then sometimes we'll change the
welfare function and then we're changing our metric of consideration.
But basically we might have say two slots of day where a new bill is
considered by this process, or might even have say 10 slots a day.
At each slot we might even have an auction to decide who gets to put
their bill up during that slot. Then during that hour say, or half
day, the market decides whether that bill passes. Then we go on to the
next bill, and the next half day. Again the national welfare measure
would just be the same measure that we had decided on months ago.
Richard: Yeah. Okay. You don't need the ascent of Congress to do this?
Robin: Right. If you want to just make it be advisory you would just
need the legal permission to create these markets, and then we can
just sit on the side and we could track say, when the Congress passed
a bill versus didn't pass a bill did it follow this market advice, and
see the net effect of these things. But it would be better for many
reasons if it was just more directly in charge.
Robin: We already have a democratic system where there are often
experts who know the right thing about bills and they tell each other
the right things. The public never hears that and so politicians just
ignore it. The question would be if this was just on the side as an
advisory thing would the public pay any attention?
Richard: Yeah. How serious are the regulatory barriers? I mean if you
had enough money could you do this for the things that Congress is
debating right now?
Robin: Well, I wouldn't do this as the first thing. Again, this would
inspire you as an end point that you could eventually get to, but a
shorter term project would be say in a presidential election you've
got the Democrat or the Republican who might be president. We could
just estimate some outcomes for the nation conditional on whether the
next president is Democrat or Republican right?
We could have GDP. We could have life span. We could have war deaths.
We could have all sorts of numbers and that would be a straightforward
thing to do every presidential election. We could just be estimating
the consequences of who we elect. We really haven't done that before.
Richard: Is that the best way to do it or is that going to pose
difficulties? Because if the market comes back and it says Democrats
are unquestionably better for the country than Republicans or vice
versa that’ll poison the idea of having markets with half the country
Robin: Well, you will want to collect a track record over a longer
time. My overall plan is that I want these things to happen in small
organizations to get track records there and then slowly work their
way up to bigger things. We don't want the only main trials to be
national level politics. That doesn’t make sense because you don’t
even really get enough data there.
You want a lot of smaller decisions where you get a lot of data and
where you can show that this is just working well. Think of it like...
I’m old enough to remember a time when the government started to use
computers for things. They did that because the private sector was
using computers for things and people said, “Hey. Why isn't the DMV
using computers if the private sector is?” They got kind of
embarrassed and they decided they would try to use computers right?
Because it was just obvious that elsewhere this was a pretty good
idea. That's how you want to do innovation ideally is you just want to
have lots of people using it because it just seems to work. Then
eventually the government is shamed into doing it too.
Richard: Yeah. Do you see opportunities out there besides the CEO
markets? What else could be promising places to do this?
Robin: This mechanism really is quite general and it can apply to a
very wide range of problems. I would basically mainly be opportunistic
about where there's a group of people who are willing to try it there.
But just to whet your appetite we can go over a lot of options here.
Most organizations hire people regularly. Each time they have a job
opening they usually interview several people for each job. When they
hire them for that job they're hoping for certain outcomes. Usually
they have some internal process that rates how well that employee is.
They could in two or five years have a rating for that new employee of
how well they did. It would be straightforward then to have markets on
each candidate for a particular job position saying, "What will be the
rating of this employee if we hired them in, say two or five years?"
That could just be a general process every time you had a candidate
for a job opening.
Of course every time you got a project with a deadline you should have
a market on whether you'll make the deadline. You could even have that
market on whether you make the deadline give you that probability
conditional on changes you might make to the project, i.e. pull back
on the requirements. Add resources.
Those are all sort of obvious... Change who's in charge of the
project. Those are all obvious things you might do to see if you can
make a deadline. Students who are high school students applying to
college could have markets saying if they chose college X, what will
their outcomes be say after they... In five years, or if they chose
The markets could tell them which college to pick. Or on the other
side of the equation the colleges could have markets in the student
applicants saying, "If we accepted this applicant how well would they
do after four years here in our program," say.
Richard: Who would be betting on, for example the individual kids
going to one college or the other? Their friends and family or how
does it [work?
Robin: Well, so for all of these markets there's a key question of who
do you allow to participate? One of the issues there is that whoever
you allow to participate gets to see the information and the market
prices. They're also the people you want to reveal information to so
they could be better informed at making choices.
If you had a student who was willing to let the world see their test
scores, and their application essay, and even some description of
their priorities or whatever, maybe personal information, then you
open that market to the public. Then people could browse that material
and make a guess about that particular person.
There's a trade off though. If they don't want to reveal as much
information about them then they don't have to, but then fewer people
in the market will be able to make a good judgment and they will just
be degrading the quality of their estimate as a cost of keeping some
privacy. You know that's completely reasonable to do but you just want
to make that trade off.
Another application that would probably be even more disruptive is
when you're thinking of marrying someone and you ask the markets, “How
would our marriage go if we get married?” Or you could even think of
dating particular people and ask, “How will it go if I date this
person?” Those are things of course you would mostly want to be asking
people who knew you somewhat better, but the whole point of these
markets is you don't have to decide who's good at answering questions.
You just open it up and you let them decide.
Richard: I think in that case in particular there’s such an
informational asymmetry between you as an individual and everyone else
in the world, that if there's one place where a betting market is made
that you can not improve on just people making their own decisions
about the marriage, and dating, and things like that.
