
Futarchy: Vote Values, But Bet Beliefs (2013) - formalsystem
http://mason.gmu.edu/~rhanson/futarchy.html
======
comex
This reminds me of Goodhart's law: "When a measure becomes a target, it ceases
to be a good measure."

Even if betting markets can accurately forecast whether a hypothetical policy
would increase welfare, that would last right up until they actually affect
policy. After all, there are plenty of people with vested interests in policy
and stupid amounts of money to manipulate the market with.

The 2013 paper linked does address the issue:

> What do noise traders have to do with manipulators? Manipulators, who trade
> hoping to distort prices, are noise traders, since they trade for reasons
> other than asset value info. Thus adding manipulators to speculative markets
> doesn’t reduce average price accuracy. This has been verified in
> theory,[xxxvii] in laboratory experiments,[xxxviii] and in the field.[xxxix]

However, I took a quick look at the "in the field" citations and am not
terribly impressed. One of them involved making individual large bets on horse
races and seeing how they affected the odds, then canceling them before the
race was actually run. The other was an overview that briefly mentions two
other studies, broadly similar. None of them seemed like good models of
manipulation under futarchy that would be (a) much longer term and (b) much
better funded.

~~~
zack_amoveo
Attempts to manipulate the outcome actually make a prediction market more
accurate. Every wrong bet creates a prize for others to come and put the price
where it belongs.

It is important to compare futarchy against existing alternatives, instead of
some imaginary ideal. Democracy is easy to manipulate. Each voter has little
incentive to become an informed voter, and the cost to becoming informed is
high. And once informed, each voter has little incentive to vote for what is
best. (the personal benefit of a good election result) * (probability that
their vote mattered) is practically zero. In this situation, people are
vulnerable to bribery and propaganda.

~~~
dragonwriter
> Democracy is easy to manipulate. Each voter has little incentive to become
> an informed voter, and the cost to becoming informed is high.

But that feature is retained in futarchy, since the whole system relies on an
elected legislature engaged in an even more abstract and difficult for a voter
to concretely evaluate task than passing policy legislation directly, and that
legislature remains a major target for manipulation.

------
nkoren
I think I've spotted a paradox.

I'm generally pro-markets, but I don't think they're a panacea. They mostly
seem to concentrate rather than decentralise wealth. If you're poor, you can't
enter the market at all. If you're middle class, you can make some bets in the
market: maybe you win, and maybe you lose, and if you lose enough then you
become poor and are knocked out of the market for good. But if you're rich,
you can afford to hedge and diversify your bets, staking out positions along
the whole of the efficient frontier, hiring analysts to figure out exactly
where that is, and perhaps paying for a bit of regulatory capture so that you
can tilt the market in your favour. Of course even the rich can still lose
money on the market by being complete idiots -- but that's basically the
_only_ way they can lose money.

So, anyhow: betting markets centralise money.

Now let's say that society votes on a value: "we want to decrease inequality".
So they create a futures market which rewards policies that decrease the
society's Gini index.

The market responds with a variety of policies. Some work, some don't. The
policies that work increase the wealth of the people who bet on them. Per the
above, none of those bets will come from the poor; some of them will come from
the middle-class, and a disproportionate share of them will come from the
rich.

Hence, in this system, a policy which reduces wealth inequality is one that
makes the rich richer. Seems like a variant of the Liar's paradox.

A potential solution would be for everyone in society to be given a basic
income that was only usable for betting in the future's market; this would
keep the poor in the game. Moreover, you'd need a cap on the amount of total
assets one could have in the market (say, 4x or 10x the UBI), to eliminate
incentives to game the market via regulatory capture etc.

~~~
ada1981
Perhaps UBI could be implemented as UBA (Universal Basic Assets) in that each
citizen owns a piece of the betting market.

There could be a tax to place a bet that is then distributed evenly to all
citizens so even if one goes bust they still get chips to play.

I’d be curious if there is a way to implement this in a small community as a
test.

Perhaps we could run an annual festival by this method and experiment with it.

I’d be happy to offer up [http://Majagual.org](http://Majagual.org) (the
island for those who are wise and of good will) as a resting ground for this
or other forms of alternative goverernance.

------
astazangasta
> Instead, much of the difference seems to be that the poor nations (many of
> which are democracies) are those that more often adopted dumb policies,
> policies which hurt most everyone in the nation. And even rich nations
> frequently adopt such policies.

Ok, if we ignore the effects of wars, colonialism, IMF structural adjustment,
and other generally malicious acts that make up most of real history. With no
mention of those things, this essay is written for an entirely theoretical
world and not the real one.

~~~
barry-cotter
Good economic policies make up for a multitude of mistakes and bad ones
squander the best history, infrastructure and previous policies. Singapore is
much wealthier than Malaysia, which is much wealthier than Indonesia. The
differences in natural resources and infrastructure there do not account for
the differences in wealth, policy does.

In 1954 Ghana was far richer than South Korea, which was a bombed out
hellscape that had been the scene of a conflict between superpowers after
WWII. Ghana is no longer richer than South Korea, to put it mildly.

Botswana and Equatorial Guinea are both blessed with abundant mineral
resources, diamonds for the former, oil for the latter. Botswana is a
prosperous middle income country; Equatorial Guinea’s people live in wretched
poverty while the president and his cronies live in luxury.

If we look at Botswana’s neighbour, Zimbabwe, we can see what bad policy can
do, turning the breadbasket of Africa into a basket case and a food importer.
Or compare Venezuela and Colombia. Their colonial experiences were similar,
they were once one country and Venezuela had the advantage of massive oil
reserves. None of it matters if your policies are bad enough. Price controls,
seizure of private property and general thuggish incompetence have turned
Venezuela into a disaster.

Enough of the soft bigotry of low expectations; some countries have done much
better than any plausible comparator because of good policy. We should praise
those who did and decry those who didn’t. Ethiopia and Tanzania both started
stupid campaigns of collectivisation leading to mass famine. Tanzania stopped,
Ethiopia kept going. If we see idiocy we should call it out, good policy we
should praise it.

~~~
sanxiyn
Note: there is genuine uncertainty around what good economic policies are. For
example, South Korea became rich by blatantly ignoring advices by world
economists. Back then, everyone recommended ISI(import substitution
industrialization), but South Korea tried ELI(export led industrialization)
and succeeded.

Another example is land reform. US was against South Korea land reform because
it reminded of communism, but recent research suggests land reform dismantling
landowner class was critical to South Korea's success.

~~~
barry-cotter
There’s uncertainty on the details of good economic policy. Hong Kong grew
rich with a policy of unilateral free trade and no government growth or
industrialisation policy to speak of. What isn’t in dispute is that secure
private property and a functioning legal system work better than the
alternatives. There’s no point in investing in anything if the government will
be along shortly to take everything. Even where the government are less
rapacious they can mess things up, see India’s Licence Raj, and the increase
in growth rates after the repeal of most of the government controls of
industry.

There is a lot of disagreement on the best economic policy, there’s very
little on good economic policy, and that’s 80 or 90% of the way to the best.

[http://en.wikipedia.org/wiki/Licence_Raj](http://en.wikipedia.org/wiki/Licence_Raj)

~~~
sanxiyn
Hong Kong is a super special exception that does not generalize. Approximately
everyone became rich by using industrial policy: read Kicking Away the Ladder
for detailed historical research. Our understanding of growth economics is not
very good, so history is better guide than theory.

Experience of China and South Korea shows you can be very flexible about
secure private property and functioning legal system. Or market capitalism and
democracy for that matter. South Korea freely used eminent domain to build
infrastructures like highway. It also declared everyone should trash all their
electronics so that country can upgrade transmission voltage from 110V to 220V
to reduce loss. Both decisions are considered good in retrospective.

What seems to be essential is investment in infrastructures like water,
electricity, and transportation. You mentioned Ethiopia. It stopped stupid
collectivization and is doing rather well recently. It's kind of mystifying
why World Bank and like are against projects like Grand Ethiopian Renaissance
Dam. World Bank was also against South Korea's Soyang Dam, so it had to borrow
from Japan. (Ethiopia is borrowing from China.)