Robin: Now other people who were in that market would want to know if
you were betting in it too. There's a general phenomena in these
markets where people should be wary of betting against people who know
a lot more than they do. This is, for example, one of the rationales
for limitations on insider trading and stock markets.
There are many reasonable choices to make there. You could tell the
world, "Well, I'm going to be betting in this market on whether my
marriage works but you're welcome to bet too." They might think,
"Well, I don't know as much as you do. I'm not going to touch that."
In order to get them to bet you might say, "Well, I'm not going to bet
on that and neither is anybody in my family," right?
You could just set a limit on who's going to be allowed as a way to
entice people farther away to participate. Similarly a company who has
a stock market on that company, if they could choose to allow insiders
then they'd have a choice. If we allow insider trading then people who
are not insiders will know they might be trading against insiders and
then that might put them off from trading on that stock.
Or on the other hand if we allow... If you prevent the insiders from
trading we will entice more outsiders to trade. On the other hand
we'll lose the information those insiders would have given had they
been allowed to trade.
Richard: Yeah. That makes me think. Do you have an opinion on laws
against insider trading? Do you think that they're generally good or
Robin: Well, it seems to me that it's the company that has the cost,
so it's not clear to me why anybody else should be having a say.
Whoever owns the company is making the trade off in whether to allow
insider trading. Now, of course if the company is not being run in the
interest of those investors then we have to worry about making good
choices about insider trading, but then we have to worry about making
a good choice about everything the company does.
That's what we were talking about before when companies were not run
for the maximizing profits then the investors have to worry about what
they are being run for, and whether they're going to be basically
stolen from the people who are managing things. But insider trading is
one way they could be stolen from. But there's 1,000 others.
Richard: Yeah. One place where this might really work is I think
sports. This is something that you could get a lot of people betting
on because people love arguing about sports. You could have a thing
where you have the NFL or NBA draft and people always debate should
you draft this player, or that player? You could have markets easily
based on how many wins…
Robin: Sure. I just happened to have a conversation with someone on
that a few hours ago, but it's still an idea that's going to happen
some day. When people say betting on a football game today, you’re
betting on who's going to win the game and say by how many points, but
you might have more fun betting on each play.
That is not only betting on what the play will be and how it will go
out but recommending on the play. You could say, “If we pass this play
how many yards on average will we get? If we run this play how many
yards will we get, or what’s the chance of making a first down?” You
could bet on the consequence for each play.
Similarly in a basketball game you could bet on taking out a player,
putting a player in. In a automobile race you could bet about when you
make a pit stop, when you don't. There's all these choices in games
and I think people would find it more engaging to bet on
recommendations for choices in the game.
Richard: Yeah. Yeah. You can already with the sports betting. If you
go to the websites you can bet for example not just on the game. I
don't know if you can do conditional bets. I have never seen that.
Robin: Right. I’ve never seen conditional bets on choices.
Robin: That's the key thing here, the choice of a player or choice by a coach.
Richard: I've seen stuff like who will win the tip off in basketball,
and who's going to win the coin toss in a football game? Who's going
to win first quarter?
Robin: I once looked onto doing this for war college war games. As you
may know many war colleges have war games where they put teams on
different sides and give them various equipment in a simulated war.
They have them go to war. You could imagine, well letting everybody
else who’s watching the war game give advice about particular
strategies in the war game. That seemed plausible to me but then when
I talked to people at war colleges I found that most of these war
games are kind of fake.
Robin: They have a predetermined outcome that’s some lesson they want
to tell, and so they aren't really letting it be open to winning one
side or the other.
Richard: No, that's funny because you'll see headlines every now and
then that'll say, “Oh, my God. The US loses to China in a war game,”
and yeah I always thought that that’s…
Robin: I’m sure there probably are real war games somewhere. They just
aren't at the war colleges. That's where I was thinking I could
convince somebody to try this sort of thing.
Richard: Yeah. Have you had any partial successes? Are there projects
that are getting off the ground that you are excited about? Have
people taken up your ideas anywhere?
Robin: Well, there's been a whole pile of work in blockchain where
people have created prediction markets on platforms and tools on
various blockchain systems. Unfortunately most of that work has been
at a low level of tools and platforms so they haven't really gotten
very close to the applications. Blockchain people are just mostly
software people and algorithm people.
They're not so much business people who work with particular clients.
They just haven't been very eager to get their hands dirty working
with particular customers who might want to do markets and particular
things. But they've still been collecting all these tools and so
hopefully some day somebody will use all those tools to connect to the
Richard: What is the advantage of the blockchain? What is the
difference between a blockchain say market versus just something like
Robin: Well, that's an excellent question. Initially the story was
that blockchain was out of control, that it couldn't be regulated so
you could set up a system on a blockchain. If the regulators didn't
like it they didn't have anybody to go to stop it. The blockchain just
kept going regardless of who didn't like it.
That was a big selling point. People said, “Well, look at all this
financial innovation we can do because we are free from existing
regulations on the blockchain.” That's what they said, and then a lot
of companies formed on this basis.
But these companies didn't take personal strategies to match that
rhetoric. You would think if your plan was to put a product on the
blockchain and that you were going to say nanny nanny to the
regulators because, “You can’t get me,” you wouldn’t have a big public
presence with the headquarters, and your picture in the magazines, and
show up in person at conferences right? Because…
Richard: Yeah. Sure.
Robin: ...well, that makes you more obviously a target right? That's
what they did though, and then they sort of back pedaled and said
later, “Oh, we're following all the regulations.” But you know people
don’t really believe that. It's been this big question, to what extent
will governments crack down on these blockchain things that at least
from the government regulators point of view are not following their
Richard: Yeah. Do you have in mind the Coinbase news that had come out
the last few days, or was it today or yesterday that-
Robin: This is just a continuing issue. I don't have any particular
recent event in mind but there are lots of stories about regulators
thinking of doing a lot more regulating and cracking down more. This
is a big question about blockchain is how far will they crack down,
and what will be the consequences? Of course people say, “Well, in
principle Bitcoin can keep chugging along even if they do crack down,”
and no doubt that's true to some degree.
But the question of how much activity there'll be is still somewhat
open. You could have it chugging along with a far lower activity
because a lot of people have been discouraged.
Richard: Well, yeah. Just for the listener we're talking now on
September 8th, 2021 so who knows when people will be listening to
this. There's been just news in the last few days about Coinbase, and
the FCC, and I don't know all the details but it's something like
Robin: In the last few months China had this big policy of saying, “No
more mining here.”
Richard: Yeah. Exactly.
Robin: There was a big drop I believe in prices right at that point
reflecting the fact that people then realized there'd be a lot less
stuff happening in China.
Richard: Yeah… that wasn't reflected in the fact that Bitcoin has been
doing pretty well recently right? It was apparently not fatal, or not
that bad for Bitcoin right?
Robin: The volatility of these prices is so large that I wouldn't draw
much of any inferences from the price movements. It's just wild.
Richard: Yeah, but the price for Bitcoin has been doing well right?
Isn't that an indication that whatever the Chinese did it wasn't
hurtful to the longterm prospects of cryptocurrency?
Robin: Well, the volatility of these cryptocurrencies is just really
large, so that makes it hard to draw many connections between
particular events and what's happening with it. That's an issue about
these conditional markets. People have noted that if you have a stock
market sequence and then you have events you can try to correlate
events in the stock market sequence in order to untangle conditional
estimates. For example people have tried to do that with betting
markets on elections in the stock market in order to say which
candidate is better for the stocks by looking at the correlation
between those prices.
It's possible to do but the price movements are noisy and so there's a
lot of room for arguing there. Just the direct conditional markets are
a much clearer signal than these correlations in prices.
Richard: Yeah, there's noisy but there are a lot of elections right? I
mean you could even do things like in places that are... You have all
the national elections right every two years, and then you have even
local elections when you have mayoral races. I guess there's not a lot
Robin: Right. You just don't have betting markets in all those races.
Richard: Yeah, but you have corporations that are located there for example-
Richard: ... or industries there. It seems like you... Anecdotally it
seems that... I remember. Do you remember Bernie Sanders during the
primaries? He won some primary and then he said, “Oh, the...” Or he
lost a primary. He lost and then he said... I think he lost a primary
and then the market went up. Then his argument was, “Look. These
billionaires are so bad.”
Robin: “I’m bad for business and that's the way I want to be.”
Richard: Yeah. He was proud of this. Given the political culture it
was the other way around. He might have won and it went down. I don't
remember. I think he lost it though.
Robin: A standard story in finance for a long time has been we've got
thousands of market prices in the financial world, and there's all
these events that happen in the world so in some sense there's really
all this information embodied in all these financial market prices,
especially if they fluctuate every minute or so.
In principle the answer to all your questions is somewhere out in this
vast cloud of financial market prices. That may well be true. It's
just not at all transparent. You'd like a clearer answer. A thing that
betting markets can do is give you a more direct, clearer answer even
if in some sense that answer was already implicit in all the other
Richard: Yeah. I think transparency is key because if someone is doing
this research on the effects of stocks in the market of election
outcomes I would think they’re probably on Wall Street. They’re
probably not in political sciences departments. Would that be your
Robin: I mean they're in both places, but again you know there's so
much dispute, I mean there are so many interested parties that with
statistical analysis it's just possible to do it so many different
ways to get the answer you want. I'm sure if you're in the know you
could know who was playing those games and who's not, but the rest of
us from the outside find it harder to tell.
Richard: Yeah. But your idea of incentives and people getting things
right I think would give you an intuition that people playing the
stock market are doing better than political scientists, or you don't
have that intuition?
Robin: I mean it’s definitely true that there's a lot of very smart
people playing stock markets and financial markets, and that a lot of
them make money. But they mostly make money from the other people
trading in those markets which has to be a warning against ordinary
people trying to go out and speculate on these things.
That would be my biggest advice is if you’re going to play the stock
market you should be part of one of these organizations who really
knows what they're doing. Because if you go out and just try to bet
against them most likely you're going to be on the other side of their
trades and losing.
Richard: Yeah. Okay, yeah. This is all interesting. It seems like
you’re saying it a little bit differently because... Two different
things. Because you're saying that you want to start big with the
government because it's high status and you want to start from there,
but you're also saying we could start somewhere, maybe sports leagues
Do you see the big thinking as a way to incentivize people and just
get people excited about this stuff? But do you think practicality
people have to start a little bit smaller?