~~~
barry-cotter
I see no reason why Hong Kong wouldn’t generalise or why I should dismiss
growth theory. History shows that there are many different ways to
successfully industrialise. It also shows us that some ways are terrible.

Your point on the legal system, especially regarding China, is well taken but
I fail to see how eminent domain is against anything I’ve said. I’m not aware
of a legal system without eminent domain though the circumstances under which
the government can take your stuff and the compensation available for it vary
markedly.

Changing voltage from 110 to 220 may have been a good decision but industrial
policy has resulted in many disasters, from the backyard steel furnaces of
Mao’s Great Leap Forward to Ghanaian cocoa farmer’s pulling up their crops
because the price the state controlled cocoa board gave them for it made
farming it not worth the labour. Industrial policy increases the variance of
economic growth as bureaucrats make decisions for an entire country. Sometimes
it works, sometimes it doesn’t.

Regarding investment in infrastructure I never said anything against it though
the experience of the Soviet bloc and other communist countries does not lead
me to believe it’s sufficient for good outcomes.

I do not believe democracy is necessary but I don’t see how market capitalism
isn’t. Nothing else works anywhere near as well. Communism on the Soviet model
seems sufficient to get to middle income and market socialism on Yugoslav
lines might be superior but nothing approached capitalism’s record at lifting
people out of poverty.

~~~
sanxiyn
Okay, name one country which became rich by unilateral free trade except Hong
Kong. I am waiting.

~~~
engineerworks
Singapore, UAE, Malaysia, Switzerland

------
dalbasal
IMO, this ends at the start:

 _" Elected representatives would formally define and manage an after-the-fact
measurement of national welfare."_

Sounds doable, but it's essentially impossible. If you could reliably measure
the outcomes of policies (after the fact, nevermind using speculators to
predict the future), quite a lot of "rational" decision making methods would
be possible.

The problem is that it's not possible.

It's not even possible on a much smaller scale, like a mid-sized company.

~~~
zack_amoveo
Just have goals that are easily measured. We can easily measure the relative
prices of things in the market.

If your company's goal is to increase the stock price above some target, that
is a metric that is easily measured. So we can make futarchy markets to help
your company make decisions to achieve your goal.

~~~
dragonwriter
> Just have goals that are easily measured.

If people's actual goals were easily measured, that would be great, but they
aren't, and basing a system of government on the idea that you can pretend
they are is silly.

------
bo1024
Let me start by saying Hanson is brilliant and this idea is well worth
thinking about as a thought experiment, even if not a serious policy
suggestion.

However, there is a profitable manipulation of this mechanism. A manipulator
with deep pockets can bet heavily that some policies will have terrible
outcomes. These policies are never selected, so the manipulator is never
harmed by this misinformation.