Robin: Definitely just pointing to the big applications can inspire
people even if you’re not going to do them first. Making that
connection to people can make them more interested. This is also true
for many kinds of innovation. Most kinds of startups or companies
you'll have each person doing a pretty small think, but you'll want to
tell them about how that's connected to the big project of the
That makes them more interested and motivated to be part of the whole
project right? I definitely... For the purpose of collecting data and
getting solid progress I'd rather do small things first. On the other
hand I do think there's this interesting status strategy of starting
from the top down. I don't know if you remember the movie The Social
Network which is about the early days of Facebook.
The story was there were other social networks before Facebook, but
they started with average people and then had an average pool of
people you could connect to which wasn't nearly as tempting as
Facebook because it started at the very most prestigious place,
Harvard, and slowly it worked its way down the status hierarchy adding
Yale or Princeton. Then at each point as they expanded it people were
eager to join because they were eager to associate with these higher
The general lesson here is it’s often if there’s a status barrier to
doing something it’s easier to start at the top and work your way
down. I think firing the CEO is a example of starting at that top. If
we think about all the different decisions companies make it hard to
find a more prestigious and important decision than firing the CEO.
If you could just directly legitimize using speculative markets to
make that decision you would have indirectly legitimized lots of other
decisions, because people would say, “Well, if you can use that to
fire the CEO you could use it to fire the CFO,” right, and CIO?
Robin: Then maybe to regional manager, and maybe to pick an ad agency
right? You’d work your way down the less prestigious decisions but
each one of them you could have said, “Well, as long as you’re willing
to use it over there why not here?”
Richard: Yeah. You mentioned these things backfiring, so for that
specific example, The Social Network, I mean if you’re in politics
today and you say an idea came from Harvard that’s usually I think a
negative signal. I think most people say that’s bad, or at least they
pretend to think that.
It could have the opposite effect I guess. If betting markets become
something that people in Washington do and they’re a little bit too
complicated for normal people to understand there could be a backlash.
Do you worry about that?
Robin: Yeah. Let’s talk about the public perception of betting markets
and what sort of attitudes there are to them, and issues with public
reaction. I was involved in a publicity fiasco in 2003 when I was part
of a DARPA project where we had a research project set up to create
betting markets on geopolitical events in the Middle East.
Then on a Monday morning two senators had a press conference where
they declared that this project wasn’t going to be betting on death,
betting on terrorist attacks, and that was terrible. Then by the very
next morning after that the secretary of defense in front of Congress
declared the project dead.
In those 24 hours they never asked us if the accusations were correct.
They didn’t need to because it was such a tiny project. Why bother to
even think about defending it? But that shows that many people have
some mental rules about, they don’t think you should be betting on
death. That’s just not appropriate. It doesn’t matter why you might be
doing that right?
People have some things they might be uncomfortable with betting on
and that’s a thing you should stay away from is betting on death, say.
But you’ll notice that most of the business press tends to report news
in terms of financial market price movements, and they don’t tend to
question those movements.
They try to explain them but they don’t question them. If the price of
IBM goes up the reporters don’t say, “Well, that was a mistake. It
should have gone down.” They might say it went up because of this or
because of that, but that’s most accepting the prices as good
estimates and then trying to explain them.
Now sometimes people will tentatively say, “Well, maybe these things
are too high there or too low here.” But that says that in the
business press at least people do defer to financial market prices as
sources of information. Then the potential that could apply elsewhere
in society there is a lot of deference given to financial market
prices in a wide range of contexts.
Richard: Yeah. Yeah. I guess it depends on how sophisticated your
audience is. It’s funny. You mentioned the people don’t like death
markets. There was at PredictIt... There’s all those markets, will
Bashar al-Assad or will Kim Jong-un be in office by this date?
There was one on Kim Jong-un last year. That’s basically, will he be
still the leader of North Korea by the end of 2020? It’s basically a
death market because there’s not much chance of him getting
overthrown, or voted out, or anything. There were some rumors about
him having bad health. He was out of the public eye for a while.
There were rumors that he was dead in the press. The market got down
to something like 50/50. I remember I bet on this. I bet that he would
actually stay in office. He did, and Kim Jong-un-
Robin: Well, we have a more dramatic example of that in the US
presidential betting markets. You might know the chance of Biden at
the moment is like 20% being the next president-
Robin: ... which the chance of Trump is 30% right? But Biden is the
president right now and Trump lost the last election, so why would the
Biden odds be so low? Well, the story is he might die, or become
Richard: Yeah, I think people also think-
Robin: ... incompetent and then not a candidate.
Richard: Yeah. I think it’s some combination of... You know it’s funny
because the market has been underestimating Biden for a really long
time, or at least in my opinion underestimating him, or betting
against the market. I’ve been winning, but yeah even when he basically
wrapped up the nomination it gave him a 70% chance of being the
nominee which I thought was ridiculous.
It also always overestimated the chances I thought of Trump dropping
dead, not just when he had COVID because there was that brief period
where it looked like he could actually die. He was in the hospital…
Robin: Let’s just pause and notice. It’s quite possible to look at
these prices and say, “Well, that doesn’t look right,” just like you
can read a newspaper article and say, “That doesn’t sound right,” or
any other analysis anywhere else right? Why am I recommending these
market prices compared to anything else? Well, first of all there is
this track record they do better, but there’s this other argument
which says, “Okay. If you read the newspaper article and you think
it’s wrong what can you do about that?” You can just complain. If you
look at the betting market price and you think it’s wrong-
Richard: Yeah, exactly.
Robin: ... you can make money going, betting against it and fixing
those prices. That’s the engine that makes them more accurate is all
these people that can be enticed and invited to come fix the problems.
Richard: Yeah. Exactly. Yeah. I bet on Biden not dying, and Trump not
dying, and both of them making it to election day. Yeah. I made money
off of that. [Laughs]
Robin: There you go. I’m not going to certainly argue about that no
one could ever find a mistake in these things. The question is when
you can find a mistake in things which institution gives you the best
opportunities to fix it?
Richard: Yeah. And you can compare the betting markets to, just like
punditry, because when I listened to pundits they never gave Biden a
chance either so it’s not like the pundits were all saying it’s going
to be Biden. I remember most people were talking…
Robin: Let me at this point admit what I would say is the biggest
problem with futarchy and with some of these other decision markets,
which is that they make hypocrisy harder, which is actually a problem.
You might think, “Well, hypocrisy is a bad thing. Making it harder is
good right?” Well, let’s walk through that.
At the moment, say ordinary people can claim to love trees and they
just care a lot about trees. Trees real estate wonderful and they
certainly wouldn’t want to have fewer trees. But then they elect
politicians who have to make choices about trees versus other things.
Those politicians can probably read the public and say, “Well, they
say they like trees but they don’t really like trees that much, so I’m
not actually going to go save some trees by interfering with something
Then if the public ever finds out that somehow not everything was
being done to save trees, the public can complain and say, “That damn
politician! They’re corrupt! They were bought out and I sure hate
them. Let’s throw them out of office,”right? Because the politician is
allowing the public to be hypocritical, to pretend they care more
about trees than they do.
This happens all through the political system. For example we have
laws against prostitution that we don’t enforce very well, which
allows a lot of prostitution so people can have prostitution and then
pretend they’re against it. Same thing with drug laws. A lot of our
laws are in some sense to allow the public to pretend to have certain
positions that they don’t really have.
The prediction markets, the futarchy decision markets don’t make that
so easy. That is if in the national welfare definition you put a high
weight on trees, then the speculators are actually going to approve
the policies that do get you more trees. If that’s not what you wanted
then you won’t be happy.
Richard: Yeah. But I mean there’s such a step removed when you’re
talking about voters and what they want right? They want trees…
Robin: But I think it’s... Even when we talked about the example of
hiring people. You have a couple of job candidates and you want to
hire the best one for the company supposedly right? Well, I think
actually when a person volunteers to be in charge of a hiring
committee they don’t actually intend to pick the best person for the
company. They intend to pick the best person for their coalition in
Forcing these metrics of who is best for the company would interfere
with their plan to pick someone who is decent for the company but even
better for their coalition. That’s just the sort of thing that happens
in many organizations. You would be uncomfortable setting up this
process that didn’t give you the flexibility to pretend to do A while
really doing B.
Richard: Yeah. Changing gears a little bit do you think that perhaps a
foreign country, perhaps some kind of dictatorship might be more
amenable to these kind of things? Because think of it this way.
They’re often looking for a sense of legitimacy, a reason for status
that is not based on the dominant culture which says you need
elections, and you need democracy, and you need popular legitimacy.
Robin: I think to answer this we have to realize that there is a world
elite culture. This was very striking to me at the beginning of the
pandemic a year and a half ago. At the beginning of the pandemic the
usual public health experts took their usual positions say against
masks, and against travel restrictions, and things like that.
Then this looked like an important thing and all the sudden elites
everywhere started talking a lot about the pandemic and discussing
what they thought was the right thing to do, and they decided
something else. They came up with a different plan with lock downs,
and masks, and things like that. Once the elites had decided on that
all the public health experts caved and said, “Oh, yeah. Yeah. That’s
what we should do.”
Not just in the United States or Britain. All around the world.
Remarkably the policies adopted around the world have not varied that
much from what the elites together around the world recommended. If
you looked in other areas of policy like nuclear energy, or
electromagnetic spectrum, drug regulation, policies around the world
don’t actually vary that much.
There is some sort of world culture that talks and decides what the
right thing to do is. Then everybody does it. There really aren’t very
many exceptions. A remarkable thing was that early in the pandemic
many of us wanted there to be challenge trials where we would test
vaccines quickly and effectively, or even test something like the
regulation, and basically nowhere in the world did they allow
Only say recently in Britain have there been the first challenge
trials, because just medical experts everywhere. You might think, “Why
didn’t some dictator somewhere want to be a hero by defying the world
medical ethics experts and doing it different?” None did, right? That
really suggests that dictators around the world more crave the
approval of the world elites in doing things the way the world elites
want to, and their political power at home is more strengthened by
appearing to follow along with what the world elites say.
Richard: Yeah. Political science, they call this a logic of
appropriateness, and this is what guides government behavior. Although
China sort of did that. I mean what China did was go much harder on
lockdowns and much harder on mass testing than other people.