I guess Hanson would reply that the rest of the market hopefully has deeper
pockets than the manipulator and might be able to make money by correcting the
predictions, but that sounds a bit fragile to me. An example research paper on
the issue (pdf): [http://yiling.seas.harvard.edu/wp-
content/uploads/DM_full_ve...](http://yiling.seas.harvard.edu/wp-
content/uploads/DM_full_version.pdf)

~~~
zack_amoveo
If we consider a more concrete example, you will see that this attack can't
happen.

We can either elect Trump, or not-Trump as president. Everyone agrees that we
want the price of beans to be cheaper. So there are 4 possibilities: 1)
expensive beans + Trump president 2) expensive beans - Trump 3) cheap beans +
Trump 4) cheap beans - Trump

An attacker doing what you describe would buy up many shares of (3) and (2).
To try and convince us all that if trump wins, beans will be cheap. The
attacker will need to keep buying up (3) and (2) to keep them more expensive
than the alternatives. So the attacker is betting like $100 for every $50
others are betting.

Assuming the attacker has more money than everyone else who is willing to
participate in this market put together, then the attacker could cause us to
think that Trump will make beans cheap.

But, there is still the possibility that beans will be expensive, even though
Trump won. If that is the case, then the attacker will lose all their money,
and will not be able to afford to do attacks like this again.

Attacking a market like this necessarily means paying more for something than
it is worth, which necessarily means that on average, you are losing a big
chunk of the money that you use for manipulations. And everyone who bets
against you, on average they are taking your money.

I wrote futarchy onto the blockchain with Amoveo.

~~~
bo1024
Hi, thanks for the response.

Two responses. First, I'm thinking the manipulator has an outside incentive.
If trump wins, they get a million dollar kickback. So losing 500k on bets is
acceptable to them.

Second, I'm thinking of the following attack that actually loses nothing (if
it works). The attacker doesn't bet at all in the market conditioned on trump
being elected. She only bets in the other market. But she bets really heavily
that beans will be expensive in that case. So we elect Trump. All trades in
that other market are cancelled and the attacker gets all her money back. And
she isn't even exposed to any risk on the bean price on this timeline, so to
speak.

~~~
bo1024
Too bad not to get a response from the above poster; I'm not wrong, and I hope
my explanation makes sense. The issue is addressed for example in the academic
paper I linked to above.

------
_nalply
And what about marginal minorities?

I fantasize about a two-level system, societal and local, which works
summarily like this: A societal association only decides about its members and
the group it represents. A local association organizes the location it is in
charge of. This association has a two-cameral structure: residents and
associations that have residents in the location are mandatory members.

Nation states and citizenship are abolished and replaced by membership in this
two-level system. All residents are citizens both of the location where they
live and of the social group they feel they belong to.

And now, I could imagine that these associations are organized as futarchies.

~~~
sanxiyn
Minorities are already fucked under current "vote values and beliefs" system.
"Vote values, but bet beliefs" is a strict improvement, since betting is
superior institution to obtain correct beliefs compared to voting.

~~~
_nalply
True, true. I completely and heartily agree. Sorry that my post didn't make
this clear.

------
dragonwriter
So, literally, whoever pays the most gets the policy they want, _plus_ , if
whatever aggregate indicator the legislature sent increases after the policy
is adopted (regardless of the actual impact of the particular policy, which
can't be isolated) you not only get a full refund of the cost of buying the
policy but at least some _extra_ cash, too.

And unless you've magically solved the influence of money on election
campaigns, the legislators have an deep interest in setting metrics that favor
the policies preferred by the already rich.

(Ignoring that given multiple simultaneous policies and the inability to
measure isolated effects the actual payoff of bets is is going to be extremely
noisy compared to the actual isolated impacts of the policies.)

So, it looks to me like an unnecessarily complicated version of extreme
plutocracy.

~~~
throwaway284721
The difference is that people loose their money if the policy doesn't have the
effect they predicted.

~~~
dragonwriter
That's not a difference compared to straight buying policy, since you lose the
purchase price unconditionally for that. The difference is that you have a
chance of getting a refund of some size for buying the policy, depending on
some aggregate welfare measure (but not actually particularly on the specific
effect of the policy you bought.)