Richard: That was a limited extent but they didn’t do human challenge
trials to my knowledge. But they did do things that were different…
Robin: It’s important to notice there is variation in regulation of
the world, but it’s also important to notice how limited it is.
Richard: Yeah. It’s within a narrow range. That’s true, yeah. You see
this on social issues. You see like Black Lives Matter protests in New
Zealand, and you see LGBT flags. All the countries in the world
decided that gay rights was important at pretty much the exact same
Robin: This was really a problem for large social innovation. I’ve
really over my life thought about lots of big ways we can make big
changes to a lot of social institutions, but in a world like this
where everybody wants to do what everybody else is doing it’s really
hard to get anybody to try any big changes.
Richard: Is an answer to this perhaps geopolitical tension? If the US
and China become best friends, maybe they converge, if they hate each
other maybe they do completely different things? Could this be a hope
that you have international tensions and you have these blocks, and
then at least people do different things?
Robin: I don’t know, but a lot of people have mentioned recently how
badly say the US Military managed in Afghanistan for several decades.
They compare that interestingly to how flexible the US Military was in
World War II after a bunch of big losses early on. The remarkable
thing, the US Military at the beginning of World War II was not very
well run and not very well organized. They had lousy suppliers and
Then they made a bunch of big losses early on. Then they thought it
was important enough not to keep doing that so that they fired people
and fired suppliers. They now put performance as a priority because it
was a big war. Apparently that’s the kind of thing it seems to
require. But the pandemic apparently wasn’t such a thing right?
Robin: The pandemic was not a big enough crisis that we fired people
who did badly on it. Neither was Afghanistan. We’re in a world where
we have these big things we do wrong but they somehow just aren’t bad
enough to really scare us into trying different things. The question
is where will we ever see some nation or big organization that’s
scared enough about losing to be willing to roll the dice and try some
Richard: When you look at the American Military established under
World War II I mean the military establishment was a new thing. You
were building basically something from scratch. Now you have all these
vested interests. You know it’s funny. The places, the countries with
the most US Military… the most military personnel in the world are
actually Italy, Germany, Japan, and South Korea right?
Robin: Those are risky, dangerous spots. You’d want troops there wouldn’t you?
Richard: Yeah. Well, maybe but if you notice they have something in
common. Those are the Axis powers and the Korean War right?
Richard: Basically they’re the exact same place they were in 1945 to
1950 and so-
Robin: Hysteresis right? Enormous path dependence?
Richard: Yeah, exactly. Enormous dependence. Yeah, Italy. Is that
obvious? The most dangerous place in the world. Maybe, maybe not.
Robin: No, and it’s not remotely obviously the most dangerous place in
Richard: Yeah. Do you look around the world, and right now do you see
variation in the extent to which countries are willing to not only
take risks but take risks specifically along the path that you
There was an article in The Economist earlier this year. I don’t know
if you’ve seen it, but the UK, the intelligence agencies have a
prediction market but it’s called Cosmic Bazaar. I actually googled it
and I couldn’t find it. If you can’t find it on the first page of
Google then that’s not a good sign.
Robin: Right. The US intelligence agency has also had an internal
prediction market going for a while. They’ve had this interesting way
they handle it politically. Inside the CIA the coin of the realm is
reports, or analysis. Somebody writes a report that analyzes a
particular place like Italy say, and summarizes the key strategic
situation there, and the key intelligence situation.
There are these betting markets that exist where people can bet and
forecast on these things. But the rule is they don’t cite the betting
market in their reports. The market doesn’t get credit for influencing
the reports, although it probably does influence the reports. That
limits the degree to which it gets budget or attention because why
bother to bet in the market if you’re not going to get credit there?
Richard: Yeah. Yeah. There is a paper coming from the intelligence
agencies that compared super forecasters and people who had proven
some track record versus people in the intelligence community with
access to classified information. Phil Tetlock showed me this paper.
Yeah. You could probably guess what happened.
The intelligence community lost to the people with the track record of
forecasting. You could see why the intelligence community might not
want to hype up this result. It seems like there is a lot of data out
Robin: Right. Clearly the intelligence community is basically saying,
“Yes, we know we could get more accurate estimates from that but we
don’t want them. We like our current system,” right? If they were
scared that might turn out different right?
Richard: If they were scared of China, yeah, taking…
Robin: Right. Some external threat. The same thing was true about my
betting market publicity fiasco in 2003. This was soon after 9/11 and
just two years later. People looked at the betting markets and said,
“Oh, you’re betting on death. That’s terrible. You have to shut them
down.” If they were really scared of terror attacks, if they were
actually feeling a large degree of threat they would have said, "To
heck with this rule against betting on death. Let’s turn on these
markets. Let’s find out where the attacks are going to be so we can
Richard: They say Bin Laden is just going to put all his money in the
market and then attack?
Robin: Well, that was crazy because these were relativity thin
markets, and they have a lot of money at stake. Basically a fact that
people don’t know about the markets is that many people criticize by
saying, “Well, somebody will try to manipulate the markets by betting
on one side not because they know better, but because they’re willing
to lose money in order to distort the market price.”
That is true. There are people willing to manipulate markets, but that
actually makes the prices more accurate. For example in the fire the
CEO market you say, “Well, the CEO wants to keep his job, so he will
bet in these markets in order to make himself look like the price will
be higher if he stays, and lower if he leaves.”
Yes he would have an incentive to do that, but when other traders know
that somebody will be trying to manipulate in the market they know to
increase their trading and their efforts and that compensates, and
actually on net makes the prices more accurate. That’s something we
see in theory and we’ve seen in the lab, and we’ve seen in the field.
These markets are robust to attempts to manipulate. In fact people who
want to manipulate them make the prices more accurate.
Richard: Yeah. Do you think that one way to think we should do is
raise the status of thinking about these things, and thinking about
betting markets? Because it seems like there is data out there. I mean
you could go onto the stock market. We’ve talked about predicted. You
can go back to elections.
You can calculate some kind of conditional probabilities. Do you think
a good thing could be just have more economists just interested in
these questions, and looking at data, and comparing studies?
Robin: It couldn’t be bad, but the question is just how much hope
should you have? That’s a key question about a lot of institutional
choices. Honestly if you just look at institutional issues in the
United States or other countries and you ask which kinds of choices do
people get really excited about, and emotional, and interested in, if
you tell them about a policy change that would just benefit most
everybody they yawn and can’t be bothered to pay attention.
They would just lose interest right? If you tell them about a policy
change that will help their side and hurt the other side ooh, they
just love that. People are really eager to fight in a battle. A lot of
the topics that energize them are the topics that represent a conflict
between one group and another group. That means institutional changes
are just boring because even if you can find out a better institution
it just doesn’t map onto their side versus the other side.
Richard: Yeah. Maybe that gives me an idea for an investment idea. You
see these things in the conservative press. They’re talking about some
corporation has gone woke right? They have a Critical Race Theory or
trading in Coca-Cola or whatever. Basically you could have some kind
of mutual fund that just shorts the wokest companies, whoever could
short whoever Fox News happens to be complaining about at the time-
Robin: Right. And that would be a way in which you are taking a side.
Then that would be more energizing to people. People would just like
Richard: Right. Or you could invest-
Robin: ... take a side.
Richard: You could invest in those corporations. Right.
Richard: Exactly. Then eventually you would learn if this thing lost
money year after year you’d learn something…
Robin: Sure. And in fact ordinary people would be more interested in
betting on the stock market if they could simultaneously be taking a
political side with their stock market bets, which is…
Richard: But they can. Yeah. Right now we have all these outrages over
some corporation is doing this or that, so you’d figure... I wonder if
that’s actually inspiring more people to get into the stock market?
It’s hard to tell with Robinhood expanding, making it easier. But you
could imagine some entrepreneurs doing that right?
You could imagine somebody setting something up and advertising to
people, “ We’re going to short all the woke corporations.” You could
imagine them doing well.
Robin: Right. The fundamental problem is how do you create, or find a
created community that just cares about overall benefit of a nation,
or a company, or things like that? Unfortunately one of the main ways
that’s ever happened is war. We talked about World War II a bit
There’s a literature that suggests that war has been one of the main
engineers of innovation for the last 10,000 years which is a terrible
fact because it means if you want more innovation you’ll have to have
more war. War is just terrible thing.
Robin: But all this time of peace and prosperity we’ve had for a while
here, we also do seem to see a degradation in our interest in coming
together for overall collective benefit, and more focus on internal
divisions, and more focus on just doing whatever helps us in these
little local battles and not caring very much about the overall nation
because we’re assuming that’s okay.
Richard: Yeah. Well, you see nationalism manifest itself at say soccer
games, like Germany and France are not fighting wars but they’ll go to
soccer games. There’s this hooligan culture in Europe where people
really, really get into it.
Robin: Right. But would they be willing to change some key national
policy in order to make sure they could win more soccer games?
Richard: I think it would have to be... I think the class of the
people who makes the policy is different from the soccer hooligans
right? It would just be a matter of the elites having some kind of
national pride. It doesn’t even have to be national. Could it be just
a class pride, or a pride in background, you know these aristocrats?
Before there was mass nationalism there was war right? There was these
aristocrats and they had their own value system. They had their codes
Robin: Well, I mean the key thing would be say if the elites of
Romania for something want Romania to look better in the world’s eye
and try to make Romania be run better overall, that could be an energy
that would focus on overall quality of Romania as opposed to the left
elites in Romania fighting the right elites in Romania right, and
being in a battle of taking down the other side.
Richard: Yeah. It sounds like what’s really dangerous is there’s this
global elite culture where it’s not just public health. It’s like on
social issues, on just...
Robin: Right. They have strong consensus in you just have to follow
the global elites to be part of them. There’s not so much competition
within those global elites in that sense for doing things effectively.
Richard: Yeah. The competition is just the less well off people in
their own countries-
Robin: If you think of say, Elon Musk say, right, if the global elites
go, “Tsk, tsk Elon Musk,”and say, “Well, he’s not doing it right. He
needs to follow these regulations right,” and then Elon Musk is
actually making things better, and making a better internet and a
better space industry or whatever, well does Elon Musk... If he wins
does that change the elites to be more supporting him, or do they just
get more mad that he defied them and he seems to be winning?
Richard: Yeah. What do you think about the potential? There’s a lot of
people in Silicon Valley people and the crypto world, people like my
friend Balaji Srinivasan and Mark Andreessen, and people like this who
really take a dim view of the Davos set, the New York Times read in
public. I don’t know if they see themselves this way. I’m not speaking
for anybody, but that could potentially be a kind of counter elite
Robin: And the danger is that if the regular elites see this defiant
group of tech elites winning against them that makes them really mad
and wanting to take them down.