~~~
moneroid
So you're saying futarchy is flawed because the metric measured will be gamed?
How is it different from the present system, where legislative power has all
the same incentives to only implement laws favouring the wealthy? IMO,
futarchy is strictly not worse than the state of art. No one is claiming it's
flawless.

~~~
dragonwriter
> So you're saying futarchy is flawed because the metric measured will be
> gamed?

No. I'm saying that it is flawed because it introduced additional avenues for
the influence of wealth to work (both “legitimately” and corruptly), makes the
decisions for which decision-makers are accountable to the public _less_
capable of being effectively overseen and evaluated by the electorate, because
the kind of evaluation of policy it calls for is impossible (not merely
impractical, though parts of it are that), that any revision to make it
possible and practical adds a whole new set of problems (not least is likely
to be a strong new incentives for ignoring long-term effects), and that it
doesn't even begin to solve any actual, real problem.

> How is it different from the present system

That's kind of addressed above, but even if it wasn't, the idea of futarchy is
it is better than the present system, not a layer of complication and
indirection which retains the flaws of the present system.

------
dragonwriter
Orthogonal to my other top-level comment (and this may not be my last; there's
a lot of separate problems puzzled densely into this proposal):

A key thing this relies on is having the elected legislature having the
(apparently, sole) function of establishing and maintaining a giant formula
that maps every relevant measurable aspect of the material universe into a
unidimensional utility score that will be used to judge the success of every
policy, and it expects the citizenry to be better able to understand and
oversee that than they are with legislators with concrete positions on
concrete policies.

That's not really plausible.

------
zack_amoveo
I wrote this blockchain for futarchy and prediction markets.
[https://github.com/zack-bitcoin/amoveo](https://github.com/zack-
bitcoin/amoveo)

We use futarchy to make decisions for our own community as well. If you want
to learn more about futarchy, or do some experiments on a live futarchy
system, then join us on telegram or discord.

------
bronzeage
this idea is bad because some actors can potentially earn more money from the
manipulation towards a bad policy than they will lose as a result of that
policy being bad.

the whole reason corruption exists is that the punishment and loss potential
from corruption is too small compared to the huge benefit that comes from
affecting policy makers.

the worst policies will have the highest bets because they will always be a
small price compared to the benefits from those policies.

all the companies will vote for obvious bad policies which will reduce their
competition to zero, because they can afford to throw that money in the trash
to keep their monopolies in place

~~~
zack_amoveo
Lets consider a game. A coin will be flipped, and we can bet as much money as
we want that either heads or tails will win. You will win $100 if the price in
this market stays >75% chance of heads for 7 days continuously.

So you keep buying up shares of heads, moving the price from 50 -> 60 -> 70 ->
80\. by the end you are betting $4 for the chance to win $1.

I know that the result is 50-50, so if I bet $1 against you, and have the
chance to win $4, then that means my expected profit of taking this bet is
%200. Which makes this one of the best investments available on earth. Which
means many people will want to participate.

Every bet you make at the price 80-20 costs you $1, but is only worth $0.40.
you are losing 60% of however much money you bet. So if you bet $200, then
your expected loss would be $120. which is even bigger than the $100 you could
potentially win by manipulating the market.

It doesn't matter if I bribe a manipulator with $100, or with $1 billion. The
same logic holds. Having a vested interest in the outcome of a decision does
not give you any ability to manipulate us into making that decision.

[http://mason.gmu.edu/~rhanson/biashelp.pdf](http://mason.gmu.edu/~rhanson/biashelp.pdf)

------
pjc50
So, who gets to rig the betting markets?

~~~
dragonwriter
> So, who gets to rig the betting markets?

For one, the same people that rig policy today, by the same basic means.
Slipping carefully deisgned but innocuous seeming provisions into policy
legislation just gets replaced with slipping carefully designed but innocuous
factors into the grand utility function that he legislature is maintaining
instead of policy legislation.

There's also the people _measuring_ outcomes that become prime corruption
targets. Corrupting the official measurement of, say, the unemployment rate
has minimal value to anyone _now_ , but if the value is a key input to the
grand utility function, and the value on a particular date this influences the
settlement of policy contracts someone has a large stake in, it becomes a lot
higher value corruption target.