Richard: Well, that’s the risk of competition right? The good side, or
the more productive side could lose, right? But if we’re thinking
about how to have competition and how to... If we’re not going to have
wars, if we’re not going start wars then…
Robin: Right. If we can have a fair competition then it would be good
if different parts of the world, if the European say tech people said,
“Well, we seem to be losing against those people. How could we
organize ourselves better,” if the different parts of the world fear
competition and then as a result try to find more effective ways to
organize themselves that’s great. That’s exactly what we want.
Robin: But they need to fear it enough to actually be willing to make
big changes. The prediction market stuff we’re talking about is off
actually relatively big, destructive changes that even tech companies
have not been willing to do.
Richard: Right. Are you involved in any projects at the moment? You
talked about the post 9/11, the DARPA grant. Is there anything similar
going on now?
Robin: I’ve been advising a number of companies over the years but I
haven’t seen big trials of the sort I’d really like to be part of. But
I keep searching.
Richard: If you had enough of an investment, say somebody if they were
some donor who wanted to help you do it would it be a big help or is
Robin: Oh, sure. Of course it could be a big help. There’s two paths
to go. One is do this fire the CEO market in which case you’d have to
go offshore and just defy regulators to set something up right? With
enough money you could do that but you’d have to have a funder who was
willing to be associated with something like that.
The other approach is you go within organizations and you fund these
small scale trials within organizations. Then what you need is both
money and an organization willing to put up with the disruption. Let
me just tell you a story about deadlines.
One of the most successful applications of this over the years has
been deadlines. That is quite often people have a project, and they
have a deadline, and they have these regular project meetings. They
get together and they all tell themselves, “We’re on track. We’re
going to make the deadline.”
Then they open a betting market and all the sudden the prices drop
below 5% that say, “No way. You’re not going to make this deadline.”
Of course the market’s right. That really bothers the people running
the project who don’t want to continue it.
You might ask, “Well, don’t they want to know if their project is
going to make the deadline?” That’s what I want to explain now. If you
have a project with a deadline one of the main things you ask yourself
is, “If I fail to make this deadline what will my excuse be?” I want
to have a good excuse if I fail to make the deadline.
Everyone’s favorite excuse is the following. “We were going along just
fine and then at the last minute some weird thing came out of left
field and knocked us flat. It’ll never happen again. It’s so weird.
It’s so rare. There’s no point in keeping track of this thing or
holding anybody responsible. We should just move on.”
Now that story is interfered with if you have a betting market that
said all along you’re not going to make this deadline. The story had
to be, “We were going along fine and then at the last minute.” That’s
why you have all these project meetings where everybody says, “We’re
going along fine.” Apparently project managers would rather have a
better excuse if they fail than have better warnings about failing the
Richard: Yeah. That makes sense, but that’s one path is just to get
corporations to act in their own interest and you might be able to do
Robin: Right. Actually that is the most promising path. But it would
help to have other people spur them on by funding these trials that
could get them to overcome the reluctance to do these disruptive
Richard: Yeah. I could see the barriers, but it doesn’t sound like
this should be the most difficult thing in the world. You just have to
have somebody out there…
Robin: But I think if you look at the history of financial innovation
and social innovation in general a lot of social innovations were
adopted and changed long after they were possible.
Richard: Yeah. Right.
Robin: For example like life insurance or commodity markets, those
were possible in the ancient world. They’ve been possible all through
history but they didn’t really take off until say the late 1800s.
That’s because it just takes a while for people to be willing to try
Richard: Yeah. Although I don’t think technology is that independent.
You have greater wealth. You have greater bookkeeping.
Robin: Sure. As society gets richer then we just have more room for
lots of kinds of experiments, and as more just random ways in which
something might get tried.
Richard: Especially, yeah it makes sense a lot of this is on software.
Yeah. The cost of computing and all that is going down. Yeah. On that
note are you optimistic about, maybe not in the immediate future but
some day, futarchy in the long run…
Robin: I’m definitely optimistic in the long run. The fundamental
stance to say is when you think of technology you think about gadgets,
and materials, and maybe software, but social technology is also
technology. We also have technologies, how we run meetings, how we
organize firms, how we compensate salespeople, how we vote. That’s all
We’ve been innovating in that technology as well as the physical
technology, but we just have different incentives and dynamics in the
social innovation because people can’t own it as much and so they
don’t create startups to sell it as often. We have a lot more of these
psychological barriers to the social innovation.
If you’re in a company that has physical technology and somebody
suggests making a new material you can probably make that new material
leave your organizational structure alone. It doesn’t threaten who’s
in charge of which divisions so much. But if you have social
innovation it goes to the heart of who’s doing what, and who’s in
charge of what. That’s a lot more threatening.
Richard: Yeah. This has been a great conversation. It’s fascinating.
If there’s anybody who’s out there who’s listening to this who wants
to help, who wants to advance the cause of futarchy…
Robin: You know where to find us.
Richard: They can just log onto Twitter, email you.
Richard: Okay. It’s been a pleasure Robin. Great talking to you.
Robin: Great talking to you.
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